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Deriving the Armington, Krugman and Melitz models of trade

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  • Dixon, Peter B.
  • Rimmer, Maureen T.

Abstract

This paper shows how the Armington, Krugman and Melitz models of international trade are all specialized versions of a basic model. It is inspired by Balistreri and Rutherford (2012) who set out stylized versions of three models: Armington (1969); Krugman (1980); and Melitz (2003). In their exposition, Balsitreri and Rutherford develop each model separately. This paper draws out connections between the three models by developing them sequentially as special cases of a common basic model. We derive the Armington model by imposing strong assumptions on the basic model. We relax some of these assumptions to derive the Krugman model and make further relaxations to derive the Melitz model.

Suggested Citation

  • Dixon, Peter B. & Rimmer, Maureen T., 2012. "Deriving the Armington, Krugman and Melitz models of trade," Conference papers 332254, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332254
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    References listed on IDEAS

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    1. 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.
    2. Chris M. Alaouze, 1976. "Estimation of the elasticity of substitution between imported and domestically produced intermediate inputs," Centre of Policy Studies/IMPACT Centre Working Papers op-07, Victoria University, Centre of Policy Studies/IMPACT Centre.
    3. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    4. Chris M. Alaouze & John S. Marsden & John Zeitsch, 1977. "Estimates of the Elasticity of Substitution Between Imported and Domestically Produced Commodities at the Four Digit ASIC Level," Centre of Policy Studies/IMPACT Centre Working Papers o-11, Victoria University, Centre of Policy Studies/IMPACT Centre.
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