Market size, trade, and productivity reconsidered: poverty traps and the home market effect

Berliant, Marcus and Tabuchi, Takatoshi (2024): Market size, trade, and productivity reconsidered: poverty traps and the home market effect.

Abstract

To investigate questions related to migration and trade, a model of regional or international development is created by altering Melitz and Ottaviano (2008) to include a labor market. The model is then applied to analyze poverty traps and the home market effect. We find that in the spatial economics context of migration but no trade, poverty can persist unless population in one region of many is pushed past a threshold. Then growth commences. In the context of trade but no migration, the home market effect holds for a range of parameters, similar to previous literature. However, unlike previous literature, we find that if populations in countries are highly asymmetric, the home market effect can be reversed.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monopolistic competition; Poverty trap; Home market effect; Labor market clearing
• Subjects: F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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