TEL  Vol.3 No.2 , April 2013
Asymmetric Transportation Costs and the Home Market Effect
Author(s) Wataru Johdo*

Most existing theoretical studies on home market effects depend crucially on assumptions of symmetric transportation costs and increasing returns to scale technology. In our model, we remove the home market effect assumptions from the main model used in the literature. Instead, this paper employs a constant returns monopolistic competition model with asymmetric transportation costs. We show that 1) when the home country’s transportation cost is large enough for a given level of the foreign country’s transportation cost, the HME appears in the home country, and 2) the opposite of the HME is observed in the home country as long as the foreign country’s transportation cost is large enough for a given level of the home country’s transportation cost.

Cite this paper
W. Johdo, "Asymmetric Transportation Costs and the Home Market Effect," Theoretical Economics Letters, Vol. 3 No. 2, 2013, pp. 81-84. doi: 10.4236/tel.2013.32013.
[1]   E. Helpman and P. Krugman, “Market Structure and Foreign Trade,” MIT Press, Cambridge, 1985.

[2]   D. R. Davis, “The Home Market, Trade, and Industrial Structure,” American Economic Review, Vol. 88, No. 5, 1998, pp. 1264-1276.

[3]   K. Head, T. Mayer and J. Ries, “On the Pervasiveness of Home Market Effects,” Economica, Vol. 69, No. 275, 2002, pp. 371-390. doi:10.1111/1468-0335.00289

[4]   Z. Yu, “Trade, Market Size, and Industrial Structure: Revisiting the Home-market Effect,” Canadian Journal of Economics, Vol. 38, No. 1, 2005, pp. 255-272. doi:10.1111/j.0008-4085.2005.00279.x

[5]   M. Larch, “The Home Market Effect in Models with Multinational Enterprises,” Review of International Economics, Vol. 15, No.1, 2007, pp. 62-74. doi:10.1111/j.1467-9396.2007.00673.x

[6]   M. Crozet and F. Trionfetti, “Trade Costs and the Home Market Effect,” Journal of International Economics, Vol. 76, No. 2, 2008, pp. 309-321. doi:10.1016/j.jinteco.2008.07.006

[7]   K. Behrens, A. Lamorgese, G. I. P. Ottaviano and T. Tabuchi, “Beyond the Home Market Effect: Market Size and Specialization in a Multi-Country World,” Journal of International Economics, Vol. 79, No. 2, 2009, pp. 259-265. doi:10.1016/j.jinteco.2009.08.005

[8]   T. Takahashi, “Asymmetric Transport Costs and Economic Geography,” CSIS Discussion Paper, No. 87, 2007.

[9]   V. Leite, S. Castro and J. Correia-da-Silva, “The Core Periphery Model with Asymmetric Inter-Regional and Intra-Regional Transportation Costs,” Portuguese Economic Journal, Vol. 8, No. 1, 2009, pp. 37-44. doi:10.1007/s10258-009-0036-x

[10]   W. Johdo, “The Home Market Effect under Constant Returns and Monopolistic Competition,” Theoretical Economics Letters, Vol. 2, No. 5, 2012, pp. 441-445. doi:10.4236/tel.2012.25082