8. DECENT WORK AND ECONOMIC GROWTH

Armington Meets Melitz: Introducing Firm Heterogeneity in a Global CGE Model of Trade

Armington Meets Melitz: Introducing Firm Heterogeneity in a Global CGE Model of Trade
Written by ZJbTFBGJ2T

Armington Meets Melitz: Introducing Firm Heterogeneity in a Global CGE Model of Trade  Asian Development Bank

Armington Meets Melitz: Introducing Firm Heterogeneity in a Global CGE Model of Trade

Improving Trade and Welfare Effects Estimation with Firm Heterogeneity in CGE Models

Introduction to the Melitz Theoretical Framework

Traditional computable general equilibrium (CGE) models, which are based on the Armington assumption, have been found to underestimate the trade and welfare effects of trade opening. This is primarily due to their inability to capture the extensive margin of trade. To overcome this limitation, a new paper introduces the Melitz (2003) theoretical framework, which incorporates firm heterogeneity and fixed exporting costs, into a global CGE model.

Impact of Firm Heterogeneity on Trade Expansion and Welfare

Illustrative simulations have demonstrated that the inclusion of firm heterogeneity significantly improves the CGE model’s ability to estimate the trade expansion and welfare effects of trade liberalization. For example, in the scenario of a global manufacturing tariff cut, the estimated gains in welfare and exports were more than double those obtained from a standard Armington CGE model.

Sensitivity Analysis and Need for Further Empirical Work

A sensitivity analysis revealed that the results of the model are highly dependent on the shape parameters of firm productivity distribution. This suggests that there is a need for further empirical work to accurately estimate the degree of firm heterogeneity.

Conclusion

The introduction of firm heterogeneity into CGE models represents a significant advancement in the estimation of trade and welfare effects. This approach aligns with the Sustainable Development Goals (SDGs), particularly Goal 8: Decent Work and Economic Growth, and Goal 17: Partnerships for the Goals, as it provides a more accurate assessment of the impact of trade policies on economic development and international cooperation.

  1. Introduction to Melitz Theoretical Framework
  2. Impact of Firm Heterogeneity on Trade Expansion and Welfare
  3. Sensitivity Analysis and Need for Further Empirical Work
  4. Conclusion
  • Improvement in CGE model accuracy
  • Alignment with SDGs, particularly Goal 8 and Goal 17
  • Need for further research on firm productivity distribution
DISCUSSION PAPER NO: 108

“`html

Analysis of the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article addresses issues related to Sustainable Development Goal 8: Decent Work and Economic Growth and Sustainable Development Goal 9: Industry, Innovation and Infrastructure.

2. What specific targets under those SDGs can be identified based on the article’s content?

  • Under SDG 8, the target related to the article is 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries.
  • Under SDG 9, the target relevant to the article is 9.4: Upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

No specific indicators are mentioned in the article. However, implied indicators could include:

  • Growth in exports as an indicator for SDG 8.1, since the article discusses how trade liberalization can lead to increased exports.
  • Improvements in trade efficiency as an indicator for SDG 9.4, as the article suggests that introducing firm heterogeneity into CGE models can improve the capture of trade expansion effects.

4. Create a table with three columns titled ‘SDGs, Targets and Indicators” to present the findings from analyzing the article.

SDGs Targets Indicators
SDG 8: Decent Work and Economic Growth 8.1: Sustain per capita economic growth Growth in exports
SDG 9: Industry, Innovation and Infrastructure 9.4: Upgrade infrastructure and retrofit industries Improvements in trade efficiency

“`

Copyright: Dive into this article, curated with care by SDG Investors Inc. Our advanced AI technology searches through vast amounts of data to spotlight how we are all moving forward with the Sustainable Development Goals. While we own the rights to this content, we invite you to share it to help spread knowledge and spark action on the SDGs.

Fuente: adb.org

 

Economy-Wide Impacts of Biodiesel Production and Use in India: A Computable General Equilibrium Model Assessment

Join us, as fellow seekers of change, on a transformative journey at https://sdgtalks.ai/welcome, where you can become a member and actively contribute to shaping a brighter future.

 

About the author

ZJbTFBGJ2T