Market Size Effects Research Articles

Green innovation through trade: The impact of European Union emissions trading scheme on Chinese exporters

This paper investigates the international diffusion of green innovation through trade, focusing on the impact of the European Union Emissions Trading Scheme (EU ETS) on Chinese exporters. Using a difference-in-differences approach with firm-level data from 2000 to 2013, we find that the EU ETS significantly increased green patent applications among China-to-EU exporters. The likelihood of green patent applications increased by 0.2%, effectively doubling the pre-policy rate. Our mechanism analyses indicate that the increase is driven by the learning-by-exporting effect, rather than market size effects or the anticipation of regulatory and market condition changes. These results highlight the role of international trade in disseminating green technology and demonstrate how environmental regulations can foster innovation across global markets.

The impact of all-inclusive offerings in a tourism destination’s competitiveness

This study analyzes the impact of all-inclusive offerings on a destination's competitiveness. When the rise in all-inclusive offerings causes a negative externality on complementary services, it creates a market-size effect. This results in an excessive supply of all-inclusive offerings in the market. Imposing different taxes on all-inclusive and non-all-inclusive offerings is more effective than a cap on the supply of all-inclusive offerings. Taxes can implement the optimal allocation. We expect the market-size effect to be harmful to competitiveness in mature destinations.

Does the size of the housing rental market stabilize regional economic fluctuations? Evidence from China's large- and medium-sized cities

The influence of the housing rental market on economic operations is a significant concern. Particularly in China, the rental market has been undergoing a transition from being disregarded to being valued. Based on an analytical framework referencing the three-sector theory of metropolitan economic growth, this study explores the impact of rental market size on regional economic fluctuations and its influence channels using a panel of 69 large and medium-sized cities from 2010 to 2019. The results indicate that increased rental market size is significantly correlated with decreased regional economic fluctuations through housing sales and labor market channels. Specifically, house price depression, house investment stability, labor allocation, and employment stability effects are crucial channels through which the size of the rental market influences regional economic fluctuations. In addition, the marginal effect of rental market size on regional economic fluctuations is smaller in cities with higher economic development. The conclusions imply that policymakers should not focus on how to unilaterally expand the housing rental market, but should strategically compensate for the defects of regional housing rental–related institutional systems.

Trade, labor market rigidity, and distributive share in a generalized oligopolistic equilibrium model

AbstractThis paper applies a generalized oligopolistic equilibrium model with labor rigidity under strategic competition between heterogeneous firms, explaining the trade between two similar countries for the declining wage and labor share, the common experiences of many countries worldwide. The specialization effect for the labor movement from a high to less labor‐intensive sector arising from the heterogeneous productivity distribution of firms between trading partners dampens the wage more than the joint effect of market size and competition working favorably on it. Despite the wage drop, the trade ambiguously affects employment but unambiguously reduces their distributive share.

The amplified effect of market size on innovation: A comparative analysis of pea and wheat seed value chains in France

CONTEXTDespite their interest for agro-ecological transition, grain legumes remain poorly cultivated in France. One reason is the low availability of seed innovations for farmers which, to a large extend, is related to the low incentives to innovate for these crops which represent a small acreage. OBJECTIVEIn this article, we analyze the link between market size and the efforts made to create, diffuse and value innovation. We compare two value chains related to two field crops in France that mainly differ in terms of market size, namely, pea and wheat. Our analysis focuses more specifically on the seed-related innovations created in the upstream part of these value chains. In both of these cases, innovation relies on multiple complementary activities carried out by different actors, including the creation of the innovation, the production and diffusion of technical knowledge, the production and distribution of the innovation, and its valorization by downstream users. METHODSThe two case studies on the pea and wheat sectors were conducted using a qualitative approach based on public documentation, 16 semistructured interviews with various actors in the innovation system of the two value chains and data on commercialized pea and wheat varieties. RESULTS AND CONCLUSIONWe show that the level of investment in each of these activities is highly related to market size. This result is first explained by the fact that part (if not all) of the cost of these activities is fixed; that is, these activity costs do not depend on the diffusion of innovation. This result is also explained by the complementarity of these activities, which makes the investment in one activity less beneficial if the investment in complementary activities is low. As a consequence, the effect of market size on innovation is self-reinforcing in those cases where innovation relies on different activities managed by different actors. SIGNIFICANCEIn agricultural sectors, where there is a need for innovations in both large and small markets, this result calls for an evolution of innovation funding mechanisms to attenuate the impact of market size.

Can the expansion of market size increase firm markup? Evidence from China

ABSTRACT Traditional international trade theory suggests that a larger market size leads to more intense competition, thereby reducing firm markup. However, this conclusion does not hold in our research. Based on the theoretical model constructed by Melitz, this paper makes the following extensions: First, introducing the cost-saving effect outside of the competitive effect discussed in traditional international trade theory. Second, introducing a specific marginal cost function, which deepens the analysis of the operating mechanism. What’s more, earlier models focused solely on the market size of the industry itself (the target industry), whereas our analysis also takes into account the impact of the market size of its upstream and downstream industries. Our model indicates that the impact of market size on firm markup depends on the relative magnitude of the competitive effect and the cost-saving effect. With firm cost following a Pareto distribution, the expansion of market size leads to an increase in firm markup. In addition, this paper presents a spatial econometric model using industrial firms’ data from China. The results indicate that the promoting effect of market size on firm markup is more prominent among top-tier firms, state-owned firms, low export intensity firms, and firms in technology intensive industries.

Do Cross-Border Mergers and Acquisitions by Emerging Market Enterprises Enhance Long-Term Productivity? The Host Country Market Size Effect Moderated by Technological Absorption Efforts

The purpose of this study was to establish a spatial structural framework to explore how cross-border mergers and acquisitions (M&As) in emerging markets can enhance long-term productivity and select the appropriate host country market structures. Utilizing cross-border M&A data from Chinese companies from 2008 to 2016, we developed a moderated U-shaped mediation model. Employing Two-Stage Least Squares and the Generalized Method of Moments for endogeneity analysis, we offer robust empirical insights. Our findings illustrate that enterprise productivity progression from cross-border M&As is significantly influenced by a U-shaped mediation of the host country’s market size effect, which is further moderated by the technological distance between the home and host countries. A high technological distance intensifies the U-shaped mediation of market size effects on enterprise productivity, while low technological distances result in an inverted U-shaped curve, indicating that such markets may boost short-term productivity but limit long-term growth. Conversely, larger markets with greater technological distances better support sustained productivity increases, even requiring persistent technological absorption efforts. This study underscores the necessity of selecting appropriate host country market structures and effectively managing the acquisition timeline to positively impact both short- and long-term productivity. By conceptualizing firm-level technological absorption efforts as the technological gap between the home and host countries, this study highlights the crucial moderating role that the technological gap plays in influencing long-term productivity at the macro level, providing new insights into the economic geographic strategic decisions and spatial planning for emerging market enterprises in cross-border acquisitions.

Effects of Market Size and Competition in Two-Sided Markets: Evidence from Online Dating

The paper investigates network effects in online dating, focusing on how market and competition size influence user behavior and matching decisions.

Sensitivity of Chinese stock markets to individual investor sentiment: An analysis of Sina Weibo mood related to COVID-19

This research explores the impact of individual investor sentiment derived from social networks on stock market returns. Using keyword-based techniques, we collect and analyze Sina Weibo posts related to COVID-19, extracting daily influential weighted sentiment indexes from a dataset of over 2.4 million posts in 2020. Empirical tests utilizing a sentiment-augmented three-factor model reveal that individual investor sentiment exerts an independent influence on Chinese financial markets, after controlling for market risk, size, and value effects. We further find that negative sentiment carries a stronger impact on stock returns, which is in line with the loss-averse behavior commonly observed among individual investors. We also find an asymmetric pattern in the sentiment-return relation across different industry types. While positive sentiment affects both types of industries that suffer or benefit from COVID-19, negative sentiment affects only the industries that suffer from the pandemic. Overall, our empirical results provide robust support for the significance of individual investor sentiment in explaining the behavior of the Chinese financial markets.

경제적 자유가 외국인직접투자 촉진에 미치는 영향

Purpose - This study is to investigate the direct and moderating effect of intangible variable like economic freedom to facilitating factors on FDI(foreign direct investment) inflows and the difference of facilitating factors by the stage of economic development.
 Design/methodology/approach - Fixed-effect panel regression analysis with 19-year macro economic data from 2000 to 2019 including economic freedom index from Fraser Institute in 13 developed and 15 developing countries was used.
 Research implications or Originality - In analysis of direct effect of 5 sectors in economic freedom, the influence of economic freedom was shown weaker than other macro economic factors on FDI inflows, which indicates that actual development of economic factors are more important. The effect of economic freedom on FDI inflows at the stage of economic development differed. In developed countries, human capital, GDP, export, free trade and regulation affected FDI inflows in decreasing order, as did human capital, GDP, consumption expenditure, export, investment expenditure, government expenditure, free trade and sound money in developing countries. In analysis of moderating effect of economic freedom, a domestic and international market size, a flexible labor market which can provide a cheaper good human resources and government expenditures for improving social infrastructure under free economic environment facilitated FDI inflows. However, the statistical significance of moderating effect on export was not shown, which indicates that

The kids aren’t alright: The effects of medical marijuana market size on adolescents

We exploit shocks to US federal enforcement policy to assess how legal medical marijuana market size affects youth marijuana use and consequences for youth traffic-related fatalities. Using hand-collected data on state medical marijuana patient rates to develop a novel measure of market size, we find that legal market growth increases youth marijuana use. Likely mechanisms are lower prices and easier access. Youth die more frequently from alcohol-involved car accidents, suggesting complementarities for youths. The consequences of marijuana legalization for youth are not immediate, but depend on how supply-side regulations affect production and prices.

Trade, competition and innovation

ABSTRACT The impact of international trade on technological change and productivity is an important and well-researched topic. The existing literature focuses on spillovers of knowledge, market size effects, Schumpeterian effects, and escape competition effects. Separately, economists working in the areas of Economic Growth and Industrial Organization have looked for a relationship, often nonlinear, between market structure and innovation. This paper investigates the indirect role of trade on innovation through a contribution to domestic competition. Using a unit of analysis of HJT technology subclass, I construct a panel data set that spans the period from 2002 through 2012. Trade adjusted and unadjusted concentration ratios are constructed for HJT technology subclasses and used to deconstruct the contribution of trade to innovation through this indirect channel. This novel approach to the data also uncovers strong evidence of a nonlinear relationship between innovation and market concentration.

Determinants of foreign direct investment and its implications on tax revenue in Indonesia

This study aims to examine the effect of market size, trade openness, inflation rate, political stability, corruption, population, and status of human capital on tax revenue with Foreign Direct Investment (FDI) as an intervening variable. This research is quantitative research with a multiplier linear regression model. The sample used in this study includes the provinces in Indonesia. The sample was carried out from 2014 to 2019 using a purposive sampling method, resulting in 180 observations. The research model was tested using two-panel data regression models, namely FEM – GLS Heteros and Autoregressive and Random Effect models (REM). The results show that: 1) market size, trade openness, and the level of human capital have a positive effect on FDI inflows; 2)market size, trade(openness), inflation rate, corruption level, population, human capital level, and Foreign Direct Investment (FDI) have a positive effect on tax revenue; and 3) market size (market size), trade (openness), and the level of human resources (human capital) have an indirect effect on tax revenue through Foreign Direct Investment (FDI).

The effects of market size, wealth, and network effects on digital piracy and profit

The effects of market size, wealth, and network effects on digital piracy and profit

Pricing behavior in long term care markets: evidence from provider-level data for home help services.

Exploiting a rich data set on the Dutch market for home help services, we find that larger providers obtain a higher price than do small providers. However, compared to other studies on market power in care markets this price difference is considered small to moderate. Our identification strategy relies on the exogenous variation in market shares in January'07, the very first month after home help was decentralized to municipalities. Zooming in on our main outcome, we obtain that the small but significant effect of market size on price is merely driven by the pricing behavior of for-profit providers.

Generalized separability and integrability: Consumer demand with a price aggregator

This paper examines demand systems where the demand for a good depends on other prices only through a common price aggregator (a scalar function of all prices). We refer to this property as “generalized separability” and provide the functional forms of demand that this property implies when demand is rational, i.e., derived from utility maximization. Generalized separability imposes restrictions on either income or price effects, and greater flexibility is obtained by adding indirect utility as an additional aggregator. We provide examples and applications which encompass a large variety of examples from the literature. In particular, generalized separability can be used in simple general-equilibrium models to obtain a more tractable framework and yet generate a wider range of effects of market size and productivity on firm size, entry, and prices.

Dynamic Link Between Stock Market Size and Stock Market Investment Returns In Nigeria

Purpose—This study examines the dynamic link between stock market size and investment returns in Nigeria. Design/Methodology: Based on an ex post facto research design, the Autoregressive Distributed Lag (ARDL) technique was applied to the annual time series data obtained from the Central Bank of Nigeria’s statistical bulletin for the period 1985 to 2019. Findings-- Findings indicate a negative, weak, and significant correlation and a long-run relationship between stock market size and stock market returns in Nigeria. Furthermore, this study confirmed that in the long run, the stock market size negatively and significantly affects stock market returns in Nigeria. However, in the short run, the effect of stock market size on returns is positive and statistically significant. Practical Implications--It is imperative that the government vigorously pursue capital market policies directed at expanding the market size in close partnership with the organized private sector. In contrast, the long-run negative effect of stock market size on stock market investors should be mitigated by improving the financial market environment in the areas of law and policy framework, professionalism and ethical operations, infrastructural improvements, etc. Original Value—This study posits that there is a significant negative long-run relationship between size and investment returns in the Nigerian Stock Exchange, and this relationship has long-term policy implications for the economy. Keywords-- All-share index, Autoregressive Distributed Lag, Investments, Market capitalization, Stock market size, Stock returns. Paper Type—Research paper

DETERMINAN PENANAMAN MODAL ASING DI INDONESIA PERIODE 1970-2020: PENDEKATAN NARDL

This study aims to examine the asymmetric relationship between trade opennes, exchange rate and market size to FDI (Foreign Direct Investment) in Indonesia using the NARDL (Non Linear Autoregressive Distributed Lag) method during the period 1970 to 2020. The results of the study found that there was a long-term asymmetrical effect of market size and trade openness on FDI. Meanwhile, the asymmetric effect of the dollar exchange rate on FDI was not found.

Credit constraints, selection and productivity growth

This paper presents a tractable model of innovation and growth with firm heterogeneity and financial frictions. The model is used to uncover new mechanisms linking access to credit and productivity growth, highlighting the role of selection and firm heterogeneity emerging from recent empirical findings. Three key results emerge. First, better access to credit to finance fixed operating costs allows less productive firms to survive, thereby depressing the average level of productivity and, via its effect on innovation incentives, aggregate productivity growth. Second, cheaper access to credit decreases these costs, thereby freeing resources to increase production and firm size. Larger firm size leads to more innovation and growth. The overall impact of finance on growth hinges on the relative strength of the selection and market size effect. Third, cheaper access to credit to finance the cost of entry leads to stronger product market competition which, in turn, foster stronger selection, innovation and growth.

Destabilizing effects of market size in the dynamics of innovation

In existing models of endogenous innovation cycles, market size alters the amplitude of fluctuations without changing the nature of fluctuations. This is due to the ubiquitous assumption of CES homothetic demand system, implying that monopolistically competitive firms sell their products at an exogenous markup rate in spite of the empirical evidence for the procompetitive effect of entry and market size. We extend the Judd model of endogenous innovation cycles to allow for the procompetitive effect, using a more general homothetic demand system. We show that a larger market size/innovation cost ratio, by reducing the markup rate through the procompetitive effect, has destabilizing effects on the dynamics of innovation under two complementary sets of sufficient conditions; i) when the price elasticity is “not too convex” in price; and ii) when the demand system belongs to the two parametric families, “generalized translog” and “constant pass-through,” each of which features the choke price and yet contains CES as a limit case. Interestingly, the destabilizing effects become amplified as the demand system approaches to the CES limit within each family. We also discuss some cross-sectional implications in a multi-market extension. Because innovation/entry activities fluctuate more in larger markets, they are not always higher in larger markets than smaller markets. Furthermore, the sale of each product is more volatile in larger markets.