What is the melitz model?
Trade liberalization reallocates resources from exiting unproductive domestic firms to productive exporters. This idea, known as the Melitz (2003) model of heterogeneous firms, has become one of the standard theories of international trade since the beginning of this century.
What does firm heterogeneity mean?
Furthermore, extensive firm heterogeneity means that aggregate productivity growth can be fostered significantly by a better allocation of capital and labour across firms, with evidence suggesting that significant productivity gains can stem from enhanced allocative efficiency within sectors.
What is the Krugman model?
The Krugman model. The Krugman model: The Home Market Effect. Main idea: countries will tend to export those kinds of products for which they have relatively large domestic demand. Two industries with many differentiated products within each of them.
What is new new trade theory?
New trade theory (NTT) is a collection of economic models in international trade theory which focuses on the role of increasing returns to scale and network effects, which were originally developed in the late 1970s and early 1980s.
Which are the assumption of Krugman’s trade model?
The essence of the model is as follows: – preferences are heterogeneous between and within countries – production experiences economies of scale – products are differentiated Industries within a country will produce goods which are targeted for the majority of their home consumers, thereby, exploiting economies of …
What is best explain through the new trade theory?
New trade theory (NTT) is a collection of economic models in international trade theory which focuses on the role of increasing returns to scale and network effects, which were originally developed in the late 1970s and early 1980s. Trade allows the countries to benefit from larger economies of scale.
What are the two important points under the new trade theory?
New trade theory incorporated two new concepts–economies of scale and network effects. By exploring the impact of tariffs and trade on the economy. By exploring two new concepts – economies of bounds and the impact of the Internet.