Structural estimation and solution of international trade models with heterogeneous firms

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.

Trade Theory with Numbers: Quantifying the Consequences of Globalization

“…input-output linkages as in the early work of Krugman and Venables (1995), Eaton and Kortum (2002), Alvarez and Lucas (2007), and more recently Di Giovanni and Levchenko (2009), Caliendo andParro (2010), and Balistreri, Hillberry, and Rutherford (2011). Formally, we maintain the same preference structure as in the previous section and introduce intermediate goods parsimoniously…”

The EU Decarbonisation Roadmap 2050—What way to walk?

“…Melitz and Ottaviano (2008). For a CGE implementation of the Melitz model see Balistreri et al (2011). only in a limited way possible in a top-down macro model. And for a successful realization of ambitious climate policy targets it appears useful if not inevitable to look deeper into strategies to implement them on a sectoral level or even on a firm level.…”

Tariffs, Trade and Productivity: A Quantitative Evaluation of Heterogeneous Firm Models

“…That is, we only use the variation in the data associated with tari¤ cuts, which is directly comparable to the key mechanism in our model (where tari¤ reductions are the only exogenous driver of trade and productivity growth). 4 These procedures lead to a better …t of the model to the data, but the overall discrepancies remain large.…”

“…[4] Balistreri, E., Hillberry, R. and Rutherford, T. (2011 This article is protected by copyright. All rights reserved.…”

“…That is, we only use the variation in the data associated with tari¤ cuts, which is directly comparable to the key mechanism in our model (where tari¤ reductions are the only exogenous driver of trade and productivity growth). 4 These procedures lead to a better …t of the model to the data, but the overall discrepancies remain large.Having established the inability of our baseline model to simultaneously match trade and productivity increases, we ask which variations in modelling features bring the model's predictions closer to the data. We experiment with versions of our baseline model allowing for free entry, tradable intermediate inputs, general equilibrium e¤ects operating through wages, and endogenous …rm-level productivity through adjustments in product scope as in Bernard et al (2011).…”