Simulation analysis of the EU ELV/RoHS directives based on an applied general equilibrium model with Melitz-type trade specification

This paper explores the potential usefulness of an AGE model with the Melitz-type trade specification to assess economic effects of technical regulations, taking the case of the EU ELV/RoHS directives as an example. Simulation experiments reveal that: (1) raising the fixed exporting cost to make sales in the EU market brings results that exports of the targeted commodities (motor vehicles and parts for ELV and electronic equipment for RoHS) to the EU from outside regions/countries expand while the domestic trade in the EU shrinks when the importer's preference for variety (PfV) is not strong; (2) if the PfV is not strong, policy changes that may bring reduction in the number of firms enable survived producers with high productivity to expand production to be large-scale mass producers fully enjoying the fruit of economies of scale; and (3) When the strength of the importer's PfV is changed from zero to unity, there is the value that totally changes simulation results and their interpretations.