20540 - TOPICS IN INTERNATIONAL TRADE
Course taught in English
Go to class group/s: 31
Class-group lessons delivered on campus
To follow the course well, you should have some basic knowledge about solving constrained and unconstrained optimization problems, integral calculus and probability theory (especially continuous random variables). Furthermore, you should be familiar with basic microeconomic concepts such as General Equilibrium, and basic econometric concepts such as regression analysis and instrumental variables.
Globalization is a fascinating phenomenon – complex and constantly evolving - with important implications for economic policy and people's livelihoods. Brexit, the "trade war" between the United States and China, and the disruptions created by the Covid-19 pandemic are just the most recent examples of how international economic integration affects everyday life. This course examines the causes and consequences of international trade and investment building on workhorse models and recent empirical evidence. It investigates why nations trade, what they trade, and how trade affects aggregate welfare and inequality. One of the great features of research in international trade is the interplay between theoretical models, rigorous empirical analysis and the use of quantitative methods. Theoretical models discipline our thinking and guide our empirical analysis. Empirical evidence guides the development of models and helps us distinguish between different economic mechanisms. Throughout the course we will put particular emphasis on this interplay between theoretical and empirical work. This course aims to familiarize students with the newest methodologies and findings in the field of international trade. Because of its methodological aspects, it may be particularly interesting for students thinking about a research career.
The main topics covered are:
- The History of International Trade since the Industrial Revolution.
- Ricardian Trade Theory, from Ricardo to Eaton-Kortum.
- Heckscher-Ohlin Trade Theory.
- Increasing Returns and the New Trade Theory.
- Firm Heterogeneity: the Melitz model and its applications.
- New empirical insights on trade, development and inequality.
- Selected topics from current research in international trade and economic geography
- Define the concept of comparative advantage and understand how it shapes trade patterns.
- Describe the main reasons for international trade and their relative importance in reality.
- Explain the methodology used by modern economic models to quantify the gains from trade and the effects of changes in trade costs.
- Summarize the main insights obtained by models which introduce firm heterogeneity in international trade.
- Discuss the empirical strategies used to isolate a causal effect of international trade on national income and inequality.
- Solve the workhouse models of international trade.
- Analyze their main properties and comparative statics, both analytically and using specialized software (e.g. MATLAB).
- Evaluate and argument using a rigourous economic model and mathematical proofs.
- Develop an empirical strategy to assess the impact of international trade on economic outcomes.
- Read and critically discuss frontier research in international trade.
- Face-to-face lectures
- Exercises (exercises, database, software etc.)
- Group assignments
Regular problem sets allow students to apply the knowledge acquired during the lectures. These problem sets consist in theoretical and empirical exercises, which are to be solved either analytically or using a computer. They can be done in groups, and are discussed during dedicated sessions with the Teaching Assistant of the course. They also are graded.
Regular problem sets allow students to apply the knowledge acquired during the lectures. To deepen their understanding of the models discussed in class, students analytically and computationally solve such models in the problem sets. Students also apply the empirical methodologies such as estimating the gains from trade, e.g. from current policies such as Brexit. The final exam tests the students understanding of the models, empirical methodologies and empirical findings introduced in the lectures and discussed in the sessions with the teaching assistant. The exam features short questions to test the basic knowledge and key concepts from the empirical and theoretical literature on international trade. The exam also features a longer question which tests students ability to make formal arguments using rigorous economic models and empirical methodologies and relates those to real-world economic questions.
The reading for this course will primarily be based on journal articles and class materials.
- Andrew Bernard, Stephen Redding and Peter Schott (2007) "Firms in International Trade", Journal of Economic Perspectives, 21, 105-130.
- Jonathan Eaton and Samuel Kortum (2012) "Putting Ricardo to Work", Journal of Economic Perspectives.
- Lorenzo Caliendo and Fernando Parro (2015) "Estimates of the Trade and Welfare Effects of NAFTA", Review of Economic Studies, 82, 1-44.
- Paul Krugman (1980) "Scale Economies, Product Differentiation, and the Pattern of Trade", American Economic Review
- Paul Krugman (2008) "The Increasing Returns Revolution in Trade and Geography", Nobel Prize Lecture
- Marc Melitz and Stephen Redding (2015) "Heterogeneous Firms and Trade", Handbook of International Economics, Volume 4.
- Marc Melitz (2003) "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity", Econometrica
- Paula Bustos (2001) "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms", American Econnomics Review
- Pol Antras and Stephen Yeaple (2015) "Multinational Firms and the Structure of International Trade", Handbook of International Economics, Vol 4
- David Autor, David Dorn and Gordon Hanson (2013) "The China Syndrome: Local Labor Market Effects of Import Competition in the United States", American Economic Review
There is no textbook for this course. However, two books that can serve as background reading and useful reference material are:
- Robert Feenstra, “Advanced International Trade: Theory and Evidence”, Princeton University Press, 2003.
- Elhanan Helpman, “Understanding Global Trade”, Harvard University Press, 2011.