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Unilateral trade liberalization in the Melitz model: A note

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  • Felbermayr, Gabriel
  • Jung, Benjamin

Abstract

In the two-country Melitz (2003) model, unilateral trade liberalization is often cast as a reduction of iceberg transportation costs and wages are determined by a linear outside sector. We show that welfare results reverse when wages adjust and trade frictions are revenue-generating tariffs.

Suggested Citation

  • Felbermayr, Gabriel & Jung, Benjamin, 2012. "Unilateral trade liberalization in the Melitz model: A note," University of Tuebingen Working Papers in Economics and Finance 30, University of Tuebingen, Faculty of Economics and Social Sciences.
  • Handle: RePEc:zbw:tuewef:30
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    References listed on IDEAS

    as
    1. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
    2. Demidova, Svetlana & Rodríguez-Clare, Andrés, 2009. "Trade policy under firm-level heterogeneity in a small economy," Journal of International Economics, Elsevier, vol. 78(1), pages 100-112, June.
    3. Jørgensen, Jan G. & Schröder, Philipp J.H., 2008. "Fixed export cost heterogeneity, trade and welfare," European Economic Review, Elsevier, vol. 52(7), pages 1256-1274, October.
    4. Ralph Ossa, 2011. "A "New Trade" Theory of GATT/WTO Negotiations," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 122-152.
    5. Svetlana Demidova & Andrés Rodríguez-Clarez, 2011. "The Simple Analytics of the Melitz Model in a Small Open Economy," NBER Working Papers 17521, National Bureau of Economic Research, Inc.
    6. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
    7. Ariel Burstein & Jonathan Vogel, 2011. "Factor Prices and International Trade: A Unifying Perspective," NBER Working Papers 16904, National Bureau of Economic Research, Inc.
    8. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
    9. Costas Arkolakis & Svetlana Demidova & Peter J. Klenow & Andres Rodriguez-Clare, 2008. "Endogenous Variety and the Gains from Trade," American Economic Review, American Economic Association, vol. 98(2), pages 444-450, May.
    10. 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.
    11. 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

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    Cited by:

    1. Ehsan U. Choudhri & Antonio Marasco, 2014. "Asymmetric Technological Change in the Melitz Model: Are Foreign Technological Improvements Harmful?," Carleton Economic Papers 14-04, Carleton University, Department of Economics.
    2. repec:zbw:rwirep:0400 is not listed on IDEAS
    3. Gabriel Felbermayr & Benjamin Jung, 2011. "Home Market Effects and the Single-Sector Melitz Model," CESifo Working Paper Series 3695, CESifo Group Munich.
    4. Takatsuka, Hajime & Zeng, Dao-Zhi, 2016. "Nontariff protection without an outside good," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 65-78.
    5. Anna Bohnstedt, 2013. "Spillovers from Foreign Exporters," Ruhr Economic Papers 0400, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    6. Anna Bohnstedt, 2016. "Spillovers from Foreign Exporters," Review of International Economics, Wiley Blackwell, vol. 24(1), pages 150-170, February.
    7. Ehsan U. Choudhri & Antonio Marasco, 2017. "Is Foreign Technological Advance Harmful in the Melitz Model?," Open Economies Review, Springer, vol. 28(1), pages 149-166, February.
    8. Svetlana Demidova, 2015. "Trade Policies, Firm Heterogeneity, and Variable Markups," Department of Economics Working Papers 2015-04, McMaster University.
    9. repec:eee:inecon:v:108:y:2017:i:c:p:260-273 is not listed on IDEAS
    10. Bohnstedt, Anna, 2013. "Spillovers from Foreign Exporters," Ruhr Economic Papers 400, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    11. Michael Pflüger & Stephan Russek, 2014. "Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 170-188, February.
    12. repec:bpj:pewipo:v:18:y:2017:i:1:p:32-55:n:2 is not listed on IDEAS

    More about this item

    Keywords

    monopolistic competition; heterogeneous firms; international trade; trade policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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