Comparison of Deep Regional Integration in the Melitz, Krugman and Armington Models : The Case of The Philippines in RCEP

Balistreri, Edward J. ; Tarr, David G.

World Bank, Washington, DC

关键词: HETEROGENEOUS FIRMS;    FOREIGN DIRECT INVESTMENT;    DEEP INTEGRATION;    STRUCTURAL GRAVITY;    PREFERENTIAL TRADE AGREEMENTS;   

DOI  :  10.1596/1813-9450-8587
RP-ID  :  WPS8587

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper estimates the impacts on ThePhilippines of deep integration in a modernmega-preferential trade agreement, the RegionalComprehensive Economic Partnership. The paper assesses howthe results differ with three versions of market structure:(i) perfect competition, Armington style; (ii) monopolisticcompetition Krugman style; and heterogeneous firms, Melitzstyle. The paper develops a new numerical model of foreigndirect investment with heterogeneous firms where firmsproduce in the host country and demand corresponds to the“proximity burden,” and is the first to apply aheterogeneous-firms model of foreign direct investment topreferential trade analysis. It also develops an extensionof the Krugman model that allows small countries to impactthe number of varieties. Both of these model extensions, aswell as market structure, are crucial to the results. Thetrade and foreign direct investment responses are heldconstant across the three market structures. Lowering tradecosts is examined from: (i) the reducing non-tariff barriersin goods; (ii) lowering barriers against foreign servicesproviders, from foreign direct investment and cross-border;and (ii) facilitating trade. The results show that in allthree market structures, there are substantial gains fromdeep integration, but virtually no gains from preferentialtariff reduction.Both Krugman and Melitz style modelsproduce significantly larger welfare gains than theArmington structure, especially in the impacts of foreigndirect investment or with wider spillover effects on non-Regional Comprehensive Economic Partnership regions. Therelationship between the welfare gains in the Krugman versusMelitz models is complex.