Comparative home-market advantage: An empirical analysis of British and American exports

This paper derives and tests the hypothesis that a country exports relatively more of those goods for which it has a relatively larger home market, i.e., a comparative home-market advantage. This prediction is based on a two-country, many-good intraindustry trade model with economies of scale, international transaction costs and differences in expenditure shares and country size. The data from 1970 to 1987 of 26 industries of the manufacturing sector in the United States and the United Kingdom supports this hypothesis. It is also shown that the relationship between home-market size and export structure becomes significantly stronger for industries with high fixed costs.