The Home Market Effect in Models with Multinational Enterprises

25 Pages Posted: 23 Dec 2003

See all articles by Mario Larch

Mario Larch

University of Bayreuth - Faculty of Law, Business and Economics; University of Bayreuth; CESifo; Ifo Institute for Economic Research; GEP at the University of Nottingham; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Date Written: December 15, 2003

Abstract

Trade patterns in New Trade Theory models and agglomeration patterns in New Economic Geography models crucially depend on the effect that a higher local demand for products leads to a larger share of production of these products, namely the home market effect. Multinationals could exploit higher foreign demand without incurring transport costs by setting up a plant abroad, which destroys the driving force of the home market effect. This paper demonstrates that in the presence of multinationals the home market effect reappears via a different channel, relying on the repatriation of profits rather than on interindustry trade.

Keywords: Home market effect, Multinationals, Transport

JEL Classification: F12, F23

Suggested Citation

Larch, Mario, The Home Market Effect in Models with Multinational Enterprises (December 15, 2003). Available at SSRN: https://ssrn.com/abstract=479621 or http://dx.doi.org/10.2139/ssrn.479621

Mario Larch (Contact Author)

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