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Unilateral trade liberalization in the Melitz model: A note

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  • Felbermayr, Gabriel
  • Jung, Benjamin
Abstract
In the two-country Melitz (2003) model, unilateral trade liberalization is often cast as a reduction of iceberg transportation costs and wages are determined by a linear outside sector. We show that welfare results reverse when wages adjust and trade frictions are revenue-generating tariffs.

Suggested Citation

  • Felbermayr, Gabriel & Jung, Benjamin, 2012. "Unilateral trade liberalization in the Melitz model: A note," University of Tübingen Working Papers in Business and Economics 30, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    • Handle: RePEc:zbw:tuewef:30
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    References listed on IDEAS

    as
    1. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    2. Demidova, Svetlana & Rodríguez-Clare, Andrés, 2009. "Trade policy under firm-level heterogeneity in a small economy," Journal of International Economics, Elsevier, vol. 78(1), pages 100-112, June.
    3. Jørgensen, Jan G. & Schröder, Philipp J.H., 2008. "Fixed export cost heterogeneity, trade and welfare," European Economic Review, Elsevier, vol. 52(7), pages 1256-1274, October.
    4. Ralph Ossa, 2011. "A "New Trade" Theory of GATT/WTO Negotiations," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 122-152.
    5. Svetlana Demidova & Andrés Rodríguez-Clarez, 2011. "The Simple Analytics of the Melitz Model in a Small Open Economy," NBER Working Papers 17521, National Bureau of Economic Research, Inc.
    6. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
    7. Ariel Burstein & Jonathan Vogel, 2011. "Factor Prices and International Trade: A Unifying Perspective," NBER Working Papers 16904, National Bureau of Economic Research, Inc.
    8. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
    9. Costas Arkolakis & Svetlana Demidova & Peter J. Klenow & Andres Rodriguez-Clare, 2008. "Endogenous Variety and the Gains from Trade," American Economic Review, American Economic Association, vol. 98(2), pages 444-450, May.
    10. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    11. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ehsan U. Choudhri & Antonio Marasco, 2014. "Asymmetric Technological Change in the Melitz Model: Are Foreign Technological Improvements Harmful?," Carleton Economic Papers 14-04, Carleton University, Department of Economics.
    2. Felbermayr, Gabriel & Jung, Benjamin, 2012. "The home market effect, regional inequality, and intra-industry reallocations," University of Tübingen Working Papers in Business and Economics 33, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    3. Takatsuka, Hajime & Zeng, Dao-Zhi, 2016. "Nontariff protection without an outside good," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 65-78.
    4. Felbermayr Gabriel J., 2018. "Zur Rückkehr der Machtpolitik in Handelsfragen: Theoretische Überlegungen und politische Empfehlungen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 19(3), pages 232-244, September.
    5. Anna Bohnstedt, 2016. "Spillovers from Foreign Exporters," Review of International Economics, Wiley Blackwell, vol. 24(1), pages 150-170, February.
    6. Ehsan U. Choudhri & Antonio Marasco, 2017. "Is Foreign Technological Advance Harmful in the Melitz Model?," Open Economies Review, Springer, vol. 28(1), pages 149-166, February.
    7. Bohnstedt, Anna, 2013. "Spillovers from Foreign Exporters," Ruhr Economic Papers 400, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    8. Michael Pflüger & Stephan Russek, 2014. "Trade and Industrial Policies with Heterogeneous Firms: The Role of Country Asymmetries," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 170-188, February.
    9. Kohler Wilhelm & Jung Benjamin, 2017. "Wie vorteilhaft ist internationaler Handel?: Ein neuer Ansatz zur Vermessung der Gewinne," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(1), pages 32-55, April.
    10. repec:zbw:rwirep:0400 is not listed on IDEAS
    11. Anna Bohnstedt, 2013. "Spillovers from Foreign Exporters," Ruhr Economic Papers 0400, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    12. Demidova, Svetlana, 2017. "Trade policies, firm heterogeneity, and variable markups," Journal of International Economics, Elsevier, vol. 108(C), pages 260-273.

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    More about this item

    Keywords

    monopolistic competition; heterogeneous firms; international trade; trade policy;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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