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Most existing theoretical studies on home
market effects depend crucially on assumptions of symmetric transportation
costs and increasing returns to scale technology. In our model, we remove the
home market effect assumptions from the main model used in the literature.
Instead, this paper employs a constant returns monopolistic competition model
with asymmetric transportation costs. We show that 1) when the home
country’s transportation cost is large enough for a given level of the foreign
country’s transportation cost, the HME appears in the home country, and 2) the
opposite of the HME is observed in the home country as long as the foreign
country’s transportation cost is large enough for a given level of the home
country’s transportation cost.