Mobile capital and the home market effect

Hajime Takatsuka, Dao-Zhi Zeng

Research output: Contribution to journalArticle

12 Citations (Scopus)

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 languageEnglish
Pages (from-to)1062-1082
Number of pages21
JournalCanadian Journal of Economics
Volume45
Issue number3
DOIs
Publication statusPublished - 2012 Aug 1

ASJC Scopus subject areas

  • Economics and Econometrics

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