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Parameterization of applied general equilibrium models with flexible trade specifications based on the Armington, Krugman, and Melitz models


  • Oyamada, Kazuhiko


This paper explains how the Armington-Krugman-Melitz supermodel developed by Dixon and Rimmer can be parameterized, and demonstrates that only two kinds of additional information are required in order to extend a standard trade model to include Melitz-type monopolistic competition and heterogeneous firms. Further, it is shown how specifying too much additional information leads to violations of the model constraints, necessitating adjustment and reconciliation of the data. Once a Melitz-type model is parameterized, a Krugman-type model can also be parameterized using the calibrated values in the Melitz-type model without any additional data. Sample code for the General Algebraic Modeling System (GAMS) has also been prepared to promote the innovative supermodel in the AGE community.

Suggested Citation

  • Oyamada, Kazuhiko, 2013. "Parameterization of applied general equilibrium models with flexible trade specifications based on the Armington, Krugman, and Melitz models," IDE Discussion Papers 380, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  • Handle: RePEc:jet:dpaper:dpaper380

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    References listed on IDEAS

    1. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2011. "Structural estimation and solution of international trade models with heterogeneous firms," Journal of International Economics, Elsevier, vol. 83(2), pages 95-108, March.
    2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    3. Balistreri, Edward J. & Rutherford, Thomas F., 2013. "Computing General Equilibrium Theories of Monopolistic Competition and Heterogeneous Firms," Handbook of Computable General Equilibrium Modeling, Elsevier.
    4. Roberto Roson, 2006. "Introducing Imperfect Competition in CGE Models: Technical Aspects and Implications," Computational Economics, Springer;Society for Computational Economics, vol. 28(1), pages 29-49, August.
    5. Zhai, Fan, 2008. "Armington Meets Melitz: Introducing Firm Heterogeneity in a Global CGE Model of Trade," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 575-604.
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    Cited by:

    1. Ken Itakura & Kazuhiko Oyamada, 2015. "Examining Trade Response of Armington-Krugman-Melitz Encompassing Module in a CGE Model," EcoMod2015 8695, EcoMod.
    2. Roberto Roson & Kazuhiko Oyamada, 2014. "Introducing Melitz-Style Firm Heterogeneity in CGE Models: Technical Aspects and Implications," Working Papers 2014:04, Department of Economics, University of Venice "Ca' Foscari".
    3. Kazuhiko Oyamada & Ken Itakura, 2013. "Population Aging in the Interdependent Global Economy: A Computational Approach with an Overlapping Generations Model of Global Trade," EcoMod2013 5672, EcoMod.

    More about this item


    Microeconomics; Trade theory; International trade; Applied general equilibrium; Calibration; Heterogeneous firms;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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