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Behavioral Characteristics of MRIO-Based Global AGE Models with Variable Elasticity of Substitution between Varieties

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  • Oyamada, Kazuhiko

Abstract

This study explores the behavioral characteristics of an applied general equilibrium model with the Melitz-type heterogeneous and Krugman-type homogeneous firms, which endogenizes substitution elasticity as an increasing function of the total number of varieties with the assumption of agent-specific sourcing of imported and domestically produced commodities. Simulation experiments with the model revealed that inter-sector and international spillovers of the effects of smoother substitution through intermediate transactions among countries/regions amplify the efficiency-enhancing effect of international trade to bring significantly large welfare gains to all countries in the global economy. The production sector, which is assumed in the model to differentiate outputs under monopolistic competition, plays an important role as the key agent that effectively transmits the favorable effect to the global economy.

Suggested Citation

  • Oyamada, Kazuhiko, 2019. "Behavioral Characteristics of MRIO-Based Global AGE Models with Variable Elasticity of Substitution between Varieties," Conference papers 333022, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333022
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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. 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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    5. 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).
    6. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-177, March.
    7. 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.
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