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The Home Market Effect in Models with Multinational Enterprises
Author(s) -
Larch Mario
Publication year - 2007
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2007.00673.x
Subject(s) - multinational corporation , economies of agglomeration , exploit , economics , production (economics) , home market , repatriation , market size , industrial organization , microeconomics , economic geography , international trade , international economics , market economy , computer security , archaeology , finance , computer science , history
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 leads to a larger share of production of these products, namely the home market effect. Multinationals can exploit higher foreign demand without incurring transport costs by setting up a plant abroad. This paper demonstrates that in the presence of multinationals the home market effect appears even in cases where it otherwise would not. But it works via a different channel, relying on the repatriation of profits rather than on interindustry trade.