Les Cahiers de Recherche - HEC Paris
Should small countries fear deindustrialization ?
() and Ai-Ting Goh
Abstract: Will small countries deindustrialize when opening up to
trade with large countries? Davis(1998) shows that for the home market
e¤ect to lead to deindustrialization of small countries, trade costs for
homogenous goods must be su˘ ciently smaller than trade costs in
di¤erentiated goods, a condition which is not supported by empirical
evidence. We show that if di¤erentiated goods production uses tradeable
inputs small countries can become deindustrialized when trading with a su˘
ciently large country and if trade costs are low.
Keywords: home market e¤ect; deindustrialization; trade costs; economic geography; intermediate goods; (follow links to similar papers)
JEL-Codes: F01; R12; (follow links to similar papers)
24 pages, March 19, 2009
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