Home Market Effect

AAA

DEFINITION of 'Home Market Effect'

The notion that, when it is fiscally prudent, a company or industry will often base itself in the country where the majority of its goods are consumed in order to minimize shipping costs. The Home Market Effect suggests that there is a link between market size and exports that is not accounted for by other international trade models based strictly on comparative advantage. The Home Market Effect is part of a broader set of "New Trade Theory" models that seek to explain why and how international trade takes place.

INVESTOPEDIA EXPLAINS 'Home Market Effect'

The Home Market Effect was primarily developed by Paul Krugman, a Nobel Prize-winning economist and Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, as an alternative to the Linder hypothesis. The Home Market Effect and other New Trade Theory models help to explain why more populated regions often host a disproportionate share of producers. The Home Market Effect refutes Staffan Burenstam Linder's claim that differences in countries' preferences hinder trade.

RELATED TERMS
  1. Absolute Advantage

    The ability of a country, individual, company or region to produce ...
  2. Paul Krugman

    Paul Krugman is an economist and writer from the United States, ...
  3. World Trade Organization - WTO

    An international organization dealing with the global rules of ...
  4. Protectionism

    Government actions and policies that restrict or restrain international ...
  5. Neoclassical Economics

    An approach to economics that relates supply and demand to an ...
  6. Export

    A function of international trade whereby goods produced in one ...
RELATED FAQS
  1. What are the primary sources of market risk?

    Market risk is the risk of loss due to the factors that affect an entire market or asset class. Market risk is also known ... Read Full Answer >>
  2. In what types of economies are regressive taxes common?

    Regressive taxation systems are more likely to be found in developing countries or emerging market economies than in the ... Read Full Answer >>
  3. What is the difference between a bill of exchange and a promissory note?

    A bill of exchange is a written agreement between two parties – the buyer and the seller – used primarily in international ... Read Full Answer >>
  4. Where on the Internet can I find free sample templates for a bill of exchange?

    A number of different websites offer free templates to help an individual or business generate a bill of exchange. A bill ... Read Full Answer >>
  5. What does it signify if there is a large discrepancy between a nation's real and ...

    A large discrepancy between a nation's real and nominal GDP signifies inflationary or deflationary forces in the economy. ... Read Full Answer >>
  6. What is the difference between a bill of exchange and a bill of lading?

    A bill of exchange is a documentation of payment, much like a promissory note. On the other hand, a bill of lading is a receipt ... Read Full Answer >>
Related Articles
  1. Economics

    What Part of the Money Supply is M2?

    M2 is the part of the money supply economists use to analyze and predict inflation.
  2. Economics

    Understanding Structural Unemployment

    Structural unemployment is an economic miss-match where workers fail to find jobs and employers with available jobs fail to find workers.
  3. Economics

    How The GDP Of The US Is Calculated

    The US GDP may not be a perfect economic measure, but the ability to compare it to prior periods and other countries makes it the most applicable.
  4. Economics

    How China's GDP Is Calculated

    China is the world’s second-largest economy based on its GDP figures. Investopedia explains the methodology behind China’s GDP calculation.
  5. Economics

    Is Organic Really Worth The Extra Money?

    It's the shopping decision that seems to pit thrift against family health. Find out when buying "organic" matters most.
  6. Economics

    China And The Maritime Silk Road

    We provide an overview of China's planned Maritime Silk Road.
  7. Forex Education

    What Is A Currency War And How Does It Work?

    We look at what a currency war is, what factors may lead to it, the impacts of such a strategy, and whether there is a currency war currently.
  8. Economics

    What is a Capital Account?

    Capital account is an economic term that refers to the net change in investment and asset ownership for a nation.
  9. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  10. Investing

    The Labor Market Recovery’s Missing Ingredient

    Job creation is running at the fastest pace since the 90s, and there is some evidence that wage growth is finally starting to accelerate, albeit modestly.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center