TY - JOUR
T1 - The home-market effect and bilateral trade patterns
T2 - A reexamination of the evidence
AU - Pham, Cong S.
AU - Lovely, Mary E.
AU - Mitra, Devashish
PY - 2014/3
Y1 - 2014/3
N2 - This paper finds that the evidence for the home market effect (HME) found by Hanson and Xiang (AER, 2004) is sensitive to the way the dependent and the independent variables are constructed. Second, we also find that the HME evidence goes away when we estimate their difference-in-difference gravity model on a truncated sample of positive trade flows. With Eaton-Tamura-Tobit, Heckman, and Helpman-Melitz-Rubinstein estimation of the gravity equation using Hanson and Xiang's data, we are unable to find any evidence for the HME. Finally, the HME evidence is also absent for a sample of Canadian provinces' exports to U.S. states. All of our results, taken together, do not reject the existence of the HME in general but rather suggest that the HME results found by Hanson and Xiang may not be robust.
AB - This paper finds that the evidence for the home market effect (HME) found by Hanson and Xiang (AER, 2004) is sensitive to the way the dependent and the independent variables are constructed. Second, we also find that the HME evidence goes away when we estimate their difference-in-difference gravity model on a truncated sample of positive trade flows. With Eaton-Tamura-Tobit, Heckman, and Helpman-Melitz-Rubinstein estimation of the gravity equation using Hanson and Xiang's data, we are unable to find any evidence for the HME. Finally, the HME evidence is also absent for a sample of Canadian provinces' exports to U.S. states. All of our results, taken together, do not reject the existence of the HME in general but rather suggest that the HME results found by Hanson and Xiang may not be robust.
KW - Gravity equation
KW - Home-market effect
KW - Zero trade flows
UR - http://www.scopus.com/inward/record.url?scp=84891558020&partnerID=8YFLogxK
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U2 - 10.1016/j.iref.2013.10.005
DO - 10.1016/j.iref.2013.10.005
M3 - Article
AN - SCOPUS:84891558020
SN - 1059-0560
VL - 30
SP - 120
EP - 137
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
ER -