The Simple Analytics of the Melitz Model in a Small Open Economy / Svetlana Demidova, Andrés Rodríguez-Clarez.

Format:

Book

Author/Creator:

Demidova, Svetlana.

Contributor:

National Bureau of Economic Research.

Rodríguez-Clare, Andrés.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17521.

NBER working paper series no. w17521

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

In this paper we present a version of the Melitz (2003) model for the case of a small economy and summarize its key relationships with the aid of a simple figure. We then use this figure to provide an intuitive analysis of the implications of asymmetric changes in trade barriers and show that a decline in import costs always benefits the liberalizing country. This stands in contrast to variants of the Melitz model with a freely traded (outside) sector, such as Demidova (2008) and Melitz and Ottaviano (2008), where the country that reduces importing trade costs experiences a decline in welfare.

Notes:

Print version record

October 2011.