Endogenous Sunk-Costs Technology and Home Market Effects

Abstract

Sutton (1991, 1998) proves that the home market effects would reverse with the assumption of the labor requirements with endogenous sunk costs. Departing from the original Helpman-Krugman modeling assumptions, we introduce the endogenous sunk costs of production to trading partners, and show that home market effects will be offset but not reverse, a result opposite of Sutton (1991, 1998).