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Behavioral characteristics of applied general equilibrium models with variable elasticity of substitution between varieties from different sources

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  • Oyamada, Kazuhiko

Abstract

This study explores the behavioral characteristics of the Melitz-type heterogeneous and the Krugman-type homogeneous firm models that endogenize substitution elasticity as an increasing function of the total number of varieties that are available in each destination country/region. Using a case the United States (US) liberalizes imports of manufactured products from China as an example, simulation experiments with a three-region, three-sector applied general equilibrium model of global trade revealed that economic agents comply with more inefficient circumstances when the importer's preference for variety intensifies. Whereas, a more efficient environment enables countries, including those excluded from a free trade agreement, to receive welfare gains when the influence of the total number of varieties to the substitution elasticity becomes strong.

Suggested Citation

  • Oyamada, Kazuhiko, 2019. "Behavioral characteristics of applied general equilibrium models with variable elasticity of substitution between varieties from different sources," IDE Discussion Papers 740, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper740
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    Cited by:

    1. Niemi, Janne, 2019. "Trade, persistent habits and development - a dynamic CGE model analysis," Conference papers 333084, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Oyamada,Kazuhiko, 2023. "Behavioral characteristics of mrio-based global age models with variable elasticity of substitution between varieties," IDE Discussion Papers 881, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    3. Oyamada, Kazuhiko, 2019. "Behavioral Characteristics of MRIO-Based Global AGE Models with Variable Elasticity of Substitution between Varieties," Conference papers 333022, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Niemi, Janne, 2018. "Short-run and long-run food import elasticities with persistent trading habits," Working Papers 111, VATT Institute for Economic Research.

    More about this item

    Keywords

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    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
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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