The home-market effect and bilateral trade patterns: A reexamination of the evidence

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

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.

Original languageEnglish (US)
Title of host publicationInternational Economic Integration and Domestic Performance
PublisherWorld Scientific Publishing Co. Pte Ltd
Pages135-152
Number of pages18
ISBN (Electronic)9789813141094
ISBN (Print)9789813141087
DOIs
StatePublished - Feb 27 2017

Keywords

  • Gravity equation
  • Home-market effect
  • Zero trade flows

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)

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    Pham, C. S., Lovely, M. E., & Mitra, D. (2017). The home-market effect and bilateral trade patterns: A reexamination of the evidence. In International Economic Integration and Domestic Performance (pp. 135-152). World Scientific Publishing Co. Pte Ltd. https://doi.org/10.1142/9789813141094_0008