Abstract
Most existing studies examine the home market effect (HME) in a framework with immobile labour as the only production factor and the assumption of a freely traded homogeneous good is known to be crucial for the HME to emerge. This study explores the HME in the presence of mobile capital by use of a footloose capital model allowing for positive transport costs of the homogeneous good. The mobile capital generates a channel to offset the trade imbalance of a country. As a result, the HME always appears for arbitrary transport costs in both sectors of differentiated and homogeneous goods.
Original language | English |
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Pages (from-to) | 1062-1082 |
Number of pages | 21 |
Journal | Canadian Journal of Economics |
Volume | 45 |
Issue number | 3 |
DOIs | |
Publication status | Published - 2012 Aug |
ASJC Scopus subject areas
- Economics and Econometrics