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Examining Trade Response of Armington-Krugman-Melitz Encompassing Module in a CGE Model

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  • Itakura, Ken
  • Oyamada, Kazuhiko

Abstract

This paper examines how trade flows respond to liberalization shocks within a framework of recently implemented Armington-Krugman-Melitz Encompassing (AKME) module in the GTAP model. We follow the modeling strategy in Dixon and Rimmer (2012) and Oyamada (2013). We modify the comparative static GTAP model, which is a global CGE model widely used by researchers for quantifying policy impact. We redefine trade flow information stored in the benchmark GTAP Data Base, and implement a calibration procedure established in Oyamada (2013) and Oyamada (2014b). We run simulation of trade liberalization to draw a comparison between different trade specifications, decomposing the trade response in detail. Since there exits only a handful of attempts to compare the trade effects by examining the AKME module, we provide another results for further insights.

Suggested Citation

  • Itakura, Ken & Oyamada, Kazuhiko, 2014. "Examining Trade Response of Armington-Krugman-Melitz Encompassing Module in a CGE Model," Conference papers 332513, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332513
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    References listed on IDEAS

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    1. Peter Dixon & Michael Jerie & Maureen Rimmer, 2016. "Modern Trade Theory for CGE Modelling: The Armington, Krugman and Melitz Models," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 1(1), pages 1-110, June.
    2. Zhai, Fan, 2008. "Armington Meets Melitz: Introducing Firm Heterogeneity in a Global CGE Model of Trade," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 575-604.
    3. 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.
    4. Oyamada, Kazuhiko, 2013. "Parameterization of applied general equilibrium models with flexible trade specifications based on the Armington, Krugman, and Melitz models," IDE Discussion Papers 380, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    5. Peter A. Petri & Michael G. Plummer & Fan Zhai, 2012. "The Trans-Pacific Partnership and Asia-Pacific Integration: A Quantitative Assessment," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6642, April.
    6. Oyamada, Kazuhiko, 2015. "Behavioral characteristics of applied general equilibrium models with an Armington-Krugman-Melitz encompassing module," IDE Discussion Papers 525, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    7. 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.
    8. Petri, Peter A., 2012. "The Trans-Pacific Partnership and Asia-Pacific Integration," 2012: New Rules of Trade? December 2012, San Diego, California 143184, International Agricultural Trade Research Consortium.
    9. Oyamada, Kazuhiko, 2014. "Neutrality in the choice of number of firms or level of fixed costs in calibrating an Armington-Krugman-Melitz encompassing module for applied general equilibrium models," IDE Discussion Papers 465, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    10. Balistreri, Edward J. & Rutherford, Thomas F., 2013. "Computing General Equilibrium Theories of Monopolistic Competition and Heterogeneous Firms," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 1513-1570, Elsevier.
    11. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
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    Cited by:

    1. Kazuhiko Oyamada, 2017. "Behavioral Characteristics of Applied General Equilibrium Models with Variable Elasticity of Substitution between Varieties from Different Sources," EcoMod2017 10113, EcoMod.

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