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. Economics

    A social science that studies how individuals, governments, firms ...
  5. Protectionism

    Government actions and policies that restrict or restrain international ...
  6. Export

    A function of international trade whereby goods produced in one ...
RELATED FAQS
  1. How do you calculate GDP with the income approach?

    The income approach to measuring gross domestic product (GDP) is based on the accounting reality that all expenditures in ... Read Full Answer >>
  2. What are the goals of a "dove" Federal Reserve head?

    The goals of a dovish Federal Reserve head are to maintain low interest rates, stimulate the overall economy, decrease the ... Read Full Answer >>
  3. What is the difference between term structure and a yield curve?

    There is no difference between term structure and a yield curve; the yield curve is simply another name to describe the term ... Read Full Answer >>
  4. What is the opposite of a "dove"?

    A dove is an economic policy adviser who favors maintaining low interest rates in hopes of stimulating the economy, while ... Read Full Answer >>
  5. How do you calculate GDP with the expenditures approach?

    To calculate gross domestic product, or GDP, with the expenditures approach, add up the sums of all consumer spending, government ... Read Full Answer >>
  6. How will a value added tax impact the government budget?

    In 1992, the Congressional Budget Office conducted an economic study on value-added tax, or VAT. At the time, the CBO concluded ... Read Full Answer >>
Related Articles
  1. Economics

    Confused How The IMF, World Bank, & WTO differ?

    From loans to Athens and trade deals in Asia to economic reports on the world’s most successful and most troubled economies, these organizations make headlines across the globe
  2. Economics

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  3. Economics

    Explaining Protectionism

    Protectionism is government measures that limit imports into a country to protect commerce within that country against foreign competition.
  4. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  5. Economics

    Understanding Natural Unemployment

    Natural unemployment is often defined as the lowest rate of unemployment an economy will reach.
  6. Economics

    Is Texas The Future Of America?

    The top three fastest-growing cities are located in Texas and 20% of jobs created between 2009 and 2014 were in the Lone Star State.
  7. Economics

    Explaining Demographics

    Demographics is the study and categorization of people based on factors such as income level, education, gender, race, age, and employment.
  8. Economics

    The Most Likely Outcome For Greece

    After more than five years of a Greek drama, most of us have become fatigued with hearing about Greece’s debt problems, the one issue that won’t go away.
  9. Economics

    How Does a Company Use Raw Materials?

    Raw materials are the basic components of a finished product.
  10. Economics

    Understanding Austerity

    Austerity is an economic term describing government measures to reduce and eliminate budget deficits.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!