Studying the model of Krugman, 1991: the one in which good varieties are country-specific so that there is trade because in presence of increasing returns, each good is produced in only one country, I find its conclusions a bit counter-intuitive.
The model states that a country will specialize in the production of the good for which it has the larger home market, the so-called home market effect. Thus, a country will the larger home market for a given good will be a net exporter of that good.
Now, here is my question: let's analyze two European countries, i.e. Germany and Spain. For a given level of transportation costs, Germany will produce more varieties than Spain because it is larger (larger home market). If the EU Commission would propose the creation of a Single Market, i.e. a reduction of trade barriers, that we can interpret as transportation costs going down, will Spain accept?