Structural estimation and solution of international trade models with heterogeneous firms |
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Authors: | Edward J Balistreri Russell H Hillberry |
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Institution: | a Division of Economics and Business, Colorado School of Mines, Golden CO 80401-1887, USAb Department of Economics, Economics and Commerce Building, University of Melbourne, Parkville, VIC 3010, Australiac The Swiss Federal Institute of Technology (ETH-Zürich),ZUE E 7, Zürichbergstrasse 18, 8032 Zürich, Switzerland |
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Abstract: | We present an empirical implementation of a general-equilibrium model of international trade with heterogeneous manufacturing firms. The theory underlying our model is consistent with Melitz (2003). A nonlinear structural estimation procedure identifies a set of core parameters and unobserved firm-level trade frictions that best fit the geographic pattern of trade. Our estimation model is consistent with the specified general equilibrium model, and we conduct general equilibrium counterfactual analyses to illustrate model responses. We first assess the economic effects of reductions in measured tariffs. Taking the simple-average welfare change across regions the Melitz structure indicates welfare gains from liberalization that are four times larger than in a standard trade policy simulation. Furthermore, when we compare the economic impact of tariff reductions with reductions in estimated fixed trade costs we find that policy measures affecting the fixed costs are of greater importance than tariff barriers. |
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Keywords: | C68 F12 |
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