Chapter prepared for the Handbook of Computable General EquilibriumModeling

This chapter considers alternatives to the Armington formulation of international trade found in most Computable General Equilibrium (CGE) models. International trade struc-tures consistent with the monopolistic competition models suggested by Krugman (1980) and Melitz (2003) are presented in a computational setting. The Melitz structure of het-erogeneous firms is particularly appealing given its consistency with micro-level findings on firm sizes and export behavior. We broaden the accessibility of these advanced trade theories for CGE modelers and strengthen the link between contemporary CGE analysis and the broader trade community. Small scale examples of all three theories (Armington, Krugman, and Melitz) are introduced under a unified treatment. This is helpful in trans-lating the advanced theories into an environment that is more familiar to CGE modelers. It is also helpful in showing how the different approaches affect outcomes, in a relatively transparent setting. Moving to an applied setting, we offer our approach to calibration and computation of models that include the Melitz heterogeneous-firms structure. Our appli-cations include an analysis of economic integration and subglobal climate policy in amode