Market Size Effects Research Articles

Industry location and wages: The role of market size and accessibility in trading networks

We analyze the effects of local market size and accessibility on the spatial distribution of economic activity and wages in general equilibrium trade models with many asymmetric countries and costly trade for all goods. In models with a homogeneous sector, local market size is generally more strongly correlated with a country's industry share, whereas accessibility better explains a country's wage. We analytically show that result in a simplified case and then confirm it using simulations with random trading networks. In models with only differentiated sectors, both local market size and accessibility are highly correlated with wages. The impact of local market size on industry location is more robust than the impact of local market size on wages in economic geography models.

Effect Of Market Size, Exchange Rate And Trade Openness Towards Foreign Direct Investment (FDI) Inflows: A Case Of Malaysia

Effect Of Market Size, Exchange Rate And Trade Openness Towards Foreign Direct Investment (FDI) Inflows: A Case Of Malaysia

Demand forces of technical change evidence from the Chinese manufacturing industry

This paper investigates the effect of domestic market size on innovation activities across different durable good industries in the Chinese manufacturing sector. We address the endogeneity of market size by an IV strategy, based on a measure of potential market size, which is driven only by changes in the Chinese income distribution. This measure is exogenous to changes in prices and qualities of durable goods and is a valid instrument for expected future market size. Our results indicate that an increase in market size by one percent leads to an increase in firm-specific total factor productivity by 0.46% and an increase in labor productivity by 0.50%. These findings are robust to controlling for export behavior of firms and supply side drivers of R&D.

Bilateral Capital Flows: Transaction Patterns and Gravity

Holdings of cross-border bilateral assets are highly responsive to information frictions, market size, transaction costs, and trade ties. But empirical support using transactions data are constrained by the lack of comprehensive bilateral capital flows data covering large sample of economies for several years across investment and investor types. One expects that as information frictions weaken, transaction costs decline, and trade links strengthen, financial transactions between two economies will rise. This paper tests this hypothesis. Using bilateral Financial Accounts data from the Regional Balance of Payments Statistics of 10 advanced economies—yielding an unbalanced panel with 182 country pairs—for 2000-2016, the results provide strong evidence on the significance of information frictions, bilateral trade, transaction costs, and market size on bilateral capital flows. However, the findings show varying sensitivities of domestic and foreign investors to information asymmetries and trade ties. Moreover, investors appear to be more responsive to domestic transaction costs and foreign market size effects, than the converse. This study demonstrates an application of using bilateral capital flows data in revealing the patterns of international financial market segmentation still prevailing in cross-border financial transactions.

The Changing Structure of Immigration to the OECD: What Welfare Effects on Member Countries?

We investigate the welfare implications of two pre-crisis immigration waves (1991– 2000 and 2001–2010) and of the post-crisis wave (2011–2015) for OECD native citizens. To do so, we develop a general equilibrium model that accounts for the main channels of transmission of immigration shocks – the employment and wage effects, the fiscal effect, and the market size effect – and for the interactions between them. We parameterize our model for 20 selected OECD member states.We find that the three waves induce positive effects on the real income of natives, however the size of these gains varies considerably across countries and across skill groups. In relative terms, the post-crisis wave induces smaller welfare gains compared to the previous ones. This is due to the changing origin mix of immigrants, which translates into lower levels of human capital and smaller fiscal gains. However, differences across cohorts explain a tiny fraction of the highly persistent, cross-country heterogeneity in the economic benefits from immigration.

The Changing Structure of Immigration to the OECD: What Welfare Effects on Member Countries?

We investigate the welfare implications of two pre-crisis immigration waves (1991– 2000 and 2001–2010) and of the post-crisis wave (2011–2015) for OECD native citizens. To do so, we develop a general equilibrium model that accounts for the main channels of transmission of immigration shocks – the employment and wage effects, the fiscal effect, and the market size effect – and for the interactions between them. We parameterize our model for 20 selected OECD member states. We find that the three waves induce positive effects on the real income of natives, however the size of these gains varies considerably across countries and across skill groups. In relative terms, the post-crisis wave induces smaller welfare gains compared to the previous ones. This is due to the changing origin mix of immigrants, which translates into lower levels of human capital and smaller fiscal gains. However, differences across cohorts explain a tiny fraction of the highly persistent, cross-country heterogeneity in the economic benefits from immigration.

Demand Forces of Technical Change: Evidence From the Chinese Manufacturing Industry

This paper investigates the effect of domestic market size on innovation activities across different durable good industries in the Chinese manufacturing sector. We address the endogeneity of market size by an IV strategy, based on a measure of potential market size, which is driven only by changes in the Chinese income distribution. This measure is exogenous to changes in prices and qualities of durable goods and is a valid instrument for expected future market size. Our results indicate that an increase in market size by one percent leads to an increase in firm-specific total factor productivity by 0.46 percent and an increase in labor productivity by 0.50 percent. These findings are robust to controlling for export behavior of firms and supply side drivers of R&D.

Institutional quality and foreign direct investment inflows: evidence from Asian countries

PurposeThe purpose of this paper is to examine the determinants of foreign direct investment (FDI) by focusing on institutional and economic factors among South Asian Association for Regional Cooperation (SAARC), Association of South East Asian Nations (ASEAN) as well as Central Asian countries over the period 2002-2014.Design/methodology/approachThe generalized method of moments technique is employed for analyzing the impact of institutional quality on FDI inflow by controlling for the effect of market size, domestic investment and labor force.FindingsThe authors found large variations in terms of the impact of institutional and economic variables in regards to FDI in the SAARC, Central Asian and ASEAN regions. The results reveal that real GDP, domestic investment and economic freedom index have a positive and significant effect on FDI inflows in the SAARC region, while governance index and labor force have a negative impact on FDI inflows. In Central Asia, the real GDP, domestic investment and governance index are positively associated with FDI inflows, whereas the effect of economic freedom index on FDI is negative as well as insignificant. Apart from the GDP, other variables such as labor force, domestic investment, governance and economic freedom indices influence FDI positively in the ASEAN region. It is worth mentioning here that domestic investment produces positive effect on FDI inflows in all the regions. On the whole, the authors may conclude that institutional factors play an important role in attracting FDI inflows in the ASEAN region as compared to Central Asian and SAARC regions.Originality/valueA limited research work is available that could help in identifying the role of institutional and economic factors simultaneously in attracting FDI in the SAARC, Central Asian and ASEAN regions.

The role of centrality and market size in a four-region asymmetric new economic geography model

In this paper, we put forward a four-region new economic geography footloose entrepreneur model in which regions are differentiated by their size and their geographical position along a line. There are two distinct trade blocs, each of them consisting of a pair of regions. Direct and indirect trade between all regions is allowed, whereas factor mobility can occur only between regions of the same bloc. Given this more general geographical structure, as compared to previous studies, we are able to disentangle two manifestations of the market access effect: firms can take advantage of locating both in a more central region (centrality effect) and/or in a bigger region (local market size effect). The model is able to generate a plethora of long-term outcomes, including four equilibria with full agglomeration in each trade bloc that can be ranked by factor owners. Equilibria where industry is dispersed or agglomerated in a bloc and dispersed in the other one, are also possible as well as more complex attractors. Finally, by allowing direct and indirect trade between regions, we are able to look at the effect of trade integration on transit traffic by evaluating in a preliminary analysis the consequences of policies aiming at limiting transport volumes in a model with shifting industry.

Timing under individual evolutionary learning in a continuous double auction

The moment of order submission plays an important role for the trading outcome in a Continuous Double Auction; submitting an offer at the beginning of the trading period may yield a lower profit, as the trade is likely to be settled at the own offered price, whereas late offers result in a lower probability of trading. This timing problem makes the order submission strategy more difficult. We extend the behavioral model of Individual Evolutionary Learning to incorporate the timing problem and study the limiting distribution of submission moments and the resulting offer function that maps submission moments to offers. We find that traders submit different offers at different submission moments the distribution of which uni-modal with a peak moving from late to early as the market size increases. This behavior exacerbates efficiency loss from learning. If traders evaluate profitability of their strategies over longer history, orders are submitted later with the same effect of market size.

Quantifying the effect of labor market size on learning externalities

Mit dieser Studie zeigen wir fur Deutschland, dass der heutige Arbeitslohn einer Person, ein Indikator fur die individuelle Arbeitsproduktivitat, unabhangig davon, wo eine Person heute tatig ist, ceteris paribus signifikant hoher ist, wenn die Person in der Vergangenheit Arbeitserfahrung in grosen, also eher stadtischen statt in kleinen, eher landlichen Arbeitsmarkten gesammelt hat, wobei wir die Arbeitsmarktgrose anhand der Beschaftigtenzahl messen. Die vorliegende Arbeit liefert neue Erkenntnisse uber die Grose dieser dynamischen Agglomerationsvorteile, die mutmaslich auf Lernexternalitaten in grosen Arbeitsmarkten zuruckzufuhren sind. Es wird die Elastizitat individueller Lohne hinsichtlich der (kumulierten) Grose der regionalen Arbeitsmarke geschatzt, in denen zuvor Arbeitserfahrung gesammelt wurde. Ein zentrales Ergebnis ist, dass diese Elastizitat im Erwerbsverlauf mit der Dauer vorheriger Beschaftigungszeiten bis zu einem Niveau von uber 0,06 ansteigt. Folglich ware der individuelle Lohn einer Arbeitskraft mit 20 Jahren Arbeitserfahrung oder mehr heute um vier bis funf Prozent hoher, hatte die Person die Arbeitserfahrung in regionalen Arbeitsmarkten gesammelt, die doppelt so gros hinsichtlich lokaler Beschaftigung gewesen waren wie die Arbeitsmarkte, in denen die Person tatsachlich gearbeitet hat. Die Analyse beruht auf Informationen zu individuellen Arbeitsmarktbiografien und regionaler Beschaftigung in Deutschland ab 1975. Die Lohninformation bezieht sich auf Lohne, die zu Beginn von mehr als 300.000 im Zeitraum 2005 bis 2011 begonnenen neuen Beschaftigungsverhatnissen in Deutschland gezahlt wurden. Es wird berucksichtigt, dass erworbene Kenntnisse und Fahigkeiten im Zeitverlauf anWert verlieren und dass Arbeitskrafte mutmaslich insbesondere von hochqualifizierten Personen lernen.

The Heckscher-Ohlin Model with Monopolistic Competition and General Preferences

I extend the neoclassical 2x2x2 trade model to general preferences over a variety of goods supplied under monopolistic competition in a sector while the other sector is perfectly competitive. Non-homothetic preferences deliver pricing to market, incomplete pass-through and market size effects. Under realistic conditions, the differentiated goods are sold at a higher price in the capital-abundant country.

The Heckscher–Ohlin model with monopolistic competition and general preferences

I extend the neoclassical 2×2×2 trade model to general preferences over a variety of goods supplied under monopolistic competition in a sector while the other sector is perfectly competitive. Non-homothetic preferences deliver pricing to market, incomplete pass-through and market size effects. Under realistic conditions, the differentiated goods are sold at a higher price in the capital-abundant country.

Market size, occupational self‐selection, sorting, and income inequality

AbstractWe develop a monopolistic competition model with heterogeneous agents who self‐select into occupations (entrepreneurs and workers) depending on innate ability. The effect of market size on the equilibrium occupational structure crucially hinges on properties of the lower tier utility function—its scale elasticity and relative love‐for‐variety. When combined with the underlying ability distribution, the share of entrepreneurs and income inequality can increase or decrease with market size. When extended to allow for the endogenous sorting of mobile agents between cities, numerical examples suggest that sorting may increase inequality within and between cities.

A DMP model of intercity trade

Job matching, a central feature of DMP theory, requires contacts between prospective employers and employees. This paper assumes that they may be either face-to-face and take place at city centers or via referrals from social contacts. The paper presents a model of an economy whose urban structure consists of cities of different types. All cities produce a non-tradeable final good using ranges of tradeable intermediate varieties. Each city has an internal spatial structure: individuals commute to the CBD in order to work, when employed, and to seek jobs, when unemployed. Hiring by each intermediate producing firm is subject to frictions, which are modeled in the Diamond–Mortensen–Pissarides fashion. City type is conferred by specialization in producing one of two types of intermediate varieties and there is intercity trade in intermediate varieties. The paper examines properties of equilibrium with intercity trade and its dependence on various parameters and their consequences for unemployment, output and welfare across the economy along a steady state. The model's use of international trade tools confers a central role to labor market tightness, akin to factor intensity. A natural dependence of unemployment on city size is generated. Equilibrium outcomes generically diverge from the planner's optimum: there exists mismatch generically. Socially optimal unemployment trades off the probability of employment to search costs of firms independently for each skill type and independently of city size. Socially optimal city sizes are independent of the matching model and therefore labor market tightness considerations but reflect both market size effects and the skill composition of the economy.

Asymmetric globalization and specialization

This paper constructs a theoretical framework to analyze the impact of international openness of the relatively big globalizers on specialization. In contrast to the conventional positive effect of market size on specialization, we show market expansion induced by asymmetric globalization may decrease the level of specialization in terms of components. In addition, the number of components produced in the big globalizers may also decrease, a case distinct from the conventional home-market effects.

Retail productivity: The effects of market size and regional hierarchy

AbstractHow important is regional hierarchy for retailers’ productivity? This paper investigates the determinants of independent retailers’ productivity in Sweden between 2002 and 2008 with respect to market size and regional hierarchy. Using an accessible market potential approach, the impact of the potential demand in close proximity, and in the region is investigated separately for stores in central and peripheral retail markets. The findings suggest that the market size in close proximity has a higher impact on the productivity of stores located in central markets, whereas the market potential in the region has similar productivity returns for both stores in central markets and stores in non‐central markets.

The Effect of Market Size on Fuel-Saving Technology Adoption in Passenger Vehicles

This paper looks at market size changes and fuel-saving technology adoption in the US new passenger vehicle market. An empirical analysis combines vehicle characteristics and sales from 1997 to 2013 with purchasing patterns by demographic group. The authors find that a 10% increase in market size raises power train efficiency by .3 percentage points. The report discusses the implications of these results including fuel price influence on the introduction of new vehicle technology; the effect of shifts in demographics; and impacts of fuel tax, feebate, or fuel economy standard increases.

Gains from Trade Liberalization between Heterogeneous Countries: Implications for the Korea–Japan FTA

We study the welfare implications of a bilateral free trade agreement (FTA). The model is based on the recent trade literature that considers search and matching frictions in the labor market. We extend the model by incorporating country-level heterogeneity in terms of production technology, population, and productivity endowment. By calibrating the model to Japanese and Korean data in order to assess the expected outcome of the potential Korea–Japan FTA, we find that when the two countries have the same population size, Japan receives greater benefits from the FTA because its relatively more capital-intensive production allows for quicker output adjustment upon trade liberalization. When we take into account that Japan's population is 2.5 times that of Korea, however, the results show that Korea enjoys a greater surplus because of the market size effect.

Comments by Naoyuki Yoshino, on Gains from Trade Liberalization between Heterogeneous Countries: Implications for the Korea–Japan FTA

October 01 2016 Comments by Naoyuki Yoshino, on Gains from Trade Liberalization between Heterogeneous Countries: Implications for the Korea–Japan FTA Author and Article Information Online Issn: 1536-0083 Print Issn: 1535-3516 © 2016 by the Earth Institute at Columbia University and the Massachusetts Institute of Technology2016Massachusetts Institute of Technology Asian Economic Papers (2016) 15 (3): 167–168. https://doi.org/10.1162/ASEP_a_00465 Cite Icon Cite Permissions Share Icon Share Facebook Twitter LinkedIn MailTo Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Search Site Citation Comments by Naoyuki Yoshino, on Gains from Trade Liberalization between Heterogeneous Countries: Implications for the Korea–Japan FTA. Asian Economic Papers 2016; 15 (3): 167–168. doi: https://doi.org/10.1162/ASEP_a_00465 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentAll JournalsAsian Economic Papers Search Advanced Search Naoyuki Yoshino: This paper addresses the welfare gains obtained from a Korea–Japan free trade agreement (FTA). The model considers search and matching frictions in the labor market. It incorporates country-level heterogeneity in production technology, population, and productivity endowment. When the two countries have the same population size, Japan receives greater benefits from a FTA because the more capital-intensive production of Japan allows much quicker adjustment upon trade liberalization. The size of the population of Japan is 2.5 times that of Korea, however, therefore Korea enjoys a greater surplus because of the market-size effect. There are various restricted assumptions in the model and real Korean and Japanese economies are somewhat different from the model described in the paper. Japan and Korea have a large labor market for graduates from school. Many people work under the seniority wage rate rather than negotiate their salaries. Wage rates in Japan and Korea are based... You do not currently have access to this content.