Introducing melitz

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Introducing melitz

Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. DOI: Traditional CGE models with Armington assumption fail to capture the extensive margin of trade, thereby underestimate the trade and welfare effects of trade opening. To address this problem, this paper introduces the Melitz theoretical framework with firm heterogeneity and fixed exporting costs into a global CGE model.

View via Publisher. Save to Library. Create Alert. Launch Research Feed. Share This Paper. Rieti LaBorde, W. Martin, D. Mensbrugghe Roberto Roson, Kazuhiko Oyamada Citation Type. Has PDF. Publication Type. More Filters. View 1 excerpt, cites background. Research Feed. View 1 excerpt, cites methods. References Publications referenced by this paper.

View 1 excerpt, references background. Extending the Melitz Model to Asymmetric Countries.

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Using gravity to move Armington - an empirical approach to the small initial trade share problem in general equilibrium models.Russell H. Rutherford, Edward J. Roberto Roson, Roson, Roberto, Marc J. Melitz, Mark J. Melitz, Marc J, Discussion Papers.

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Zhai, Fan, Oyamada, Kazuhiko, Balistreri, Edward J. Andrew B. Schott, Bernard, Andrew B. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ven:wpaper See general information about how to correct material in RePEc.

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introducing melitz

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.This paper investigates the effect of export shocks on innovation.

On the one hand a positive shock increases market size and therefore innovation incentives for all firms. On the other hand it increases competition as more firms enter the export market. This in turn reduces profits and therefore innovation incentives particularly for firms with low productivity. Overall the positive impact of the export shock on innovation is magnified for high productivity firms, whereas it may negatively affect innovation in low productivity firms.

We test this prediction with patent, customs and production data covering all French manufacturing firms. To address potential endogeneity issues, we construct firm-level export proxies which respond to aggregate conditions in a firm's export destinations but are exogenous to firm-level decisions.

We show that patenting robustly increases more with export demand for initially more productive firms. This effect is reversed for the least productive firms as the negative competition effect dominates. We document how demand shocks in export markets lead French multi-product exporters to re-allocate the mix of products sold in those destinations.

In response to positive demand shocks. Additional empirically observable moments of the micro structure also matter for welfare. The theoretical result that there are welfare gains from trade is a central tenet of international economics. The measured welfare gains from trade from this quantitative approach are typically relatively modest. In this paper, we suggest a channel for welfare gains that this quantitative approach typically abstracts from: trade-induced changes in domestic productivity.

Using a model of sequential production, in which trade induces a reorganization of production that raises domestic productivity, we show that the welfare gains from trade can become arbitrarily large. We build a theoretical model of multi-product firms that highlights how competition across market destinations affects both a firm's exported product range and product mix. We show how tougher competition in an export market induces a firm to skew its export sales towards its best performing products.

We find very strong confirmation of this competitive effect for French exporters across export market destinations.

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Theoretically, this within firm change in product mix driven by the trading environment has important repercussions on firm productivity. A calibrated fit to our theoretical model reveals that these productivity effects are potentially quite large. This paper reviews the new approach to international trade based on firm heterogeneity in differentiated product markets. This approach explains a variety of features exhibited in disaggregated trade data, including the higher productivity of exporters relative to non-exporters, within-industry reallocations of resources following trade liberalization, and patterns of trade participation across firms and destination markets.

Accounting for these empirical patterns reveals new mechanisms through which the aggregate economy is affected by trade liberalization, including endogenous increases in average industry and firm productivity. The rising prominence of intra-industry trade and huge multinationals has transformed the way economists think about the gains from trade.

In the past, we focused on gains that stemmed either from endowment differences wheat for iron ore or inter-industry comparative advantage David Ricardo's classic example of cloth for port. Today, we focus on three sources of gains from trade: 1 love-of-variety gains associated with intra-industry trade; 2 allocative efficiency gains associated with shifting labor and capital out of small, less-productive firms and into large, more-productive firms; and 3 productive efficiency gains associated with trade-induced innovation.

This paper reviews these three sources of gains from trade both theoretically and empirically.Russell H. Rutherford, Edward J.

introducing melitz

Andrew B. Schott, Bernard, Andrew B.

The New Trade Theory

Discussion Papers. Roberto Roson, Roson, Roberto, Marc J. Melitz, Mark J. Melitz, Marc J, Zhai, Fan, Oyamada, Kazuhiko, Balistreri, Edward J. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcu:iefewp:iefewp See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Elena Dal Zotto. 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.

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

FRED data. Registered: Kazuhiko Oyamada Roberto Roson. 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 productsand a real general equilibrium closure.

Therefore, the model structure is gradually made similar to a full-fledged CGE. Handle: RePEc:bcu:iefewp:iefewp63 as. Corrections All material on this site has been provided by the respective publishers and authors. Louis Fed. Help us Corrections Found an error or omission? RePEc uses bibliographic data supplied by the respective publishers.Paul S.

We show that under fairly standard assumptions a multi-industry version of the Melitz model does not predict this relationship. Instead, it predicts the opposite relationship that industrial productivity increases more strongly in nonliberalized industries than in liberalized industries.

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Sign In or Create an Account. Sign In. Advanced Search. Search Menu. Article Navigation. Close mobile search navigation Article Navigation. Volume Article Contents Abstract. Supporting Information. SegerstromPaul S. Oxford Academic. Google Scholar. Yoichi Sugita. The editor in charge of this paper was Nicola Gennaioli. Cite Cite Paul S. Select Format Select format. Permissions Icon Permissions.

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Armington Meets Melitz: Introducing Firm Heterogeneity in a Global CGE Model of Trade

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Case Studies illustrate theory using real-world applications and provide important historical context. Summary and Key Terms.The realm of international trade theory has entered a new stage in the 21 st century, with active use of firm-level data and a next-generation trade theory that could be termed "New" New Trade Theory note bursting into the mainstream. Exports account for a large proportion of gross domestic production in Japan and other countries around the world, but it has come to light in recent years that only a small minority of firms actually engages in export.

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According to Bernard et al. Exporters also have a higher productivity than non-exporters. However, neither old nor new trade theories were able to explain the fact that exporting firms comprise only a very few highly productive companies.

A scenario in which Company A in a given industry exports while Company B in the same industry does not a scenario hypothesized by traditional trade theories or New Trade Theory. Both the trade theories of Ricardo and Heckscher-Ohlin and New Trade Theory at least within an industry presume representative firms equal in productivity i.

In light of the fact that firms of varying levels of productivity do exist, however, Melitz constructed a model in which only a few highly productive firms are engaged in export. The underlying idea in Melitz is that only highly productive firms are able to make sufficient profits to cover the large fixed costs required for export operations.

Helpman et al. The theory in Helpman et al. These "Melitz-type models" constituted the theoretical foundations for empirical research based in particular on firm-level data.

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Melitz indicated the new source of trade gains. When lowered trade barriers stimulate competition on a global scale, low-productivity firms that had been protected theretofore by the trade barriers are forced to withdraw from the market, replaced by the increased production volume of high-productivity firms. As a consequence, the average productivity of a country on the whole rises.

This rise in average productivity means a rise in people's real income; people become wealthier through the natural selection of firms on a global scale.

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It can be understood from Melitz that heavy protection given to a domestic industry can inhibit the functioning of natural selection and block a rise in productivity. In Japan, there are particular concerns about heavy government protection possibly hampering a rise in agricultural productivity. In other words, agriculture might not be able to enjoy the benefits of rising productivity achieved through competition on a global scale and the natural selection pointed out in Melitz Boosting Japan's food self-sufficiency logically necessitates raising its agricultural productivity.

It is worth nothing that hindering a rise in productivity through subsidies and trade restrictions could weaken the country's food self-sufficiency. Carrying out empirical research on "New" New Trade Theory often requires firm-level data.

introducing melitz

RIETI's Study Group on International Trade and Companies is currently engaged in research on topics more directly connected with policy, such as the relationship between the internationalization of firms and employment within Japan.

The findings of these research efforts are expected to provide useful information in the area of policy. This page uses Javascript. Please enable Javascript in your browser.

Skip to Content. Home Articles Column FY Introduction The realm of international trade theory has entered a new stage in the 21 st century, with active use of firm-level data and a next-generation trade theory that could be termed "New" New Trade Theory note bursting into the mainstream.

Table 1 offers a summary of the points discussed above. Footnote s The appellation "'New' New Trade Theory" is not one in general use - "the firm heterogeneity model" has greater currency - but the more readily comprehensible term "'New' New Trade Theory" is used in this paper.

Reference s Bernard, Andrew B. Bradford Jensen, Stephen J. Redding and Peter K. Schott Helpman, Elhanan, Marc J.


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