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GTAP Resource #5325

"Market Structure and the impact of RCEP in The Philippines: What are the Differences between Melitz, Krugman and Armington?"
by Balistreri, Edward J. and David G. Tarr

We estimate the welfare effects of a modern mega-preferential trade agreement--the Regional Comprehensive Economic Partnership--with three versions of market structure: (i) perfect competition, Armington style; (ii) monopolistic competition based on Krugman (1980); and (iii) monopolistic competition in the style of Melitz (2003). We develop a new numerical model of foreign direct investment (FDI) with heterogeneous firms and an extension of the Krugman model that allows small countries to impact the number of varieties. We hold both the trade and FDI responses constant across the three market structures. We find that in all three market structures, there are substantial gains from deep integration, but virtually no gains from preferential tariff reduction. Both our Krugman and Melitz style models produce significantly larger welfare gains than the Armington structure, especially if third countries benefit at least partially from the deep integration reforms via either spillovers or wider liberalization.

An updated version of this paper appeared as:
“Comparison of Deep Regional Integration in the Melitz, Krugman and Armington models: the case of The Philippines in RCEP,” Economic Modeling, Vol. 85, February, 255-271. Available at:

Resource Details (Export Citation) GTAP Keywords
Category: 2017 Conference Paper
Status: Published
By/In: Presented at the 20th Annual Conference on Global Economic Analysis, West Lafayette, IN, USA
Date: 2017
Version: 1
Created: Tarr, D. (4/15/2017)
Updated: Tarr, D. (2/19/2024)
Visits: 1,691
- Bridging CGE and new quantitative trade (NQT) literature
- New quantitative trade models
- Non-Tariff barriers
- Advances in quantitative methods
- Baseline development
- Model extension/development
- Model integration and coupling
- Asia (East)
- Asia (Southeast)
- Oceania

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