The Home Market Effect and Bilateral Trade Patterns

By Gordon H. Hanson, Chong Xiang. 2002

279 citations recorded by the source corpus.

We test for home-market effects using a difference-in-difference gravity specification. The home-market effect is the tendency for large countries to be net exporters of goods with high transport costs and strong scale economies. It is predicted by models of trade based on increasing returns to scale but not by models of trade based on comparative advantage. In our estimation approach, we select pairs of exporting countries that belong to a common preferential trade area and examine their exports of goods with high transport costs and strong scale economies relative to their exports of goods with low transport costs and weak scale economies. We find that home-market effects exist and that the nature of these effects depends on industry transport costs. For industries with very high transport costs, it is national market size that determines national exports. For industries with moderately high transport costs, it is neighborhood market size that matters. In this case, national market size plus market size in nearby countries determine national exports.

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Citations in the corpus

History and Industry Location: Evidence from German Airports (2011, unknown): “Recent contributions to the empirical literature include Amiti and Cameron (2007), Davis and Weinstein (2003), Ellison and Glaeser (1997), Hanson (2004, 2005), Head and Mayer (2004b), Redding and Venables (2004), and Redding and Sturm (2008).”
Internal Geography, International Trade, and Regional Specialization (2016, unknown): “Following Hanson and Xiang (2004), we use product differentiation as an industry-specific measure of returns to scale to control for this home-market effect.”
Putting New Economic Geography to the Test: Free-Ness of Trade and Agglomeration in the EU Regions (2005, background): “…for the substitution elasticity is relatively high (indicating relative weak economies of scale) but many studies find values in the range of 7– 11 (see for instance Broda and Weinstein, 2004 for sectoral evidence for the U.S.A. or Hanson and Xiang, 2004 for recent international evidence).”
Offshoring and Labor Markets (2018, result): “…This result is reminiscent of Hanson and Xiang (2004), but the mechanism is different: here the result is driven by external scale economies, but the result in Hanson and Xiang (2004) is driven by internal scale economies. these, the other elements of the equilibrium depend on parameter values.”
Stolper-Samuelson Is Dead: And Other Crimes of Both Theory and Data (2007, background): “More recent empirical work includes Redding and Venables (2004), Hanson and Xiang (2004), and Davis and Weinstein (2004). activities is crucial to the productivity in this outsourcing, then there will have to be both winners and losers.”
Income Distribution, Product Quality, and International Trade (2011, background): “14We use a circum ex to denote a proportional increase; i.e., Ẑ = dZ=Z. 15See Epifani and Gancia (2006) and Hanson and Xiang (2004) for similar results in a di¤erent context.”
The Empirics of Agglomeration and Trade (2003, unknown): “6, which corresponds to recent estimates in the literature by Head and Ries (2001) or Lai and Trefler (2002) for instance. Those values of a are interesting first because they confirm recent results through a very different estimation strategy, but also because those estimates are consistent with re”
Task Trade between Similar Countries (2011, unknown): “10See Krugman (1980) for an early contribution and Hanson and Xiang (2004) for a study of market-size effects in an economy with many industries and heterogeneous transport costs.”
Trade Costs and the Home Market Effect (2008, unknown): “Hanson and Xiang (2004) theoretically and empirically investigate the pattern of specialization and trade in a model where a continuum of IRS-MC goods diﬀer in terms of elas-ticities of substitution and trade costs.”
Engel's Law in the Global Economy: Demand‐Induced Patterns of Structural Change, Innovation, and Trade (2019, unknown): “2009), many sectors with different price elasticities and trade costs (Hanson and Xiang 2004), non-CES demand systems (Costinot et.”
Cultural proximity and trade (2006, methodology): “We frame our analysis in a monopolistic competition trade model close to Hanson and Xiang (2004) .”