University of Tübingen Working Papers in Economics and Finance No. 30
University of Tübingen, Faculty of Economics and Social Sciences, Tübingen
In the two-country Melitz (2003) model, unilateral trade liberalization is often cast as a reduction of iceberg transportation costs and wages are determined by a linear outside sector. We show that welfare results reverse when wages adjust and trade frictions are revenue-generating tariffs.
monopolistic competition heterogeneous firms international trade trade policy