This page compiles notes and code related to techniques
for solving general equilibrium models of international trade
with monopolistic competition among heterogeneous firms.

Edward J. Balistreri and Thomas F. Rutherford

Fall 2010

Authors	Description	Links
Balistreri Hillberry Rutherford	"Structural Estimation and Solution of International Trade Models with Heterogeneous Firms" (2011) Journal of International Economics 83(2), 95-108. 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).	Journal of International Economics GAMS and Stata code Technical Appendix
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
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

More on computing heterogeneous-firms trade models can be found on
our CGE handbook chapter page; and for more general applications of
decomposition techniques visit the MPSGE home page.