The More We Die, The More We Sell? A Simple Test of the Home-Market Effect
The home-market effect, first hypothesized by Linder (1961) and later formalized by Krugman (1980), is the idea that countries with larger demand for some products at home tend to have larger sales of the same products abroad. In this paper, we develop a simple test of the home-market effect using detailed drug sales data from the global pharmaceutical industry. The core of our empirical strategy is the observation that a country’s exogenous demographic composition can be used as a predictor of the diseases that its inhabitants are most likely to die from and, in turn, the drugs that they are most likely to demand. We find that the correlation between predicted home demand and sales abroad is positive and greater than the correlation between predicted home demand and purchases from abroad. In short, countries tend to be net sellers of the drugs that they demand the most, as predicted by Linder (1961) and Krugman (1980).
-
-
Copy CitationArnaud Costinot, Dave Donaldson, Margaret Kyle, and Heidi Williams, "The More We Die, The More We Sell? A Simple Test of the Home-Market Effect," NBER Working Paper 22538 (2016), https://doi.org/10.3386/w22538.Download Citation
Published Versions
Arnaud Costinot & Dave Donaldson & Margaret Kyle & Heidi Williams, 2019. "The More We Die, The More We Sell? A Simple Test of the Home-Market Effect*," The Quarterly Journal of Economics, vol 134(2), pages 843-894. citation courtesy of 
Related
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals—the NBER Reporter, the NBER Digest, the Bulletin on Health, the Bulletin on the Economics of Alzheimer's, and the Bulletin on Entrepreneurship—as well as research spotlights, lectures, and panel videos.
