Extending The Melitz Model To Asymmetric Countries
- Topics:
- Organization
- Tags:
- University Of Nottingham
- Source:
- University of Nottingham
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Overview: In this paper we extend the Melitz (2003) heterogeneous firm trade model to include differences in country sizes and production technologies. We begin by characterising a "Superior" technology, in terms of both survival cutoffs and representative firm productivity, and then examine a (costly) trading equilibrium between a leading and laggard country. We find that the intra-industry market share reallocations towards more efficient firms are stronger in the leading country. The numbers of firms depend on both country size and technology differences. Other things equal, the leading or the larger country tends to run a trade surplus in differentiated products, and, if technology or size differences are sufficiently large, the smaller or laggard country will cease production of differentiated products.
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Format: PDF | Size: 2,488KB | Date: Mar 2006 | Pages: 47
