Trade Theory in Computable General Equilibrium Models: Armington, Krugman and Melitz

This book provides a comprehensive guide to modern trade theory, particularly the Melitz model. It explains the theory from first principles and relates it to earlier theories of Armington and Krugman, offering insights into the welfare effects of trade liberalization. It also demonstrates how Melitz-style CGE models can be calibrated, solved, and interpreted, making it a valuable resource for computable general equilibrium modelers. The book's use of GEMPACK software for computations makes it easier to solve large-scale Melitz models compared to previous studies that used GAMS software.

Format: Hardback
Length: 189 pages
Publication date: 11 April 2018
Publisher: Springer Verlag, Singapore

This comprehensive book is designed for individuals seeking to gain a deep understanding of modern trade theory, with a specific focus on the Melitz model. It provides a thorough exposition of Melitz theory, starting from its fundamental principles and connecting it to earlier theories by Armington and Krugman. For trade theory experts, this book offers valuable insights. It identifies circumstances where the Krugman and Melitz models yield essentially the same welfare consequences as the Armington model, as well as situations where this is not the case. These findings hold significant importance for academics and policy advisors who need to comprehend critiques of Armington from proponents of Krugman and Melitz. Moreover, the book demonstrates how Melitz-style computable general equilibrium (CGE) models can be calibrated, solved, and interpreted. A significant practical contribution of this work is its demonstration of how large-scale Armington models, such as GTAP, can be transformed into Melitz models by incorporating a few equations and making minimal alterations to the original Armington model. The book provides detailed computational experiences using GEMPACK software to solve Melitz CGE models, which will be of interest to researchers currently engaged in solving Melitz-based CGE models. It is worth noting that previous Melitz studies have predominantly relied on GAMS software. However, authors of these studies have encountered computational difficulties. Fortunately, these difficulties did not arise during the GEMPACK-based computations conducted in this book. The book concludes that CGE modelers can embrace Melitz while retaining their Armington-based models as powerful interpretive tools. Furthermore, through GEMPACK, large-scale CGE models incorporating Melitz specifications can be solved with no more difficulty than similar-dimensioned Armington models.

Weight: 428g
Dimension: 164 x 242 x 19 (mm)
ISBN-13: 9789811083235
Edition number: 1st ed. 2018