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Felbermayr, Gabriel; Jung, Benjamin (2012): Unilateral trade liberalization in the Melitz model: A note. University of Tübingen working papers in economics and finance, 30
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Abstract

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.

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