Comparison of Welfare Gains in the Armington, Krugman and Melitz Models : Insights from a Structural Gravity Approach

Balistreri, Edward J. ; Tarr, David G.

World Bank, Washington, DC

关键词: GAINS FROM TRADE;    STRUCTURAL GRAVITY;    MONOPOLISTIC COMPETITION;    VARIETY MEASURE;    HETEROGENEOUS FIRMS;   

DOI  :  10.1596/1813-9450-8570
RP-ID  :  WPS8570

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

How large are the estimated gains fromtrade from a reduction in trade costs in the heterogeneousfirms Melitz (M) model compared with the Armington (A) andKrugman (K) models? Surprisingly little is known beyond theone-sector model. This paper analyzes this question using aglobal trade model that contains ten regions and variousnumbers of sectors (1-10). Following Arkolakis et al.(2012), the analysis holds the local trade response constantacross the model comparisons based on a structural gravityestimate. Various model features and scenarios areintroduced that are important to real economies, almost noneof which has been examined across the three marketstructures with a constant trade response. In response toglobal reductions in iceberg trade costs, in all themulti-sector models, the ranking of global welfare gains isMelitz > Krugman > Armington; and the Krugman modelcaptures between 75 and 95 percent on the additional gainsabove the Armington model that are estimated by the Melitzmodel. However, for individual regions, there are numerouscases of reversed welfare rankings. i.e., Melitz Krugman > Armington. For individual regions,however, the welfare ranking of the Armington, Krugman andMelitz market structures is model, data, parameter andscenario dependent. The results highlight the need for dataand structural considerations in policy analysis.