Regional Industrial Agglomeration and Home Market Effects: The comparison among three different specifications

The region with a large market tends to increase the number of firms. We can often see the phenomenon of expanding economic disparities between regions. Krugman described this phenomenon using theoretical model and also he defined the concept of home market effect. The home market effect means that the production activity is done over the ratio of market (demand volume) in the region itself. However, by changing the assumption such as Davis (1998), the home market effect does not exist in the theoretical model. Although various empirical studies have been tested, the home market effect has not been necessarily confirmed. In this paper, we analyze the home market effect using the three specifications. Two specifications out of the three specifications are derived from the new economic geography, the rest specification out of the three specifications is derived from international trade. In doing so, it is possible to test the home market effect from various angles, and consider the validity of home market effect. Looking at the overall empirical results, the home market effect is confirmed in a number of manufacturing industries. Also, the home market effect is always confirmed in the six heavy and chemical industries such as chemical industry