New Trade Models, New Welfare Implications

By Marc J. Melitz, Stephen J. Redding. 2015

379 citations recorded by the source corpus.

We show that endogenous firm selection provides a new welfare margin for heterogeneous firm models of trade (relative to homogeneous firm models). Under some parameter restrictions, the trade elasticity is constant and is a sufficient statistic for welfare, along with the domestic trade share. However, even small deviations from these restrictions imply that trade elasticities are variable and differ across markets and levels of trade costs. In this more general setting, the domestic trade share and endogenous trade elasticity are no longer sufficient statistics for welfare. Additional empirically observable moments of the micro structure also matter for welfare.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/b513d5f47bf449f0331307c42d8b8e7f62a233c1

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

The Margins of Global Sourcing: Theory and Evidence from U.S. Firms (2017, positive): “Turning to the practical implementation of our structural estimation, we follow Melitz and Redding (2015) and assume that firms’ core productivities are distributed Pareto.”
The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs (2015, background): “Melitz and Redding (2013) show that the endogenous entry and exit decisions of firms into and out of the domestic The mean, median, and standard deviation of trade cost estimates are computed only over productdestination pairs where the f.o.b. price is nonmissing.”
The Elusive Pro-Competitive Effects of Trade (2018, background): “Thus, the selection of firms across markets is driven entirely by the existence of a choke price, as in Melitz and Ottaviano (2008). Throughout our analysis, we assume that good markets are perfectly segmented across countries and that parallel trade is prohibited so that firms charge the optimal mo”
Restoring the Product Variety and Pro-Competitive Gains from Trade with Heterogeneous Firms and Bounded Productivity (2014, background): “…a gravity equation in trade that is consistent with the many instances of zero trade flows between countries.5 It is surprising, then, that the bounded Pareto has not received more theoretical attention (though it is consistent with Melitz, 2003, and it is explored by Melitz and Redding, 2015).”
Not So Demanding: Demand Structure and Firm Behavior (2017, neutral): “…with firm heterogeneity, at least with CES preferences, as shown empirically and theoretically by Balistreri, Hillberry and Rutherford (2011) and Melitz and Redding (2015).33 To quantify the welfare effects of globalization, we assume as in previous sections that preferences are additively…”