The simple analytics of the Melitz model in a small economy

Svetlana Demidova and Andres Rodriguez-Clare

Journal of International Economics, 2013, vol. 90, issue 2, 266-272

Abstract: In this paper we present a version of the Melitz (2003) model for the case of a small economy and summarize its key relationships with the aid of a simple figure. We then use this figure to provide an intuitive analysis of the implications of asymmetric changes in trade barriers and show that a decline in import costs always benefits the liberalizing country. This stands in contrast to variants of the Melitz model with a freely traded (outside) sector, such as Demidova (2008) and Melitz and Ottaviano (2008), where the country that reduces importing trade costs experiences a decline in welfare.

Keywords: Firm heterogeneity; Small economy; Trade liberalization (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (78)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:90:y:2013:i:2:p:266-272

DOI: 10.1016/j.jinteco.2013.02.006

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