Graduate Institute of International and Development Studies
EI064 - Spring 2022 - Course- 6 ECTS
Wednesday 16:15-18:00
Lecturer: Yuan Zi
Office hours: Thursday 10:00-12:00 (class weeks)
Course Description
This course is designed for MIS economics students as well as for policy-oriented Masters students specializing in economics. It covers advanced empirical topics in international trade (as well as economic geography) and problem sets related to the lectures. The course is divided into four parts. The first part considers testings on predictions of the neoclassical trade theories and their implications. The second presents empirical evidence on new trade models with imperfect competition and economic geography. The third part considers firms in international trade and gravity equations. The last covers facts and empirical works on trade policies. Students should be comfortable with basic econometric analysis.
Goals
After the course, you should be able to address positive issues, such as: Why do countries trade? What goods do countries trade? What are the implications of openness for the location of production, industries, occupations, and innovative activity? And, what impedes trade and why do some countries deliberately erect policy impediments to trade? You should also be able to offer your thoughts on normative issues, such as: Is trade openness beneficial to a representative agent? And, Are there winners and losers from trade and if so, can we identify them? You should be able to develop your answers to above questions under a neoclassical setting as well as those with market failures, at the industry level as well as the firm-level, and in the presence of both mobile and immobile factors.
Main textbooks
- Markusen, Melvin, Kaempfer and Maskus "International Trade: Theory and Evidence" (MMKM).
- R. Feenstra "Advanced International Trade: Theory and Evidence", Ed. 2003 (Feenstra).
Additional textbooks
- Helpman, E. & Krugman P., 1985: Market Structure and Foreign Trade, MIT Press.
- Combes, P.-P., Mayer, T. and Thisse, J., Economic geography, Princeton University Press.
- Krugman, P. & Obstfeld M., International Economics, Addison-Wesley.
NB:
It is sufficient to understand what covers in the course. Students are encouraged to use the listed textbooks and references to enhance their understanding of course materials when needed.
We all have different backgrounds and prefer different learning styles. Student are encouraged to use google or the library for fragmented learning materials when a question arises. Don't read a whole textbook when you are confused about one particular thing - it is usually not very helpful and surely not efficient!
Pre-requisites of the course
The course assumes knowledge of basic micro theory (part 1 of MMKM textbook), and basic econometrics (i.e. Econometrics I).
Grading
The grade will be based on an applied group work (25% of the final grade), a paper presentation (25% of the final grade) and a final exam (50% of final grade).
- 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 weakness.
Outline (Sep.23-Dec.13)
- Week 1 Introduction
- 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 + paper presentation
- 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 Trade Policy
- Week 14 Final exam
Lectures
Chapter 1. Introduction and Trade Facts (week 1)
Reading: A long run perspective on globalization
Additional: Leamer (2007)
Chapter 2. Technology and Trade (Ricardian model, weeks 2-3)
Reading: MMKM chapter 7
Additional: Samuelson (2004)
Papers for presentation:
- Bernhofen D., and Brown J. (2004), "A direct test of the theory of comparative advantage: The case of Japan", JPE
- Costinot A., and Donaldson D. (2012), "Ricardo's theory of comparative advantage: Old idea, new evidence", AER Papers and Proceedings
Chapter 3. Factor Endowments and Trade (HO model, weeks 4-5)
Reading: MMKM chapter 8 (for HOS), Feenstra chapter 1 (2*2*2 model) and 2 (HOV and empirics) and chap. 4
Additional: Trefler, D. (1993), "International factor price differences: Leontief was right!", JPE
Papers for presentation:
- Trefler, D. (1995), "The case of the missing trade and other HOV mysteries", AER
- 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 trade", JIE
- Choi, Y. S. and Krishna, P. (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
Chapter 4. Trade and Labor Markets (weeks 6-7)
Papers for presentation:
- Autor, D., Dorn, D. and Hanson, G. (2012), "The China syndrome: Local labor market effects of import competition in the United States", AER
- Attanasio, O., Goldberg, P. and Pavcnik, N., 2004, "Trade reforms and wage inequality in Colombia", JDE
- Biscourp, P. and Kramarz, F. (2007), "Employment, skill structure and international trade", JIE
- Bustos, P. (2006), "Rising Wage inequality in the Argentinean manufacturing sector: The impact of trade and foreign investment on technology and skill upgrading," CREI mimeo.
- Feenstra, R. C. and Hanson, G. H. (1996), "Globalization, outsourcing, and wage inequality", AER
- Feenstra, R. C. and Hanson, G. H. (1999), "The impact of outsourcing and high-technology capital on wages: estimates for the U.S., 1979-1990", QJE
- Verhoogen, E. (2008), "Trade, quality upgrading and wage inequality in the Mexican manufacturing sector", QJE
Chapter 5. Trade under Imperfect Competition (new trade theories and new economic geography (weeks 8-9))
Readings: Feenstra chapter 5
Additional: HK85, Chapter 6 (read for ideas, not maths); Krugman, Paul R. 1980. "Scale economies, product differentiation, and the pattern of trade", AER. See also J. Dingel's handout on Dixit-Stiglitz, 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, K. and Ries, J. (1999), "Rationalization effects of tariffs reductions", JIE
- Head, K. and Ries, J. (2001), "Increasing returns versus national product differentiation as an explanation for the pattern of US-Canada trade", AER
- Broda, C. and Weinstein, D. E. (2006), "Globalization and the Gains from variety", QJE
Papers for presentation (NEG):
- Handbury, J. and Weinstein, D.E. (2011), "Is new economic geography right? Evidence from price data", NBER WP
- Davis, D. R. and Weinstein, D.E. (2002). "Bones, bombs and break points: The geography of economic activity", AER
- Redding, S. and Venables, T. (2004), "Economic geography and international inequality", JIE
- Redding, S. and Sturm, D. (2010) "The costs of remoteness: evidence from German division and reunification", AER
Chapter 6: Trade with Heterogeneous Firms (week 10-11)
Slides
Readings: T. Chaney slides on Melitz model ; Baldwin's summary of Melitz
Additional: 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 Trefler, D. (2010), "Improved access to foreign markets raises plant-level productivity ... for some plants", QJE
- Goldberg, P., Loecker, J., Khandelwal, A. and Pavcnik, N. (2016), "Prices, markups and trade reform", Econometrica
- Bernard A., Jensen, B. and Schott, P. (2006), "Survival of the best fit", JIE
Chapter 7 - Gravity Equations (week 12)
Slides
Readings: Feenstra chap. 5; R. Baldwin and D. Taglioni (2006). "Gravity for dummies and dummies for Gravity equations", NBER WP
Additional: Head, K. and Mayer, T. (2013), "Gravity equations: Workhorse, toolkit and cookbook", in Handbook of International Economics.
Papers for presentation:
- Disdier, A. C. and Head, K. (2008), "The puzzling persistence of the distance effect on bilateral trade", RESTAT
- Head K., Mayer, T. and Ries, J. (2010), "The erosion of colonial trade linkage after independence", JIE
Chapter 8 - Trade Policy and Political Economy (week 13)
Slides
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"
Papers for presentation:
- Martin, P., Mayer, T. and Thoenig, M. (2008), "Make trade not war?", RES 2008
- Baier, S. and Bergstrand, J. (2009), "Do free trade agreements actually increase members international trade?", JIE