IDEAS home Printed from https://ideas.repec.org/p/ven/wpaper/201404.html
   My bibliography  Save this paper

Introducing Melitz-Style Firm Heterogeneity in CGE Models: Technical Aspects and Implications

Author

Listed:
  • Roberto Roson

    (Department of Economics, University Of Venice C� Foscari)

  • Kazuhiko Oyamada

    (Institute of Developing Economies, Japan External Trade Organization)

Abstract

This paper discusses which changes in the architecture of a standard CGE model are needed in order to introduce effects of trade and firm het- erogeneity � la Melitz. Starting from a simple specification with partial equilibrium, one primary production factor and one industry, the framework is progressively enriched by including multiple factors, intermedi- ate inputs, multiple industries (with a mixture of differentiated and non-differentiated products), and a real general equilibrium closure. Therefore, the model structure is gradually made similar to a full-fledged CGE. Calibration techniques are discussed, and a number of changes from the original Melitz�s assumptions are also proposed. It is argued that the inclusion of industries with heterogeneous firms in a CGE framework does not simply make the Melitz model �operational�, but allows accounting for structural effects that may significantly affect the nature, meaning and implications of the model results.

Suggested Citation

  • 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".
    • Handle: RePEc:ven:wpaper:2014:04
    as

    Download full text from publisher

    File URL: http://www.unive.it/pag/fileadmin/user_upload/dipartimenti/economia/doc/Pubblicazioni_scientifiche/working_papers/2014/WP_DSE_roson_oyamada_04_14.pdf
    File Function: First version, anno
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    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. 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.
    3. J. M. C. Santos Silva & Silvana Tenreyro, 2015. "Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(1), pages 93-105, February.
    4. Balistreri, Edward J. & Rutherford, Thomas F., 2013. "Computing General Equilibrium Theories of Monopolistic Competition and Heterogeneous Firms," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 1513-1570, Elsevier.
    5. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2007. "Comparative Advantage and Heterogeneous Firms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(1), pages 31-66.
    6. 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.
    7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    8. 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).
    9. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Roberto Roson & Kazuhiko Oyamada, 2014. "Modeling Firm Heterogeneity in International Trade: Do Structural Effects Matter?," IEFE Working Papers 70, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kazuhiko Oyamada, 2014. "Behavioral Characteristics of Applied General Equilibrium Models with Flexible Trade Specifications Based on the Armington, Krugman, and Melitz Models," EcoMod2014 6704, EcoMod.
    2. Oyamada, Kazuhiko, 2014. "Neutrality in the choice of number of firms or level of fixed costs in calibrating an Armington-Krugman-Melitz encompassing module for applied general equilibrium models," IDE Discussion Papers 465, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    3. Oyamada, Kazuhiko, 2015. "Behavioral characteristics of applied general equilibrium models with an Armington-Krugman-Melitz encompassing module," IDE Discussion Papers 525, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    4. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    5. 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).
    6. Hosoe, Nobuhiro, 2018. "Impact of border barriers, returning migrants, and trade diversion in Brexit: Firm exit and loss of variety," Economic Modelling, Elsevier, vol. 69(C), pages 193-204.
    7. Kazuhiko Oyamada & Kaoru Nabeshima & Etsuyo Michida, 2015. "Analyses of EU RoHS/ELV Directives Based on an AGE Model with Melitz-type Trade Specification," EcoMod2015 8304, EcoMod.
    8. Christoph Boehringer & Edward Balistreri & Thomas Rutherford, 2018. "Quantifying Disruptive Trade Policies," Working Papers V-415-18, University of Oldenburg, Department of Economics, revised Nov 2018.
    9. Peter Dixon & Michael Jerie & Maureen Rimmer, 2016. "Modern Trade Theory for CGE Modelling: The Armington, Krugman and Melitz Models," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 1(1), pages 1-110, June.
    10. Nobuhiro Hosoe, 2016. "Impact of Brexit: Firm Exit and Loss of Variety," GRIPS Discussion Papers 16-12, National Graduate Institute for Policy Studies.
    11. Zeynep Akgul & Nelson B Villoria & Thomas W Hertel, 2016. "GTAP-HET: Introducing Firm Heterogeneity into the GTAP Model," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 1(1), pages 111-180, June.
    12. Oyamada, Kazuhiko, 2014. "Behavioral Characteristics of Applied General Equilibrium Models with an Armington-Krugman-Melitz Encompassing Module," Conference papers 332442, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    13. Oyamada, Kazuhiko, 2016. "Simulation analysis of the EU ELV/RoHS directives based on an applied general equilibrium model with Melitz-type trade specification," IDE Discussion Papers 587, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    14. Itakura, Ken & Oyamada, Kazuhiko, 2014. "Examining Trade Response of Armington-Krugman-Melitz Encompassing Module in a CGE Model," Conference papers 332513, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    15. Kristian Behrens & Giordano Mion & Yasusada Murata & Jens Südekum, 2014. "Trade, Wages, And Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(4), pages 1305-1348, November.
    16. 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.
    17. Bergstrand, Jeffrey H. & Cray, Stephen R. & Gervais, Antoine, 2023. "Increasing marginal costs, firm heterogeneity, and the gains from “deep” international trade agreements," Journal of International Economics, Elsevier, vol. 144(C).
    18. Li, Minghao & Balistreri, Edward J. & Zhang, Wendong, 2020. "The U.S.–China trade war: Tariff data and general equilibrium analysis," Journal of Asian Economics, Elsevier, vol. 69(C).
    19. Elhanan Helpman, 2014. "Foreign Trade and Investment: Firm-level Perspectives," Economica, London School of Economics and Political Science, vol. 81(321), pages 1-14, January.
    20. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 1-54, Elsevier.

    More about this item

    Keywords

    Computable General Equilibrium Models; Melitz; Firm Heterogeneity; International Trade.;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ven:wpaper:2014:04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Geraldine Ludbrook (email available below). General contact details of provider: https://edirc.repec.org/data/dsvenit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.