Trade PhD

ADVANCED MACROECONOMICS I: INTERNATIONAL TRADE

Professor: Klaus Desmet

Email: klaus.desmet@uc3m.es

Office: 15.2.33

Office hours: by appointment

Place: 17.1.02

Time: Tue/Fri 15:00-17:00

First class: September 29

Last class: November 20

COURSE OBJECTIVE

This course is aimed at 2^nd year Ph.D. students, and covers the theory of international trade. After reviewing standard trade theory (Ricardo, Heckscher-Ohlin, monopolistic competition, trade policy), we will focus on recent advances: trade with heterogeneous firms; trade and productivity; the use of gravity equations to estimate trade flows; and the link between trade integration and the optimal size of countries.

COURSE EVALUATION

Problems (20%)

Class presentations (40%) Tentative schedule

Take-home exam (40%)

TEXTBOOK AND READINGS

Most of the readings will consist of papers. However, we will occasionally use:

Feenstra, R. C. (2004). Advanced International Trade, Princeton, Princeton University Press.

COURSE OUTLINE

Part I: The Theory of International Trade

1. Classical trade models

Ricardian trade model

*Dornbusch, R., Fischer, S., and Samuelson, P.A. (1977). “Comparative Advantage, Trade and Payments in a Ricardian Model with a Continuum of Goods,” American Economic Review, 47, 5, 823-839.

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

*Brezis, E., Krugman, P. and Tsiddon, D. (1993). “Leapfrogging in International Competition,” American Economic Review, 83, 1211-1219.

*Desmet, K. (2002). “A Simple Model of Uneven Development and Overtaking,” Economic Journal, 112, 894-918.

*Desmet, K. and Ortuno, I. (2007), “Rational Underdevelopment,” Scandinavian Journal of Economics, 109, 1-24.

Krugman, P. (1981). “Trade, Accumulation and Uneven Development,” Journal of Development Economics, 8, 141-169.

Krugman, P. (1987). “The Narrow Moving Band, the Dutch Disease, and the Competitive Consequences of Mrs. Thatcher,” Journal of Development Economics, 27, 41-55.

Class notes on Dornbusch, Fischer and Samuelson.

Class notes on Eaton and Kortum.

Class notes on uneven development.

Heckscher-Ohlin trade model

*Feenstra, R. C. (2004). Advanced International Trade, Princeton, Princeton University Press.

*Trefler, D. (1993). “International Factor Price Differences: Leontief Was Right!,” Journal of Political Economy, 101, 961-987.

*Grossman, G. and Rossi-Hansberg, E. (2008). “Trading Tasks: A Simple Theory of Offshoring,” American Economic Review, 98, 1978-1997.

Jones, R.W. (1965). “The Structure of Simple General Equilibrium Model,” Journal of Political Economy, 73, 557-572.

Mussa, M. (1979). “The Two-Sector Model in Terms of Its Dual: A Geometric Exposition,” Journal of International Economics, 9, 513-526.

Stolper, W. and Samuelson, P.A. (1941). “Protection and Real Wages,” Review of Economic Studies, 9, 58-73.

Bhagwati, J.N. and Panagariya, A. (1998). Lectures on International Trade, 2^nd edition, MIT Press, Chapter 8.

Davis, D.R., Weinstein, D.E., Bradford, S.C., and Shimpo, K. (1997). “Using International and Japanese Regional Data to Determine When the Factor Abundance Theory of Trade Works,” American Economic Review, 87, 421-446.

Debaere, P. (2003). “Relative factor abundance and trade,” Journal of Political Economy, 111, 589-610.

Trefler, D. (1995). “The Case of the Missing Trade and Other Mysteries,” American Economic Review, 85, 1029-1046.

Class notes on Hecksher-Ohlin model.

Class notes on empirical Heckscher-Ohlin.

Class notes on Grossman and Rossi-Hansberg.

2. Increasing returns to scale

Krugman, P. (1979). “Increasing Returns Monopolistic Competition, and International Trade,” Journal of International Economics, 9, 469-479.

*Krugman, P. (1980), “Scale Economies, Product Differentiation, and the Pattern of Trade,” American Economic Review, 70, 950-959.

Krugman, P. (1981). “Intra-Industry Specialization and the Gains from Trade,” Journal of Political Economy, 89, 959-973.

*Helpman, E. and Krugman, P. (1985). Market Structure and Foreign Trade, MIT Press, Chapters 6 and 7.

*Feenstra R.C. (2004). Advanced International Trade, Chapter 5.

Class notes on Monopolistic Competition.

3. Trade policy

*Feenstra R.C. (2004). Advanced International Trade, Chapter 7.

Brander, J.A. and Spencer, B. (1984). “Tariff Protection and Imperfect Competition,” in Monopolistic Competition and International Trade, H. Kierzkowski, eds, Oxford University Press.

Brander, J.A. and Spencer, B. (1985). “Export Subsidies and International Market Share Rivalry,” Journal of International Economics, 18, 83-100.

Brander, J.A. and Krugman, P. (1983). “A ‘Reciprocal Dumping’ model of international trade”, Journal of International Economics,15, 313-321.

Eaton, J. and Grossman, G.M. (1986). “Optimal Trade and Industrial Policy Under Oligopoly,” Quarterly Journal of Economics, 101, 383-406.

*Grossman G.M. and Helpman, E. (1994). “Protection for Sale,” American Economic Review, 84, 833-850.

Goldberg P.K. and Maggi, G. (1999). “Protection for Sale: An empirical investigation,” American Economic Review, 89, 1135-1155.

Part II: Recent Advances in International Trade

4. Heterogeneous firms

*Melitz, M. (2003). ”The impact of trade on intra-industry reallocations and aggregate industry productivity,” Econometrica, 71, 1695-1725.

*Helpman, E., Melitz, M.J., and Yeaple, S.R., (2004): “Export Versus FDI with Heterogeneous Firms,” American Economic Review, 94, 300-317.

**Bernard, A. B., Eaton, J., Jenson, J.B., and Kortum, S. (2003). “Plants and Productivity in International Trade,” American Economic Review, 93, 1268-1290.

**Chaney, Thomas (2008) “Distorted Gravity: The Intensive and Extensive Margins of International Trade,” American Economic Review, 98(4), 1707–1721.

**Pavcnik, Nina (2002) “Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants,” Review of Economic Studies, 69(1), 245-76.

**De Loecker, Jan (2007). "Do Exports Generate Higher Productivity? Evidence from Slovenia," Journal of International Economics, 73.

**Arkolakis, Costas, Klenow, Peter, Demidova, Svetlana and Andres Rodriguez-Clare (2009). “The Gains from Trade with Endogenous Variety," American Economic Review, Papers and Proceedings, 98 (4), 444-450.

Arkolakis, C. (2008). “Market Penetration Costs and the New Consumers Margin in International Trade,” unpublished manuscript.

Class notes on heterogeneous firms.

5. Trade, variable mark-ups, and productivity

*Melitz, M. and Ottaviano, G. (2005). “Market Size, Trade, and Productivity,” mimeo.

*Desmet, K. and Parente, S. (2008). “Bigger is Better: Market Size, Demand Elasticity and Innovation,” unpublished manuscript.

Desmet, K. and Parente, S. (2008). “The Evolution of Markets and the Revolution of Industry,” unpublished manuscript.

*Atkeson, A. and Burstein, A. (2007). “Innovation, Firm Dynamics, and International Trade,” mimeo.

**Impullitti, G. and Licandro, O. (2009). “Trade, firm selection, and innovation: the competition channel,” mimeo.

**Vannoorenberghe, G. (2008). “Globalisation, heterogeneous firms and endogenous investment,” mimeo.

Behrens, K. and Murata, Y. (2007). "General equilibrium models of monopolistic competition: A new approach," Journal of Economic Theory, 136, 776-787

Tybout, J.R. (2003). “Plant- and Firm-level Evidence on the New Trade Theories,” in: E. Kwan Choi and James Harrigan, ed., Handbook of International Trade, Oxford: Basil-Blackwell.

Schmitz, J. (2005). “What Determines Productivity? Lessons from the Dramatic Recovery of the U.S. and Canadian Iron Ore Industries Following Their Early 1980s Crisis,” Journal of Political Economy, 113, 582-625.

Class notes on Desmet & Parente: Part I and Part II

Class notes on Atkeson & Burstein

6. Gravity equations

*Anderson, J. and van Wincoop, E. (2003). “Gravity and Gravitas: A Solution to the Border Puzzle,” American Economic Review, 93, 170-192.

Engel, C. and Rogers, J. (1996). “How Wide is the Border?,” American Economic Review, 86, 1112-1125.

Evenett, S. and Keller, W. (2002). “On Theories Explaining the Success of The Gravity Equation,” Journal of Political Economy, 110, 281-316.

McCallum, J. (1995). “National borders Matter: Canada-U.S. Regional Trade Patterns,” American Economic Review, 85, 615-623.

Deltas, G., Desmet, K. and Facchini, G. (2008). “Hub-and-Spoke Free Trade Areas,” unpublished manuscript.

**Helpman, E., Melitz, M., and Rubinstein, Y. (2008). “Estimating Trade Flows: Trading Partners and Trading Volumes,” Quarterly Journal of Economics, 123, 441–487.

Introduction Gravity Equations

7. Size of countries

Alesina, A. and Spolaore, E. (1997). “On the Number and Size of Nations,” Quarterly Journal of Economics, 112, 1027-56.

Spolaore, E. and Wacziarg, R. (2005). “Borders and Growth,” Journal of Economic Growth,” 10, 331-386.

*Desmet, K., Le Breton, M., Ortuño, I. , and Weber, S., 2006. “Stability of Nations and Genetic Diversity,” CEPR Discussion Paper 5918.

Presentation Genetic Diversity

STUDENT PRESENTATIONS

Chaney (Thomas)

Bernard et al. (Nora)

Melitz & Ottaviano (Anahi)

Pavcnik (Fabian)

De Loecker (Yunrong)