by Peter B. Dixon (Author), Michael Jerie (Author), Maureen T. Rimmer (Author)
About the Author
Peter Dixon is Professor at the Centre of Policy Studies, Victoria University, Australia, and is known internationally for his work in CGE modeling. Together with colleagues at the IMPACT Project and CoPS, he created the ORANI model and its dynamic successor, MONASH. These models have been prominent in the Australian economic debate for 40 years and have been used as templates for the development of other models throughout the world. He is the principal author of the ORANI and MONASH books published in the North Holland Contributions series. In recent years he has led the development of the USAGE model of the U.S. which is used by the USITC and the departments of Commerce, Homeland Security, Agriculture and Transportation.
Michael Jerie is Senior Research Fellow at the Centre of Policy Studies, Victoria University, Australia. His main research area is developing GEMPACK (General Equilibrium Modelling PACKage), a suite of programs for formulating, solving and interrogating economic models. He is the co-author of numerous GEMPACK documents which are used world-wide by CGE modelers.
Maureen T. Rimmer is Professor at the Centre of Policy Studies, Victoria University, Australia. Her main area of expertise is model development and application. With Peter Dixon she is the co-developer of the MONASH model of the Australian economy. In the last fifteen years she has been a key contributor in the development, application, and documentation of USAGE. She has made major contributions in applications of the model to key policy areas such as the replacement of imported crude oil with domestically produced biofuels, legalization of unauthorized immigrants, and the effects of terrorism events on the U.S. economy.
About this book
This book is for people who want to understand modern trade theory, particularly the Melitz model. It lays out Melitz theory from first principles and relates it to earlier theories of Armington and Krugman. For trade theory specialists, the book produces some significant conclusions. It identifies conditions under which Krugman and Melitz models produce essentially the same results for the welfare effects of trade liberalization as those obtained from Armington, and conditions under which this is not true. These findings will be of interest to academics and policy advisors who need to understand critiques of Armington by proponents of Krugman and Melitz.
For computable general equilibrium (CGE) modelers, the book shows how Melitz-style CGE models can be calibrated, solved and interpreted. A major practical contribution of the book is to show how large-scale Armington models such as GTAP can be converted to Melitz by the addition of a small number of equations and minimal alteration of the original Armington model.
The book describes computational experience in solving Melitz CGE models using GEMPACK software. This experience will be of interest to researchers currently attempting to solve Melitz-based CGE models. Almost all previous Melitz studies have used GAMS software. Authors of these studies have reported computational difficulties. These difficulties did not occur in this book’s GEMPACK-based computations.
The book concludes that: (a) CGE modelers can embrace Melitz while retaining their Armington-based models as powerful interpretive devices; and (b) via GEMPACK, large-scale CGE models incorporating Melitz specifications can be solved with no more difficulty than similar-dimensioned Armington models.
Table of contents
1 Introduction: What’s in the Book and How to Read It
1. 1 What’s in This Book
1. 2 How to Read This Book
References
2 Armington, Krugman and Melitz as Special Cases of an Encompassing Model
2. 1 An Encompassing Model of Trade: The 10-Equation AKME Model
2. 2 The Special Assumptions Adopted by Armington, Krugman and Melitz
2. 3 Computational Completeness of the Armington, Krugman and Melitz Models in Table 2. 2
Appendix 2. 1: Mathematical Details of the Melitz Model in Table 2. 2
References
3 Optimality in the Armington, Krugman and Melitz Models
3. 1 Intra-sectoral Optimality and Inter-sectoral Distortion in the Dixit–Stiglitz Model
3. 2 The AKME Model as a Cost-Minimizing Problem
3. 3 Interpretation and Significance
Appendix 3. 1: Equivalence Between Worldwide Cost Minimizing and the AKME Model
References
4 Calibration and Parameter Estimation for a Melitz Sector in a CGE Model
4. 1 Calibrating a Melitz Sector in a CGE Model Presented in Levels Form
4. 2 Showing that Simulation Results in a Melitz Model Don’t Depend on the Choice Among Legitimate Calibrations
4. 3 Econometric Estimation of Parameters for a Melitz Sector: The Balistreri et al. (2011) Method
4. 4 Concluding Remarks
Appendix 4. 1: Relating Observables to Melitz Concepts, and Demonstrating the Fixity of the Shares of Production, Link and Establishment Costs in an Industry’s Total Costs
Appendix 4. 2: Calibration: Establishing Relationships Between Unobservables (δ, F and H) and Base-Year Data (V, T and W)
Appendix 4. 3: A Percentage Change Version of the Melitz Model: Derivation of Table 4. 2 from Table 4. 1
Appendix 4.4: The Irrelevance of the Absolute Values of the Initial H s s for Calibration and Estimation
References
5 Melitz Equals Armington Plus Endogenous Productivity and Preferences
5. 1 Completing the Melitz General Equilibrium Model
5. 2 The Armington Auxiliary Model and the Evaluation of Its Productivity and Preference Variables from Melitz Sectoral Models
5. 3 The Balistreri–Rutherford (BR) Algorithm
5. 4 Concluding Remarks: The Armington Model as a Tool for Interpreting Melitz Results
Appendix 5. 1: Establishing the Validity of the Balistreri–Rutherford Decomposition Algorithm
References
6 Illustrative GEMPACK Computations in a General Equilibrium Model with Melitz Sectors
6. 1 Setting Up and Solving a Melitz CGE Model
6. 2 Test Simulations and Interpreting Results
6. 3 The Effects of a Tariff Increase in the MelitzGE Model
6. 4 Decomposing MelitzGE Welfare Results via an Armington Model
6. 5 Is a Melitz Model Equivalent to an Armington Model with a Higher Substitution Elasticity?
6. 6 Concluding Remarks
Appendix 6. 1: GEMPACK Program and Closures for the MelitzGE and Armington Auxiliary Models
Appendix 6. 2: Showing that an Increase in Country 2’s Tariffs Doesn’t Affect the Number of Firms in Either Country
Appendix 6. 3: Deriving the Armington Decomposition of Melitz Welfare
References
7 Converting an Armington Model into a Melitz Model: Giving Melitz Sectors to GTAP
7. 1 Equations for the BasicArmington Model
7. 2 Forming the BasicArmington-A2M System
7. 3 Data for the BasicArmington-A2M System
7. 4 Illustrative Simulations with the BasicArmington-A2M System
7. 5 Converting the GTAP Model to Melitz: The GTAP-A2M System
7. 6 Illustrative Results from the GTAP-A2M System
7. 7 Summary and Conclusions
Appendix 7. 1: GEMPACK Program for an A2M System: Solving BasicArmington and MelitzGE
Appendix 7. 2: Another Decomposition of Welfare for Armington and Melitz
Appendix 7. 3: The Theory of GTAP-HET
References
8 Summary and Concluding Remarks
8. 1 List of Principal Findings
8. 2 Concluding Remarks
References
Series: Advances in Applied General Equilibrium Modeling
Length: 189 pages
Publisher: Springer; 1st ed. 2018 edition (March 31, 2018)
Language: English
ISBN-10: 9811083231
ISBN-13: 978-9811083235
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