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Mathematics Of Generalized Versions Of The Melitz, Krugman, And Armington Models With Detailed Derivations, Edward J. Balistreri, David G. Tarr

Department of Economics: Faculty Publications

We provide detailed textbook style mathematical derivations of an extended version of the heterogenous firms model of Melitz (2003), as well as the Armington (1969) and Krugman (1980) models. Our model of heterogeneous firms extends the model of Melitz (2003) by allowing multiple sectors, intermediates, heterogeneous regions based on data, labor-leisure choice, initial heterogeneous tariffs, multiple factors of production, the possibility of sector-specific inputs and trade imbalances based on data, and we incorporate global and unilateral tariff policy shocks. Although the models in this paper are extensions in numerous directions of the Melitz trade model of heterogeneous firms, the pedagogical …