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Structural Estimation and Solution of International Trade Models with Heterogeneous Firms

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Author Info
Edward J. Balistreri
Russell H. Hillberry
Thomas F. Rutherford

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Abstract

We present an empirical implementation of a general-equilibrium model of international trade with heterogeneous manufacturing firms. The theory underlying our model is consistent with Melitz (2003). A nonlinear structural estimation procedure identifies a set of core parameters and unobserved firm-level trade frictions that best fit the geographic pattern of trade. Once the parameters are identified, we utilize a decomposition technique for computing general-equilibrium counterfactuals. We first assess the economic effects of reductions in measured tariffs. Taking the simple-average welfare change across regions the Melitz structure indicates welfare gains from liberalization that are nearly four times larger than in a standard trade policy simulation. Furthermore, when we compare the economic impact of tariff reductions with reductions in estimated fixed trade costs we find that policy measures affecting the fixed costs are of greater importance than tariff barriers

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1056.

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Length: 37 pages
Date of creation: 2008
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Handle: RePEc:mlb:wpaper:1056

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Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies

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  6. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," Department of Economics - Working Papers Series 1056, The University of Melbourne. [Downloadable!]
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  7. Corrado Di Maria & Simone Valente, 2006. "The Direction of Technical Change in Capital-Resource Economies," Economics working paper series 06/50, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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  11. Hans Gersbach & Hans Haller, 2007. "Hierarchical Trade and Endogenous Price Distortions," Economics working paper series 07/72, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rod Tyers & Ling Huang, . "Combating China'S Export Contraction: Fiscal Expansion Or Accelerated Industrial Reform?," CAMA Working Papers 2009-02, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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  2. Rod Tyers, 2008. "Competition Policy, Corporate Saving and China's Current Account Surplus," ANUCBE School of Economics Working Papers 2008-496, Australian National University, College of Business and Economics, School of Economics. [Downloadable!]
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  3. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," Economics working paper series 08/89, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
    Other versions:
  4. Rod Tyers & Lucy Rees, 2008. "Service Oligopolies and Australia's Economy-Wide Performance," ANUCBE School of Economics Working Papers 2008-490, Australian National University, College of Business and Economics, School of Economics. [Downloadable!]
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