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Larch, Mario:
The Home Market Effect in Models with Multinational Enterprises.
In: Review of International Economics.
Bd. 15
(2007)
Heft 1
.
- S. 62-74.
ISSN 1467-9396
DOI: https://doi.org/10.1111/j.1467-9396.2007.00673.x
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.