The Simple Analytics of the Melitz Model in a Small Economy

  title={The Simple Analytics of the Melitz Model in a Small Economy},
  author={Svetlana Demidova},
  • Svetlana Demidova
  • Published 2011
In this paper we present a version of the Melitz (2003) model for the case of a small economy and summarize its key relationships with the aid of a simple figure. We then use this figure to provide an intuitive analysis of the implications of asymmetric changes in trade barriers and show that a decline in import costs always benefits the liberalizing country. This stands in contrast to variants of the Melitz model with a freely traded (outside) sector, such as Demidova (2008) and Melitz and… CONTINUE READING

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