Parameterization of applied general equilibrium models with flexible trade specifications based on the Armington, Krugman, and Melitz models

This paper explains how the Armington-Krugman-Melitz supermodel developed by Dixon and Rimmer can be parameterized, and demonstrates that only two kinds of additional information are required in order to extend a standard trade model to include Melitz-type monopolistic competition and heterogeneous firms. Further, it is shown how specifying too much additional information leads to violations of the model constraints, necessitating adjustment and reconciliation of the data. Once a Melitz-type model is parameterized, a Krugman-type model can also be parameterized using the calibrated values in the Melitz-type model without any additional data. Sample code for the General Algebraic Modeling System (GAMS) has also been prepared to promote the innovative supermodel in the AGE community.

The location of manufacturing firms and imperfect information in transport market

It is well know that transport charges are not symmetric: fronthaul and backhaul costs on a route may differ, because they are affected by the distribution of economic acitivities. This paper develops a two-regional general equilibrium model in which transport costs are determined endogenously as a result of a search and matching process. It is shown that economies or diseconomies of transport density emerge, depending on the search costs of transport firms and the relative importance of the possibility of backhaul transportation. It is found that the symmetry of the distribution of economic activity may break owing to economies of transport density when the additional search costs are small enough.

Neutrality in the choice of number of firms or level of fixed costs in calibrating an Armington-Krugman-Melitz encompassing module for applied general equilibrium models

This paper shows how an Armington-Krugman-Melitz encompassing module based on Dixon and Rimmer (2012) can be calibrated, and clarifies the choice of initial levels for two kinds of number of firms, or parameter values for two kinds of fixed costs, that enter a Melitz-type specification can be set freely to any preferred value, just as the cases we derive quantities from given value data assuming some of the initial prices to be unity. In consequence, only one kind of additional information, which is on the shape parameter related to productivity, just is required in order to incorporate Melitz-type monopolistic competition and heterogeneous firms into a standard applied general equilibrium model. To be a Krugman-type, nothing is needed. This enables model builders in applied economics to fully enjoy the featured properties of the theoretical models invented by Krugman (1980) and Melitz (2003) in practical policy simulations at low cost.

How does firm heterogeneity information impact the estimation of embodied carbon emissions in Chinese exports?

Using an augmented Chinese input–output table in which information about firm ownership and type of traded goods are explicitly reported, we show that ignoring firm heterogeneity causes embodied CO2 emissions in Chinese exports to be overestimated by 20% at the national level, with huge differences at the sector level, for 2007. This is because different types of firm that are allocated to the same sector of the conventional Chinese input–output table vary greatly in terms of market share, production technology and carbon intensity. This overestimation of export-related carbon emissions would be even higher if it were not for the fact that 80% of CO2 emissions embodied in exports of foreign-owned firms are, in fact, emitted by Chinese-owned firms upstream of the supply chain. The main reason is that the largest CO2 emitter, the electricity sector located upstream in Chinese domestic supply chains, is strongly dominated by Chinese-owned firms with very high carbon intensity.