Details

Autor(en) / Beteiligte

• Hsu, Tsechien
• Kuo, Biing-Shen
• Peng, Su-Ling

Titel

TRADE COST, RELATIVE DEMAND AND THE CHOICE OF PRODUCTION LOCATION: AN EMPIRICAL STUDY OF TRADE IN CREATIVE GOODS

Ist Teil von

• Academia economic papers, 2013-06, Vol.41 (2), p.297

Ort / Verlag

Taipei: Institute of Economics, Academia Sinica

Erscheinungsjahr

2013

Quelle

EZB-FREE-00999 freely available EZB journals

Beschreibungen/Notizen

• Exporting producers, facing a trade-off between scale economies and trade costs, tend to cluster around the countries with larger demand, the so-called 'home market effect'. Hsu et al. (2012) cast doubt on estimates in previous empirical studies on the effect using gravity regression. The potential bias comes from ignoring the important interactive effect of relative demand and trade cost on locational choice and thus on trade patterns. Using a dataset on the trade flow of creative goods from APEC countries, we find that after controlling for the interactive term, the estimated coefficients on the elasticity of demand are much corrected toward those predicted by theory. This constitutes more credible evidence for the existence of the home market effect. [PUBLICATION ABSTRACT]