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Behavioral Characteristics of Applied General Equilibrium Models with Variable Elasticity of Substitution between Varieties from Different Sources

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  • Oyamada, Kazuhiko

Abstract

Based on an intuition that additional varieties reduce distance between varieties filling in gaps between existing varieties, this study explores the behavioral characteristics of the Melitz-type heterogeneous and the Krugman-type homogeneous firm models endogenizing the substitution elasticity as an increasing function of the total number of varieties that are available in the destination country/region. Choosing the case of the U.S. President Donald Trump's anti-China tariff as an example, simulations with the 3-region, 3-sector applied general equilibrium model revealed the following results: the impact of the efficiency enhancing effect brought by international trade becomes larger for the Melitz-type than the Krugman case; and the efficiency enhancing effect works negative for the regional welfare as the value of the parameter that controls the influence of the total number of varieties to the substitution elasticity gets large.

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  • Oyamada, Kazuhiko, 2017. "Behavioral Characteristics of Applied General Equilibrium Models with Variable Elasticity of Substitution between Varieties from Different Sources," Conference papers 332846, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332846
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    References listed on IDEAS

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    1. Melitz, Marc J. & Redding, Stephen J., 2013. "Firm heterogeneity and aggregate welfare," LSE Research Online Documents on Economics 51533, London School of Economics and Political Science, LSE Library.
    2. 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.
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    7. 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).
    8. 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.
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    10. Oyamada, Kazuhiko, 2016. "Simulation analysis of the EU ELV/RoHS directives based on an applied general equilibrium model with Melitz-type trade specification," IDE Discussion Papers 587, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    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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