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

Roberto Roson and Kazuhiko Oyamada

No 332433, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

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 heterogeneity à 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, intermediate inputs, multiple industries (with a mixture of differentiated and nondifferentiated 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.

Keywords: International Relations/Trade; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 17
Date: 2014
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Related works:
Working Paper: Introducing Melitz-Style Firm Heterogeneity in CGE Models: Technical Aspects and Implications (2014)
Working Paper: Introducing Melitz-Style Firm Heterogeneity in CGE Models: Technical Aspects and Implications (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:332433

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