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The Pareto distribution, asymmetric shape parameters, and equilibrium in an asymmetric Melitz model

Nakamoto, Yasuhiro (2020): The Pareto distribution, asymmetric shape parameters, and equilibrium in an asymmetric Melitz model.

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Abstract

Incorporating the homogeneous good sector into the Melitz model, we re-consider the �ndings in Demidova (2008, International Economic Review) that two countries have dif- ferent productivity distribution functions. Although the asymmetry of the productivity distribution function causes highly non-linear equations and incorporating the homoge- neous good sector yields the difference in markup rates between sectors, we graphically conclude that there are no multiple equilibria and no pure exporters, and that the ef- fects of trade liberalization on welfare are not qualitatively different from those in the one-sector Melitz model. Finally, supposing that trade specialization arises in the differ- entiated good sector, we con�rm the welfare impacts of trade liberalization.

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