Home Market Effect

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.

BREAKING DOWN '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. Linder Hypothesis

    An economic hypothesis that posits that countries that have similar ...
  2. Paul Krugman

    Paul Krugman is an economist and writer from the United States, ...
  3. Heckscher-Ohlin Model

    An economic theory that states that countries export what they ...
  4. Main Home

    A term used by the Internal Revenue Service (IRS) to define the ...
  5. Acquisition Debt

    A financial obligation incurred through the construction, improvement ...
  6. Absorption Rate

    The rate at which available homes are sold in a specific real ...
Related Articles
  1. Wealth Management

    Buying a House Before Selling Your Own: Risks and Considerations

    Learn more about the financial risks and worst case scenarios associated with buying a home before selling your current residence.
  2. Home & Auto

    6 Tips For Selling Your Home Fast

    Find out what you can do to stand out from the competition and make your home an easy sell.
  3. Home & Auto

    The Pros and Cons of Buying Vs. Building a Home

    Before you decide whether to buy or build a home, you should weigh the advantages and disadvantages of each scenario.
  4. Home & Auto

    5 Ways Overvaluing Your Home Can Hurt You

    Getting top dollar for your home is everyone's goal, but overvaluing your home can hurt its chances of being sold.
  5. Home & Auto

    Homebuyers' Walkthrough: Buying New Versus Previously-Owned

    One of the major choices that homebuyers face is whether to buy a new home or one that has been previously owned and lived in. Buyers may wish to consider the following factors when making a ...
  6. Credit & Loans

    Is Now the Right Time to Buy a House?

    Thinking of buying a home? Consider these factors first.
  7. Personal Finance

    What Is International Trade?

    Everyone's talking about globalization, so we explain what is it and why some oppose it.
  8. Home & Auto

    The Financial Considerations Of Building Vs. Buying

    Here's a rundown of how building your own home compares to buying one already built.
  9. Home & Auto

    How to Price Your Home Like the Pros

    Selling a house without using a realtor can be a difficult task. Thankfully the internet has made it easy to list a home like the pros do.
  10. Home & Auto

    New Construction's Hidden Costs Can Burn Buyers

    Before you buy that brand-new home, read this first. There are some things you should know about.
RELATED FAQS
  1. What's the difference between the income effect and the price effect?

    Learn what the price effect is and how it is related to consumer spending. Learn what two components make up the price effect ... Read Answer >>
  2. Is it possible for a country to have a comparative advantage in everything?

    Learn whether one country can have a comparative advantage in everything and what the difference between comparative advantage ... Read Answer >>
  3. What is the rationale behind the effective interest rate?

    Read about the reasons why market actors identify the effective interest rate as it pertains to investing, lending and accounting. Read Answer >>
  4. How does comparative advantage influence the balance of payments?

    Learn how comparative advantage affects a country's balance of exports and imports, which in turn influences the overall ... Read Answer >>
  5. Which nation's economies have proven the effectiveness of the Heckscher-Ohlin Model?

    Examine the basics of the Heckscher-Ohlin Model and its relevance to the effects of international trade on real-world nations' ... Read Answer >>
  6. How do I calculate how much home equity I have?

    Find out how to calculate the home equity in your home, your home equity percentage and the loan-to-value, or LTV, based ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center