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

Pham, Cong S., Lovely, Mary E. and Mitra, Devashish 2014, The home-market effect and bilateral trade patterns: a reexamination of the evidence, International review of economics and finance, vol. 30, pp. 120-137, doi: 10.1016/j.iref.2013.10.005.

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Title The home-market effect and bilateral trade patterns: a reexamination of the evidence
Author(s) Pham, Cong S.ORCID iD for Pham, Cong S.
Lovely, Mary E.
Mitra, Devashish
Journal name International review of economics and finance
Volume number 30
Start page 120
End page 137
Total pages 18
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2014-03
ISSN 1059-0560
Keyword(s) gravity equation
home-market effect
zero trade flows
Summary 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.
Language eng
DOI 10.1016/j.iref.2013.10.005
Field of Research 140210 International Economics and International Finance
Socio Economic Objective 910399 International Trade not elsewhere classified
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2014, Elsevier
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Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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