• About the Course

This course is the second part of Econ 5522 “International Economics”. It covers the theories and empirical studies of international trade and investment mostly developed in the past 20 years. Topics include: 

• heterogeneous firms in the international markets

• general equilibrium quantitative analysis of trade flows between trading partners and the aggregate implications of globalization

• strategies of international firms in the global economy (global sourcing, foreign direct investment, export platform, etc.), 

• the effects of trade on labor market. 

We will present stylized facts mostly derived from micro-level data, develop theoretical tools to interpret these facts, assess the key assumptions in the theories, estimate key parameters in the model, and perform counterfactual analysis in the environments of various models. The course is therefore a mix of theories, data, empirical strategies, and computation.

By the end of the course, students are expected to gain the knowledge about how to analyze the impacts of trade policy changes and globalization on firms, labor, industry, and aggregate welfare using the theoretical, empirical, and quantitative tools covered in the course.

Also see the AU course description here.

• Instructor

Daisuke Adachi

Assistant Professor at Aarhus University, Department of Economics and Business Economics, FIND Research Centre.

Email: daisuke.adachi@econ.au.dk

• Evaluation

There is one written closed-book exam. The duration of the exam is 4 hours. The exam has two parts (each weighted by 50%): 1) the international macroeconomics part in the first half of this course; 2) the international trade part that we will cover in the following six weeks, which this website is about.

The exam is closed book so you are not allowed to bring any material to the exam. Anything mentioned in the lecture notes, problem sets, and required readings are fair game for the exam.

• Exam

December 20, 2022, 9:00-13:00. Details TBA.

• Time and Classroom

Weeks 43-48: 

• Tuesday: 10.00-12.00, 2623-D7

• Friday: 12.00-14.00, 2628-M105 

If you cannot come to class due to unavoidable reasons (e.g., health-related reasons), you can turn to AU's study assistant scheme for solutions.

IMPORTANT: Remember, we still need to take precautions. It is important to keep healthy and protect each other. See AU's Covid website here if you have any related questions.

• Schedule

Schedule is tentative and may be subject to changes. For some materials you may need to use AU IP address.

• Introduction

• Part 1: Heterogeneous Firms in the International Market

• Lecture 1: Not All Firms Are Created Equal: The Melitz Model (theory notes 1: 1.1-1.8)

• Lecture 2: Exceptional International Firms: Selection (theory notes 1: 2.1-2.3 & 3.1-3.3)

• Lecture 3: Aggregate Implications of Trade and Gains of Trade (theory notes 1: 2.4-2.8)

• Theory Notes 1

• Problem Set 1 (Suggested Solutions)

• Further Readings:

- Bernard, A. B., Jensen, J. B., Redding, S. J., & Schott, P. K. (2007). Firms in International Trade. Journal of Economic Perspectives, 21(3), 105-130.

- Melitz, M. J. (2003). The Impact of Trade on Intra-industry Reallocations and Aggregate Industry Productivity. Econometrica, 71(6), 1695-1725.

- Helpman, E., Melitz, M. J., & Yeaple, S. R. (2004). Export versus FDI with Heterogeneous Firms. American Economic Review, 94(1), 300-316.

- Melitz, M. J., & Redding, S. J. (2014). Heterogeneous Firms and Trade. In Handbook of International Economics (Vol. 4, pp. 1-54). Elsevier.

- Bernard, A. B., Jensen, J. B., Redding, S. J., & Schott, P. K. (2012). The Empirics of Firm Heterogeneity and International Trade. Annual Review of Economics, 4(1), 283-313.

- Bernard, A. B., Redding, S. J., & Schott, P. K. (2010). Multiple-product Firms and Product Switching. American Economic Review, 100(1), 70-97.

- Eaton, J., Kortum, S., & Kramarz, F. (2011). An Anatomy of International Trade: Evidence from French Firms. Econometrica, 79(5), 1453-1498.

- Chaney, T. (2008). Distorted Gravity: The Intensive and Extensive Margins of International Trade. American Economic Review, 98(4), 1707-21.

• Part 2: Quantitative Trade Models and General Equilibrium

• Lecture 4: Putting Ricardo to Work with Gravity: The EK Model (theory notes 2)

• Lecture 5: Counterfactual Analysis in General Equilibrium: Applications of the EK Model

• Lecture 6: Describing the Complex Economy: Multi-Sector, Multi-Factor, and Input-Output Linkages

• Theory Notes 2

• Problem Set 2 (Suggested Solutions) 

  • Sample Matlab code for Q2: PSet2_Q2_1 PSet2_Q2_2 PSet2_Q2_3

    • In case you do not have an access to Matlab, you can also see the result screen snaps for PSet2_Q2_1.pdf, PSet2_Q2_2.pdf, PSet2_Q2_3.pdf

  • Stata data file for Q3: PSet2_Q3_data; Stata do file for Q3: PSet2_Q3_code

    • In case you do not have an access to Stata, you can also see a log file PSet2_Q3_code.log

• Further Readings:

- Eaton, J., & Kortum, S. (2012). Putting Ricardo to Work. Journal of Economic Perspectives, 26(2), 65-90.

- Eaton, J., & Kortum, S. (2002). Technology, Geography, and Trade. Econometrica, 70(5), 1741-1779.

- Dekle, R., Eaton, J., & Kortum, S. (2007). Unbalanced Trade. American Economic Review, 97(2), 351-355.

- Caliendo, L., & Parro, F. (2015). Estimates of the Trade and Welfare Effects of NAFTA. Review of Economic Studies, 82(1), 1-44.

- Fajgelbaum, P. D., Goldberg, P. K., Kennedy, P. J., & Khandelwal, A. K. (2020). The Return to Protectionism. Quarterly Journal of Economics, 135(1), 1-55.

- Redding, S. J., & Rossi-Hansberg, E. (2017). Quantitative Spatial Economics. Annual Review of Economics, 9, 21-58.

- Costinot, A., & Rodríguez-Clare, A. (2014). Trade Theory with Numbers: Quantifying the Consequences of Globalization. In Handbook of International Economics (Vol. 4, pp. 197-261). Elsevier.

- Head, K., & Mayer, T. (2014). Gravity Equations: Workhorse, Toolkit, and Cookbook. In Handbook of International Economics (Vol. 4, pp. 131-195). Elsevier.

• Part 3: Firms in the Global Economy and Their Globalization Strategies

• Lecture 7: Global Sourcing of Inputs from Multiple Countries (Theory Notes)

• Lecture 8: The Organizational Forms of Global Sourcing (Theory Notes)

• Lecture 9: Allocating Export Platform: From Where to Export? (Theory Notes)

• Problem Set 3 (Suggested Solutions)

• Further Readings:

- Bernard, A. B., Jensen, J. B., Redding, S. J., & Schott, P. K. (2018). Global Firms. Journal of Economic Literature, 56(2), 565-619.

- Antràs, P., Fort, T. C., & Tintelnot, F. (2017). The Margins of Global Sourcing: Theory and Evidence from US Firms. American Economic Review, 107(9), 2514-64.

- Antràs, P., & Helpman, E. (2004). Global Sourcing. Journal of Political Economy, 112(3), 552-580.

- Antràs, P. (2014). Grossman–Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production. Journal of Law, Economics, & Organization, 30(suppl_1), i118-i175. 

- Tintelnot, F. (2017). Global Production with Export Platforms. Quarterly Journal of Economics, 132(1), 157-209.

- Arkolakis, C., Ramondo, N., Rodríguez-Clare, A., & Yeaple, S. (2018). Innovation and Production in the Global Economy. American Economic Review, 108(8), 2128-73.

- Antràs, P., & Yeaple, S. R. (2014). Multinational Firms and the Structure of International Trade. In Handbook of International Economics (Vol. 4, pp. 55-130). Elsevier.

• Part 4: Trade and Labor Market

• Lecture 10: Import Competition and Labor Market

• Lecture 11: Offshoring, Jobs and Firm Organization

• Problem Set 4 (Suggested Solutions)

• Further Readings:

- Autor, D. H., Dorn, D., & Hanson, G. H. (2016). The China Shock: Learning from Labor-market Adjustment to Large Changes in Trade. Annual Review of Economics, 8, 205-240.

- Autor, D. H., Dorn, D., & Hanson, G. H. (2013). The China Syndrome: Local Labor Market Effects of Import Competition in the United States. American Economic Review, 103(6), 2121-68.

- Pierce, J. R., & Schott, P. K. (2016). The Surprisingly Swift Decline of US Manufacturing Employment. American Economic Review, 106(7), 1632-62.

- Dix-Carneiro, R., & Kovak, B. K. (2019). Margins of Labor Market Adjustment to Trade. Journal of International Economics, 117, 125-142.

- Hummels, D., Jørgensen, R., Munch, J., & Xiang, C. (2014). The Wage Effects of Offshoring: Evidence from Danish Matched Worker-firm Data. American Economic Review, 104(6), 1597-1629.

- Bernard, A. B., Fort, T. C., Smeets, V., & Warzynski, F. (2020). Heterogeneous Globalization: Offshoring and Reorganization. NBER Working Paper.

- Caliendo, L., Dvorkin, M., & Parro, F. (2019). Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock. Econometrica, 87(3), 741-835.

- Autor, D. H., Dorn, D., Hanson, G. H., & Song, J. (2014). Trade Adjustment: Worker-level Evidence. Quarterly Journal of Economics, 129(4), 1799-1860.

- Autor, D. H., Dorn, D., & Hanson, G. H. (2019). When Work Disappears: Manufacturing Decline and the Falling Marriage Market Value of Young Men. American Economic Review: Insights, 1(2), 161-78. 

- Pierce, J. R., & Schott, P. K. (2020). Trade Liberalization and Mortality: Evidence from US Counties. American Economic Review: Insights, 2(1), 47-64. 

• Mock Exam

• Fall 2019