EI033 - Trade theory and evidence
International Trade I: Theory and Evidence
Graduate Institute of International and Development Studies
E804 - Spring 2015 - Seminar - 6 ECTS
Wednesday 10:15-12:00, Room S8
Professor: Nicolas Berman (nicolas.berman – at – graduateinstitute.ch)
Office hours: Monday 16:00-18:00
TA: Askel Erbahar
Review Sessions (5 sessions): Thursdays 12:15-14:00
Course Description
This course is designed for Masters students specializing in economics. The course is divided in three parts. The first considers the predictions of the neoclassical trade theories and their implications. The second presents new trade models with imperfect competition. The third considers extensions of new trade theories including model with firm-level heterogeneity and gravity equations. The course considers both theories and recent empirical works, as well as a discussion of the relevant methodological issues in measurement and estimation.
Main complementary textbooks
Markusen, Melvin, Kaempfer and Maskus: International Trade: Theory and Evidence (“MMKM” in the reading list) This textbook is freely available on James Markusen’s webpage
R. Feenstra “Advanced International Trade: Theory and Evidence”, Ed. 2003 (“Feenstra” in the reading list).
Additional
Helpman, E. & Krugman P., 1985: Market Structure and Foreign Trade, MIT Press. (For new trade theory.
Combes, P.-P., Mayer, T. and Thisse, J., Economic geography, Princeton University Press. For new economic geography.
Krugman, P. & Obstfeld M., International Economics, Addison-Wesley. Less advanced, for intuitions.
Pre-requisites of the course and grading
The grade will be based on an applied group work, a paper presentation (50% of the final grade) and a final exam (50% of final grade). The course assumes knowledge of basic micro theory (part 1 of MMKM textbook), and basic econometrics (i.e. Econometrics I course - E040).
Applied work: To be done by group, and will be based on a practical application using the gravity equation.
In class presentation: The presentation should be based on one of the paper of the reading list (see below). They should be organized as follows: presentation of the paper, then discussion of the paper, i.e. description of its main features, contributions to the literature, strengths and weaknesses.
Outline (preliminary)
Lectures
Weeks 2-3 Technology and Trade (Ricardian model) + paper presentation
Weeks 4-5 Factor endowments and trade (HO model) + paper presentation
Weeks 6-7 Trade and labor markets (with Marco Fugazza from UNCTAD and PhD students in trade)
Spring Break
Weeks 8-9 New trade theories (trade and competition) + paper presentation
Weeks 10-11 Firms in international trade + paper presentation
Week 12 Gravity equations
Week 13 Applied group work on gravity equation
Week 14 Final exam
Review sessions: weeks 3, 5, 9, 11, 13
March 5 (Ricardian model), S8
March 19 (HO model), S4
April 23 (New trade theories), S4
May 7 (Firms in trade), S4
May 21 (recap), S8
Abbreviations: AER: American Economic Review; EER: European Economic Review; EMA: Econometrica; JIE: Journal of International Economics; JPE: Journal of Political Economy; JDE: Journal of Development Economics. JEL: Journal of Economic Literature; NBER National Bureau of Economic Research (nber.org); QJE Quarterly Journal of Economics, RIESTAT: Review of Economics and Statistics; RES: Review of Economic Studies
Lectures
Chapter 0. Introduction and trade facts
Reading: A long run perspective on globalization
Additional: Leamer (2007)
Chapter 1. Technology and trade
Required reading: MMKM chapter 7
Additional reading: Samuelson (2004)
Presentation: A. Costinot and D. Donaldson (2012), “Ricardo’s theory of comparative advantage: old idea, new evidence”, AER Papers and Proceedings
Papers for presentation:
- D. Bernhofen and J. Brown (2004), “A direct test of the theory of comparative advantage: the case of Japan”, JPE
Chapter 2. Factor endowments and trade
M. Fugazza's slides on trade and labor
Additional slides on trade and labor
Required reading: MMKM chapter 8 (for HOS), Feenstra chapter 1 (2*2*2 model) and 2 (HOV and empirics) and chap. 4
Additional readings: Trefler, D. "International factor price differences: Leontief was right!" JPE 1993
Presentation: Autor, Dorn and Hanson (2012) The China Syndrome: Local Labor Market Effects of Import Competition in the United States, AER
Papers for presentation :
- Trefler, D. “The case of the missing trade and other HOV mysteries,” AER 1995.
- Harrigan J. (1997), Technology, Factor Supplies, and International, Specialization: Estimating the Neoclassical Model, AER
- Lai H. and Zhu S. (2007), “Technology, endowments, and the factor content of bilateral”, JIE
- Choi and Krishna (2004) “The factor content of Bilateral Trade: An Empirical Test”, JPE
- Attanasio, O., Goldberg, P. and Pavcnik, N., 2004, “Trade Reforms and Wage Inequality in Colombia”, JDE
- Amiti, M. and R. Davis (2012), "Firms, Trade and wages: Theory and Evidence", ReStud
Chapter 3. International trade under imperfect competition (and New Economic Geography)
Details computations in Helpman-Krugman (1985)
Slides on New Economic Geography
Required readings: Feenstra chapter 5
Additional readings: HK85, Chapter 6 (read for ideas, not maths); Krugman, Paul R. 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," AER. See also R. Baldwin’s handout on Dixit-Stiglitz monopolistic competition, Baldwin et al. chapter on Core-periphery model
Papers for presentation:
- Davis D. and D. Weinstein (2003), “Market access, economic geography and comparative advantage: an empirical test”, JIE
- Head and Ries (1999), “Rationalization effects of Tariffs reductions”, JIE
- Head and Ries (2001), “Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of US-Canada Trade” , AER
- Broda and Weinstein (2006), “Globalization and the Gains from variety”, QJE
Papers for presentation (NEG):
- Handbury and Weinstein (2011), "Is new economic geography right? Evidence from price data", NBER WP
- Davis and Weinstein (2002). “Bones, Bombs and Break Points: The Geography of Economic Activity”, AER
- Redding S. and T. Venables (2004), “Economic geography and international inequality”, JIE
- Redding and Sturm (2010) “The Costs of Remoteness: Evidence from German Division and Reunification”, AER
Chapter 4: Trade with heterogeneous firms
Readings: T. Chaney notes on Melitz model ; Baldwin's summary of Melitz
Additional readings: Bernard et al. literature review on the empirics of firm heterogeneity in trade; Redding’s literature review on “new new” trade theories
Papers for presentation:
- Pavcnik N. (2002) “Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants”, RES
- Trefler, D. (2004) “The Long and The Short of the Canada-U.S. Free Trade Agreement”, AER
- Lileeva A. and D. Trefler (2010), “Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants”, QJE
- Goldberg P., Loecker J., Khandelwal A. and N. Pavcnik (2013) “Prices, Markups and Trade Reform”
- Bernard A., B. Jensen and P. Schott (2006). “Survival of the best fit”, JIE
Chapter 5 - Gravity equations
Required readings: Feenstra chap. 5; R. Baldwin and D. Taglioni (2006). “Gravity for dummies and dummies for Gravity equations”, NBER WP
Additional reading: Head and Mayer (2013), Gravity Equations: Workhorse, Toolkit and Cookbook", in Handbook of International Economics.
Papers for presentation:
- Disdier, A.-C. and K. Head (2008), “The Puzzling Persistence of the Distance Effect on Bilateral Trade”, RESTAT
- Head K., Mayer T. and J. Ries (2010), “The erosion of colonial trade linkage after independance”, JIE
- Martin P., Mayer T. and M. Thoenig (2008), “Make trade not war? », RES 2008
- Baier and Bergstrand (2009) “Do Free Trade Agreement actually increase members international trade?”, JIE
Other topics (from last year)
Trade policy and political economy
Slides (trade policy)
Slides (political economy)
Required readings: MMKM chapters 15 and 16 (only parts covered in class); Feenstra chapter 9 and Baldwin and Robert-Nicoud handout “Protection for Sale Made Easy”
Trade, technology, and growth
Additional readings
NEOCLASSICAL TRADE THEORY
- Davis, D. and D. Weinstein, 2002, "The Factor Content of Trade", in Handbook of International Trade, James Harrigan, ed., New York: Blackwell, 2002.
- Davis, D. and D. Weinstein, 2001, "An Account of Global Factor Trade," American Economic Review (December): 1423-1453.
- Bowen, Leamer and Sveikauskas, “Multicountry, Multifactor tests of the factor abundance theory”, AER 1987
- Harrigan, J., 2002. "Specialization and the Volume of Trade: Do the Data Obey the Laws?" forthcoming in K. Choi and J. Harrigan, editors, Handbook of International Trade, New York: Basil-Blackwell. (Also available as NBER Working Paper No. 8675.) (part of comparative advantage)
- Lai H. and Zhu S. (2007), “Technology, endowments, and the factor content of bilateral ”, JIE
- Leontief, W., “Domestic Production and Foreign Trade: The American Capital Position Re-examined”, Economica Internazionale, 1954
- Leontief, W.W., “Factor Propositions and the Structure of American Trade: Further Theoretical and Empirical Result´s”, RIESTAT, 1956
- Schott, Peter K. (2003), “One Size Fits All? Heckscher-Ohlin Specialization in Global Production,“ AER
- Trefler, D. "International factor price differences: Leontief was right!" JPE 1993
TRADE AND THE LABOR MARKET
- Autor, Dorn and Hanson (2012) The China Syndrome: Local Labor Market Effects of Import Competition in the United States
- Attanasio, O., Goldberg, P. and Pavcnik, N., 2004, “Trade Reforms and Wage Inequality in Colombia”, JDE
- Berman, E., J. Bound and Z. Griliches (1994), "Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing", NBER Working Paper 4255
- Borjas, G., R. Freeman and L. Katz (1997), "How Much do Immigration and Trade Affect Labor Market Outcomes?", BPEA 1, 1-90
- Biscourp and Kramarz (2007), “Employment, skill structure and international trade”, JIE
- Krugman (2007), “Trade and Inequality Revisited”, Vox-EU
- Lawrence and Slaughter (1993), “Trade and US Wages: Great Sucking Sound or Small Hiccup?”, Brooking Papers on Economic Activity
- Wood, Adrian (1997), "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom", WorldBank Economic Review 11.
- Bustos, Paula (2006). "Rising Wage Inequality in the Argentinean Manufacturing Sector: The Impact of Trade and Foreign Investment on Technology and Skill Upgrading," CREI mimeo.
- Dutt and Traca "Trade and the Skill bias: It's not how much but whit whom you trade", CEPR Discussion paper 5263
- Zhu and Trefler (2005) "Trade and inequality in developing countries: a general equilibrium analysis" JIE
- See also recent Baldwin vox column on outsourcing
- Feenstra, Robert C. and G. H. Hanson (1996), "Globalization, Outsourcing, and Wage Inequality", AER 86, 240-245.
- Feenstra, Robert C. and G. H. Hanson (1999), "The Impact of Outsourcing and High-Technology Capital on Wages: Estimates for the U.S., 1979-1990", QJE 114, 907-940.
- Grossman, G. M. and E. Rossi-Hansberg (2008), “Trading tasks: A simple theory of offshoring", AER.
- Baldwin and Robert Nicoud (2010) "Trade-in-goods and trade-in-tasks: an Integrating framework"
- Acemoglu, Daron (2003), "Patterns of Skill Premia", RES 70, 199-230.
- Thoenig, Mathias and T. Verdier (2003), "A Theory of Defensive Skill-Biased Innovation and Globalization", AER
- Verhoogen, E. (2008), “Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector”, QJE
GRAVITY EQUATIONS
- Anderson and Van Wincoop (2003). “Gravity with Gravitas: A solution to the Border Effect Puzzle”, AER
- Helpman, Melitz, Rubinstein (2008) “Trading Partners and Trade Volumes”, QJE
- McCallum, J. (1995), “National Borders Matter: Canada-U.S. Regional Trade Patterns”, AER 85, 615-623
- Andrew K. Rose (2000) "One money, one market: the effect of common currencies on trade," Economic Policy
- Santos Silva, J.M.C. and S. Tenreyro (2006), “The Log of Gravity”, RIESTAT
- Persson (2001) "Currency unions and international trade: How large is the treatment effect?", Economic Policy
- Baier and Bergstrand (2009) "Do Free Trade Agreement actually increase members international trade?", JIE
- Waugh, "International Trade and Income differences" AER 2010
- Anderson and Yotov, "The changing incidence of geography", AER 2010
- Anderson and Van Wincoop (2003). “Gravity with Gravitas: A solution to the Border Effect Puzzle”, AER
- Hummels and Levinsohn (1995), “Monopolistic competition and international trade: Reconsidering the evidence”, QJE
- Debaere (2005) “Monopolistic competition and trade, revisited: testing the model without testing for gravity”
- Hummels and Levinsohn (1995), “Monopolistic competition and international trade: Reconsidering the evidence”, QJE
- Antweiler and Trefler (2002), “Increasing returns and all that: a view from trade”,AER
- Broda and Weinstein (2006), “Globalization and the Gains from variety”,QJE.
- Chen, Imbs, Schott (2009) “The Dynamics of trade and competition“, JIE
- Davis and Weinstein (2003). “Market Access, Economic Geography and Comparative Advantage: An Empirical Assessment”, JIE
- Debaere (2005) “Monopolistic competition and trade, revisited: testing the model without testing for gravity”
- Head and Ries (2001), “Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of US-Canada Trade”,AER
- Hummels, David and Klenow, Peter J. (2006) "The Variety and Quality of a Nation’s Exports". AER
- Grubel, H.G. and P.J. Lloyd (1975), Intra-Industry Trade: The Theory and Measurement of International Trade in Differentiated Products. Wiley, New York.
NEW ECONOMIC GEOGRAPHY
- Duranton, G. and H.G. Overman (2005), “Testing for Localisation Using Micro-Geographic Data”, RES 72, 1077-1106
- Hanson (2005), “Market Potential, Increasing Return and Geographic Concentration”, JIE
- Head, K., and T. Mayer (2004), “Market Potential and the Location of Japanese Firms in the European Union'', RIESTAT
- Redding and Venables (2004). “Economic Geography and International Inequality”, JIE
- Redding and Sturm (2010) “The Costs of Remoteness: Evidence from German Division and Reunification”, AER
FIRM HETEROGENEITY AND TRADE
- Bernard, A.B. and Jensen, J.B. (1999) "Exceptional Exporter Performance: Cause, Effect, or Both?" JIE
- Bernard, Jensen and Schott (2006). “Survival of the best fit:(...)”, JIE
- Bernard, Jensen, Redding and Schott (2007). Firms in international trade, Journal of Economic perspectives
- Chaney (2008) “Distorted Gravity: the Intensive and Extensive Margins of International Trade”, AER
- Crozet Head and Mayer(2009), “Quality sorting and trade: Firm-level evidence for French wine”, CEPR DP
- Helpman, Melitz, Yeaple (2004) "Export Versus FDI with Heterogeneous Firms", AER
- Pavcnik (2002) “Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants”, RES
- Robert and Tybout (1997) "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs”, AER
- Trefler, Daniel, (2004) “The Long and The Short of the Canada-U.S. Free Trade Agreement.” AER
- Eaton, Kortum, Kramarz (2004) Dissecting Trade: Firms, Industries, and Export Destinations” AER P&P
TRADE POLICY
- Feenstra (1988). Quality change under trade restraints in Japanese autos, Quarterly Journal of Economics.
- Irving (2005). The welfare cost of autarky: Evidence from the Jeffersonian trade embargo, 1807-1809. Review of International Economics.
- Irving and Pavcnik(2005). Airbus versus Boeing revisited: international competition in the aircraft market, Journal of International Economics.
- Irving (2008). Trade restrictiveness and deadweight losses for US tariffs. NBER working paper.
POLITICAL ECONOMY
- Mayda and Rodrik(2005). Why are some people (and countries) more protectionist than others?, European Economic Review
- Conconi, P., Facchini, G. and M. Zanardi (2012), “Policymakers’ horizons and trade reforms […]”
- Goldberg and Maggi(1999). Protection for sale: An empirical investigation , American Economic Review.
- Trefler (1993). Trade liberalization and the theory of endogenous protection, Journal of Political Economy
- Bombardini and Trebbi(2009). Competition and political organization: together or alone for trade policy? Mimeo.
TRADE AND GROWTH
- Rodriguez, Francesco and D. Rodrik (1999), “Trade Policy and Economic Growth : A Skeptic’s guide to the Cross-national Evidence”, NBER WP 7081
- Wagner (2007) “Exports and Productivity: A Survey of the Evidence from Firm-level Data”, World Economy
- Ben-David (1993): “Equalizing Exchange: Trade Liberalization and Income Convergence,” QJE
- Chang, Kaltani, Loayza (2009) “Openness can be good for growth: the role of policy complementarities”, JDE
- De Loecker (2007) “Do exports generate higher productivity? Evidence from Slovenia”, JIE
- Edwards, Sebastian (1998), “Openness, Productivity and Growth: What Do We Really Know?”, EJ 108, 383-398.
- Dollar, David and A. Kray (2001), “Trade, Growth, and Poverty”, World Bank Policy Research Working Paper 2615
- Frankel and Romer (1999) “Does trade cause growth?”, AER
- Rodrick, Subramanian and Trebbi (2004) Institutions rule: The primacy of institutions over geography and integration in economic development”, JEG
- Harrison (1996): “Openness and Growth: A Time-Series, Cross-Section Analysis for Developing Countries,” JDE
- Lileeva and Trefler (2010), “Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants”, QJE
- Van Biesebroeck (2003) “Exporting Raises Productivity in Sub-Saharan African Manufacturing Plants”, NBER Working Paper No. 10020
- Wacziarg, R. (2001): “Measuring the Dynamic Gains from Trade,” WorldBank Economic Review
- Warcziag, Romain and K. H. Welch (2003), “Trade Liberalization and Growth: New Evidence”,NBER WP 10152
- Goldberg et al (2010), "Imported intermediate inputs and domestic product growth: Evidence from India", QJE