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

Roberto Roson and Kazuhiko Oyamada

No 2014:04, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

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.

Keywords: Computable General Equilibrium Models; Melitz; Firm Heterogeneity; International Trade. (search for similar items in EconPapers)
JEL-codes: C63 C68 D51 D58 F12 L11 (search for similar items in EconPapers)
Pages: 19
Date: 2014
New Economics Papers: this item is included in nep-cmp and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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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:ven:wpaper:2014:04

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