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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 paper explores the indirect spillover effects of trade-related policies that affect welfare gains/losses via variety adjustments mentioned as by Fujita, Krugman, and Venables (2000), where access to a greater variety of intermediate commodities may reduce the costs of production using those intermediates. Using an applied g eneral equilibrium model that incorporate direct cross-border linkages between producers and importing agents, we examine what happens when the elasticity of substitution between varieties from different sources is endogenized. Experimental simulations using the model reveal that the efficiency-enhancing effects of smoother resource allocations (substitution) may work more effectively than the cost-reducing effects of variety a djustments suggested by Fujita et al. (2000). A production sector that exhibits increasing returns to scale under m onopolistic competition may serve as the main engine for accelerating the efficiency-enhancing effects to remarkable levels.

Suggested Citation

  • Oyamada,Kazuhiko, 2023. "Behavioral characteristics of mrio-based global age models with variable elasticity of substitution between varieties," IDE Discussion Papers 881, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper881
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    References listed on IDEAS

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    More about this item

    Keywords

    variable elasticity of substitution|firm heterogeneity|monopolistic competition|multi-regional input-output|applied general equilibrium;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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