Topics in International Trade

Organization:Topics in International TradeSummer 2011Classes: Tuesday 14-16 and Friday 12-14Ludwigstrasse 28, Vgb., Room 221Instructor: Alexander TarasovO¢ ce: Ludwigstrasse 28, Vgb., Room 215Phone: +49 089 2180 5754E-mail: alexander.tarasov@lrz.uni-muenchen.deO¢ ce hours: Wednesday, 14.00-15.00 and by appointmentCourse Requirements:This course covers the theory of international trade at a graduate level. The …nalgrade will consist of three parts: class presentation (25%), three homeworks (25%), shortquizzes (10%), and …nal exam (40%). It is assumed that students have taken a graduatecourse in Microeconomics or have an equivalent background. A working knowledge ofcalculus is required. Students who have any doubts about their ability to deal with thecourse should see the instructor. Please note that the course will be taught in English!Books:The main textbook is Feenstra, R. (2003): "Advanced International Trade:Theory and Evidence," Princeton University Press.The following books are recommended but not required:1985.Helpman, E. and P. Krugman, "Market Structure and Foreign Trade," MIT Press,Helpman, E. and P. Krugman, "Trade Policy and Market Structure," MIT Press, 1989.1

Grossman, Gene M. (Ed.), "Imperfect Competition and International Trade," MITPress, 1992.Helpman, E., Marin D. and Verdier T., "The Organization of Firms in a GlobalEconomy," Harvard University Press, 2008.Course Outline and Readings:Papers and chapters marked with (**) are will be extensively covered in class. Theremaining items are suggested readings: items marked with (P) are papers that can bepresented in the class.1 Basic Models and Concepts1.1 Heckscher-Ohlin Trade Theory**Feenstra (2003), "Advanced International Trade: Theory and Evidence," Chapters1-2Helpman, E. and P. Krugman (1985), "Market Structure and Foreign Trade," Chapters1-2**Leamer, E. "The Leontief Paradox, Reconsidered", Journal of Political Economy,1980, Vol. 88(3), pp. 495-503.Tre‡er, D. “The Case of the Missing Trade and Other Mysteries,”American EconomicReview, 1995, Vol. 85(5), pp. 1029-46.Davis, D. and D. Weinstein, “An Account of Global Factor Trade,” American EconomicReview, 2001, Vol. 91(5), pp. 1423-14532

1.2 Ricardian Trade Theory**Feenstra (2003), "Advanced International Trade: Theory and Evidence," Chapter 1**Dornbusch, R., S. Fischer and P.A. Samuelson, “Comparative Advantages, Tradeand Payments in a Ricardian Model with a Continuum of Goods,” American EconomicReview, 1977, Vol. 67(5), pp. 823-39.Matsuyama K. (2008), "Ricardian Trade Theory," The New Palgrave Dictionary ofEconomics, 2nd edition, Eds. Steven Durlauf and Lawrence Blume. Palgrave Macmillan.(working paper: http://faculty.wcas.northwestern.edu/~kmatsu/Ricardian%20Trade%20Theory.pdf)1.3 Monopolistic Competition and Increasing Returns (New TradeTheory)**Feenstra (2003), "Advanced International Trade: Theory and Evidence," Chapters 5**Krugman, P. (1980), "Scale Economies, Product Di¤erentiation and the Pattern ofTrade," American Economic Review, Vol. 70(5), pp. 950-59.**Davis, D. and Weinstein, D. (2003), "Market access, economic geography and comparativeadvantage: an empirical test," Journal of International Economics, 59, 1-23.Krugman, P. , “Increasing Returns, Monopolistic Competition, and InternationalTrade,”Journal of International Economics, 1979, Vol. 9(4), pp. 469-79.Helpman, E. and P. Krugman (1985), "Market Structure and Foreign Trade," Chapters6-93

1.4 Trade Volumes and The Gravity Equation**Feenstra (2003), "Advanced International Trade: Theory and Evidence," Chapters5 pp. 144-173McCallum, J. (1995), "National Borders Matter: Canada-US Regional Trade Patterns,"American Economic Review, Vol. 85(3), pp. 615-623.(P) Anderson, J. and E. van Wincoop (2003), "Gravity with Gravitas: A Solution tothe Border Puzzle," American Economics Review, Vol. 93(1), pp. 170-192.(P) Armenter, R. and Koren, M. (2010), "A Balls-and-Bins Model of Trade," mimeo.2 The New New Trade Theories2.1 International Trade and Firm Heterogeneity2.1.1 Theory**Melitz, M.J. (2003), “The Impact of Trade on Intra-Industry Reallocations andAggregate Industry Productivity,”Econometrica, Vol. 71(6), pp. 1695-1725.(P) Melitz, M.J. and G.I.P. Ottaviano (2008), “Market Size, Trade, and Productivity,”Review of Economic Studies, Vol. 75(1), pp. 295-316**Chaney, T. (2008), "Distorted Gravity: the Intensive and Extensive Margins ofInternational Trade," American Economic Review, Vol. 98(4), pp. 1707-1721**Arkolakis, C. (2010), "Market Penetration Costs and the New Consumers Marginin International Trade," mimeo.Bernard, A., S. Redding and P. Schott (2007), “Comparative Advantage and HeterogeneousFirms,”Review of Economic Studies, Vol. 74(1).(P) Vogel, J. (2008): "Spatial Competition with Heterogeneous Firms," Journal ofPolitical Economy, 116, 423-466.4

2.1.2 EmpiricsBernard, A.B., J.B. Jensen, S. Redding and P. Schott (2007), "Firms in InternationalTrade," Journal of Economic Perspectives, 21(3), 105-130.Bernard, A.B. and J.B. Jensen (1999), "Exceptional Exporter Performance: Cause,E¤ect, or Both?" Journal of International Economics, 47(1), 1-25.Pavcnik, N. (2002), "Trade Liberalization, Exit, and Productivity Improvements: Evidencefrom Chilean Plants," Review of Economic Studies, 69, 245-76.Tybout, J. (2003), "Plant- and Firm-level Evidence on the ’New’ Trade Theories,"in E.K. Choi and J. Harrigan, eds., Handbook of International Trade, Oxford, Basil-Blackwell.Roberts, M. and Tybout, J. (1997), "The Deision to Export in Colombia: An EmpiricalModel of Entry with Sunk Costs," American Economic Review, 87(4), 545-565(P) Das, S., Roberts, M. and Tybout, J. (2007), "Market Entry Costs, ProducerHeterogeneity and Export Dynamics," Econometrica, 75(3), 837-873.2.2 Generalization of The Ricardian Model of Trade: The Eaton-Kortum Model**Eaton, J. and S. Kortum (2002), "Technology, Geography and Trade," Econometrica,70(5), 1741-1779.Alvarez, F. and R.E. Lucas Jr. (2007), "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," Journal of Monetary Economics, 54(6), 1726-1768.Bernard, A.B., J. Eaton, J.B. Jensen and S. Kortum (2003), "Plants and Productivityin International Trade," American Economic Review, 93(4), 1268-12905

(P) Eaton, J., S. Kortum and F. Kramarz (2010), "An Anatomy of InternationalTrade: Evidence from French Firms," mimeo.3 Assorted Topics3.1 Multinational Production3.1.1 The Classical TheoryFeenstra (2003), "Advanced International Trade: Theory and Evidence," Chapter 11Helpman, E. and P. Krugman (1985), "Market Structure and Foreign Trade," Chapters12-13Helpman, E. (1984), "A Simple Theory of International Trade and Multinational Corporations,"Journal of Political Economy, 92(3), 451-471Helpman, E. (1985), "Multinational Corporations and Trade Structure," Review ofEconomic Studies, 52(3), 443-457.3.1.2 The Proximity-Concentration Trade O¤**Helpman, E., M. Melitz and S. Yeaple (2004), "Exports versus FDI with HeterogenousFirms," American Economic Review, 94(5), 300-16.Brainard, S. L. (1997), "An Empirical Assessment of the Proximity-ConcentrationTrade-O¤ Between Multinational Sales and Trade," American Economic Review, 87(4),520-44.Markusen, J. R. (1984), "Multinationals, Multi-Plant Economies and the Gains fromTrade," Journal of International Economics, 16, 205-226.6

3.1.3 Vertical SpecializationYi, K. (2003), "Can Vertical Specialization Explain the Growth of World Trade?"Journal of Political Economy, 111(1), 51-102Hanson, G. H., R. Mataloni and M. Slaughter (2005), "Vertical Production Networksin Multinational Firms," Review of Economics and Statistics, 87(4), 664-78.3.2 Firm Organization, Contracts, and Trade**Antràs P. (2003), "Firms, Contracts, and Trade Structure," Quarterly Journal ofEconomics, 118(4), 1375-1418(P) Antràs P. and E. Helpman (2004), "Global Sourcing," Journal of Political Economy,112(3), 552-80.Grossman, G. and E. Helpman (2002), "Integration vs. Outsourcing in Industry Equilibrium,"Quarterly Journal of Economics, 117(1), 85-120Grossman, G. and E. Helpman (2005), "Outsourcing in a Global Economy," Reviewof Economic Studies, 72(1), 135-159.(P) Marin D. and Verdier Th. (2010), "Globalization and the Empowerment of Talent,"Journal of International Economics, forthcoming.(P) Marin D. and Verdier Th. (2008), "Competing in Organizations: Firm Heterogeneityand International Trade," in: E. Helpman, D. Marin, Th. Verdier (Eds.): TheOrganization of Firms in a Global Economy, 142-172, Harvard University Press.** Nunn, N. and Tre‡er, D. (2008), "The Boundaries of the Multinational Corporation,"in: E. Helpman, D. Marin, Th. Verdier (Eds.): The Organization of Firms in aGlobal Economy, 142-172, Harvard University Press.7

Nunn, N. (2007), "Relationship-Speci…city, Incomplete Contracts and the Pattern ofTrade," Quarterly Journal of Economics, 122(2), 569-600.3.3 O¤shoring and Outsourcing(P) Antràs, P., L. Garicano and E. Rossi-Hansberg (2006), "O¤shoring in a KnowledgeEconomy," Quarterly Journal of Economics, 121(1), 31-77.** Grossman, G. and E. Rossi-Hansberg (2008), "Trading Tasks: A Simple Theory ofO¤shoring," American Economic Review, 98(5), 1978-1997(P) Rodriguez-Clare A. (forthcoming), "O¤shoring in a Ricardian World", AmericanEconomic Journal: Macroeconomics.Marin, D. (2006), "A New International Division of Labor: Outsourcing and O¤shoringto Eastern Europe," Journal of the European Economic Association.3.4 Income Distribution, Nonhomothetic Preferences and TradePatterns and VolumesFlam, H. and Helpman, E. (1987), "Vertical Product Di¤erentiation and North-SouthTrade," The American Economic Review, 77, 810-822.Hunter, L. C. (1991), "The Contribution of Nonhomothetic Preferences to Trade,"Journal of International Economics, 30, 345–58.(P) Matsuyama, K. (2000), "A Ricardian Model with a Continuum of Goods underNonhomothetic Preferences: Demand Complementarities, Income Distribution, andNorth-South Trade," Journal of Political Economy, 108, 1093-1120.(P) Fajgelbaum, P., Grossman, G. and Helpman, E. (2009), "Income Distribution,Product Quality, and International Trade," mimeo.8

Hummels, D. and Klenow, P. J. (2002), "The Variety and Quality of a Nation’s Trade,"NBER WP 8712.(P) Fieler, A. C. (2009), "Non-Homotheticity and Bilateral Trade: Evidence and aQuantitative Explanation," working paper.(P) Waugh, M. (2009), "International Trade and Income Di¤erences," American EconomicReview, forthcoming.**Tarasov, A. (2011a), "Per Capita Income, Market Access Costs, and Trade Volumes,"mimeo.Tarasov, A. (2011b), "Trade Liberalization and Welfare Inequality: A Demand-BasedApproach", Scandinavian Journal of Economics, forthcoming.3.5 Market Imperfections and Trade(P) Manova, K. (2008), "Credit Constraints, Equity Market Liberalizations andInternational Trade", Journal of International Economics 76, pp. 33-47.(P) Antràs, P., M. Desai and F. Foley (2009), "Multinational Firms, FDI Flows andImperfect Capital Markets", Quarterly Journal of Economics, 124(3), 1171-1219.(P) Antràs, P. and R. Caballero (2009), "“Trade and Capital Flows: A FinancialFrictions Perspective,”Journal of Political Economy, 117(4), 701-744(P) Chesnokova, T. (2007): "Immiserizing Deindustrialization: A Dynamic TradeModel with Credit Constraints," Journal of International Economics, 73.(P) Helpman, E. and O. Itskhoki (2010): "Labor Market Rigidities, Trade and Unemployment,"Review of Economic Studies, 77(3), 1100-1137.(P) Helpman, E., O. Itskhoki and S. Redding (2010): "Inequality and Unemploymentin a Global Economy," Econometrica, 78(4), 1239-1283.9

Manova, K., Shang-Jin Wei and Zhiwei Zhang (2010), "Firm Exports and MultinationalActivity under Credit Constraints," working paper.3.6 Trade, Innovations, and GrowthFeenstra (2003), "Advanced International Trade: Theory and Evidence," Chapter 10Krugman, P., “The Narrow Moving Band, the Dutch Disease, and the CompetitiveConsequences of Mrs. Thatcher,”Journal of Development Economics, 1987.Young, A., “Learning by Doing and the Dynamic E¤ects of International Trade”,Quarterly Journal of Economics, 1991.Frankel, J., and D. Romer, “Does Trade Cause Growth?”, American Economic Review,1999.Eaton, J. and S. Kortum (1999), "International Technology Di¤usion: Theory andMeasurement," International Economic Review, 40(3), 537-570.(P) Eaton, J. and S. Kortum (2001), "Technology, Trade, and Growth," EuropeanEconomic Review, 45, 742-755.3.7 Political Economy of TradeFeenstra (2003), "Advanced International Trade: Theory and Evidence," Chapter 9Grossman, G. and E. Helpman (1994), "Protection for Sale," American EconomicReview.Grossman, G. and E. Helpman (1995), "Trade Wars and Trade Talks," Journal ofPolitical Economy10

P. Goldberg and G. Maggi (1999), "Is Protection for Sale? An Empirical Investigation,"American Economic Review, 89(5), pp. 1135-55.Martin, Mayer and Thoenig (2008), "Make Trade Not War?" Review of EconomicsStudies, 75, pp. 865-900.11