Techniques for Solving General Equilibrium Models of International Trade with Monopolistic Competition among Heterogeneous Firms

Edward J. Balistreri (Colorado School of Mines)

Thomas F. Rutherford (ETH Zurich)

1. Balistreri, Hillberry and Rutherford. 

"Structural Estimation and Solution of International
Trade Models with Heterogeneous Firms" (forthcoming) Journal of
International Economics.

This is an application of the Melitz (2003) theory of heterogeneous
firms in a large-scale trade-policy simulation model. We use a
decomposition technique (explained in the technical appendix).

paper, GAMS and Stata code, Technical Appendix

2. Rutherford

Replication of Bernard, Redding, and Schott (2007) simulations using a
transparent decomposition technique in GAMS. This model is small
enough that we can solve the heterogeneous firms model as an
integrated system, but the application of the decomposition algorithm
indicates how larger (empirical) models might be solved. Rutherford
provides significant annotation throughout the code.

GAMS code

3. Balistreri, Hillberry, Rutherford

"Trade and Welfare: Does industrial organization matter?" (2010)
Economics Letters 109(2), 85-87.

This paper uses a transparent simplified model to illustrate that the
equivalence result derived by Arkolakis et al. (2008) generally does
not hold in multiple sector models. The paper and code provide a
transparent application of the heterogeneous-firms theory as an
integrated Mixed Complementarity Problem.

Economics Letters, GAMS code

updated 10/15/2010