Syllabus - University of Pennsylvania

Topics in International Trade

Cecília Fieler Office: McNeil 434, Tel: 8-1511 e-mail: [email protected]

Time and Location: Tuesdays and Thursdays 9:00-10:30am, McNeil 167 Office hours: Thursdays 2:15-3:15pm or by appointment Grading: Two problem sets. The first is worth 60 points, and the second, 40 points. Description: The course introduces PhD students to theoretical and quantitative analysis of international trade. The presentation of the workhorse models of Heckscher-Ohlin, Ricardo and monopolistic competition follow roughly the same order: The basic theory provides key economic insights; it is extended to allow for quantitative analysis, and various extensions and applications are presented. By the end of the course, students should be able to write a general equilibrium model of trade with an arbitrary number of countries and sectors, with or without intermediate inputs, with homogeneous or differentiated goods, with perfect or imperfect competition. Students will also use programming to compute outcomes of these models regarding trade flows, mass of firms, distribution of firm sales, etc. Throughout, a battery of results from empirical papers are presented to familiarize students with systematic characteristics of datasets commonly used I trade. Textbooks Dixit, A. and V. Norman (1980, DN henceforth), Theory of International Trade, Cambridge University Press, Cambridge, UK Choi, E. K. and J. Harrigan (Ed., 2003, CH henceforth), Handbook of International Trade, Blackwell Publishing Ltd., Malden, MA Eaton, J. and S. Kortum (2011), Technology and the Global Economy: A Framework for Quantitative Analysis, Princeton Universtiy Press, Princeton, NJ Feenstra, R. (2004, Feenstra henceforth), Advanced International Trade: Theory and Evidence, Princeton Universtiy Press, Princeton, NJ Grossman, G. and E. Helpman (1991), Innovation and Growth in the Global Economy, Massachusetts Institute of Technology, Cambridge, MA Grossman, G. and K. Rogoff (Ed., 1995, GR henceforth), Handbook of International Economics, Vol. 3, Elsevier, Amsterdam, The Netherlands Helpman, E. and P. Krugman (1985), Market Structure and Foreign Trade, Massachusetts Institute of Technology, Cambridge, MA The books are useful, but not required for purchase. Feenstra combines theory and evidence well. Eaton and Kortum is a unified account of their tremendously influential writings on technological innovation and international trade. Grossman and Helpman is a major reference for trade and growth to this day. Students may find helpful Dixit and Norman’s exposition of the HeckscherOhlin model. Choi and Harrigan is a compendium of international trade, and Grossman and Helpman, of international economics. They are useful reads for graduate students searching for research topics. Data    

UNComtrade: bilateral trade and statistics Feenstra’s website: Same as UNComtrade for a longer time frame; US imports and exports at more disaggregated level than UNComtrade World Bank Development Indicators: country-level statistics Penn World Tables: National accounts data

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OECD data: country-level statistics, particularly strong on science and technology indicators GTAP: 90+ countries. Income levels, employment, input-output matrices and factor endowments. Semi-proprietary firm-level data: Chile, Colombia (1977-1991), Mexico (1984-1990) Gordon Hanson’s website: o Apprehensions and enforcement at the US-Mexico border by the U.S. Border Patrol, 1963-2004 o Foreign outsourcing by US manufacturing industries, 1979-1990

Course Outline 1. Heckscher-Ohlin (lecure 1) 

Theory * Feenstra chapters 1-3 DN chapters 1-5 Costinot, A. and J. Vogel (2010), “Matching Inequality in the World Economy,” Journal of Political Economy, 118(4), 747-785

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Evidence: GR chapter 26 by Leamer and Levinsohn Leontief, W. (1953), “Domestic production and foreign trade: The American capital position reexamined” Proceedings of the American Philosophical Society, 94, 332-349 Trefler, D. (1993), “International factor price differences: Leontief was right!” Journal of Political Economy, 101(6), 961-987 Trefler, D. (1995), “The case of the missing trade and other mysteries,” American Economic Review, 85(5), 1029-1046 Romalis, J. (2004), “Factor proportions and the structure of commodity trade,” American Economic Review, 94(1) Schott, P. (2004) “Across-product versus within-product specialization in international trade,” The Quarterly Journal of Economics, 119(2), 647-678 Goldberg, P. and N. Pavcnik (2007) “Distributional effects of globalization in developing countries,” Journal of Economic Literature, 45(1), 39-82 Goldberg, P. and N. Pavcnik (2004) “Trade, Inequality, and Poverty: What do we know?” Brookings Trade Forum, 223-269

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An introduction to trade policy: Feenstra, chapters 7-8 Krugman and Obstfeld (2009, chapter 8) International economics: Theory and Policy, AddisonWesley, Boston, MA

2. Gravity and trade volume (lectures 2 and 3)

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* Anderson, J. and E. van Wincoop (2003) “Gravity and Gravitas: A Solution to the Border Puzzle,” American Economic Review, 93, 170-192 * Arkolakis, C., A. Costinot, A. Rodriguez-Clare (2011), “New models, same old gains?” American Economic Review, forthcoming Hummels, D. and P. Klenow (2005), “The variety and quality of a nation’s trade”, The American Economic Review, 95, 704-723 Yi, K. (2003), “Can vertical specialization explain the growth of world trade?” Journal of Political Economy, 111, 52-110 Santos Silva, J. and S. Tenreyro (2006), “The Log of Gravity,” Review of Economics and Statistics, 88, 641-658 Hummels and Skiba (2004), “Shipping the goods apples out? An empirical confirmation of the Alchian-Allen conjecture,” Journal of Political Economy, 112, 1384-1402 Helpman, E., M. Melitz, Y. Rubinstein (2008), “Estimating trade flows: Trading partners and trading volumes,” Quarterly Journal of Economics, 123, 441-487 3. Ricardian models (lectures 4, 5 and 6) Dornbusch, R., S. Fischer, P. Samuelson (1977), “Comparative advantage, trade, and payments with a continuum of goods,” American Economic Review, 67, 823-839 * Eaton J. and S. Kortum (2002), “Technology, Geography, and Trade” Econometrica, 70, 1741-1779 * Alvarez, F. and R. Lucas (2007) “General Equilibrium Analysis of the Eaton-Kortum Model of International Trade,” Journal of Monetary Economics, 54, 1726-1768 Wilson, C. (1980) “On the general structure of Ricardian models with a continuum of goods: Applications to growth, tariff theory and technical change”, Econometrica, 48, 1675-1702 

Some extensions to Eaton and Kortum (2002):

* Costinot, A., D. Donaldson and I. Komunjer, (2011) “What goods do countries trade? A quantitative exploration of Ricardo’s ideas,” Review of Economic Studies, forthcoming * Fieler, A.C. (2011) “Non-homotheticity and bilateral trade: Evidence and a quantitative explanation” Econometrica, 79(4), 1069-1101 * Redding, S., D. Sturm and Niko Wolf (2013) “The Economics of Density: Evidence from the Berlin Wall”, mimeo, Princeton University * Dekle, Eaton and Kortum (2008) “Global rebalancing with gravity: Measuring the burden of adjustment,” IMF Staff Papers, 55, 511-540 * [FDI] Ramondo, N. and Rodriguez-Clare (2013), “Trade, multinational production, and the Gains from Openness,” Journal of Political Economy, 121(2) [labor] Burnstein, A., J. Cravino and J. Vogel (2013) “Importing Skill-Bias Technology,” AEJ: Macroeconomics, 5, 32-71 Donaldson, D. (2013) “Railroads of the Raj: Estimating the Impact of Transportation Infrastructure,” American Economic Review, forthcoming [multi-sector] Caliendo, L. and F. Parro (2010) “Estimates of trade and welfare effects of NAFTA” mimeo, Yale University


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4. Monopolistic competition, increasing returns to scale and heterogeneous firms (lecture 7)  Monopolistic competition Krugman, P. (1980), “Scale economies, product differentiation, and the pattern of trade,” American Economic Review, 70(5), 950-959 Ethier, W. (1982), “National and international returns to scale in modern theory of international trade,” Econometrica, 50(5), 1243-1268 Ethier, W. (1982), “National and international returns to scale in modern theory of international trade,” American Economic Review, 72(3), 389-405 Grossman, G. and E. Rossi-Hansberg (2010), “External Economies and the International Trade Redux” The Quarterly Journal of Economics, 125(2), 829-858 

Heterogeneous firms

* Melitz, M. (2003), “The impact of trade on intra-industry reallocations and aggregate industry productivity,” Econometrica, 71(6), 1695-1725 Chaney, T. (2007), “Distorted Gravity: The intensive and extensive margins of international trade” American Economic Review, 2008, 98(4) 

Some extensions to Melitz (2003)

* Helpman, E., M. Melitz, S. Yeaple (2004), “Exports versus FDI with heterogeneous firms,” American Economic Review, 94(1) Bernard, A., S. Redding and P. Schott (2011), “Multi-product firms and trade liberalization,” Quarterly Journal of Economics, 126(3), 1271-1318 Bernard, A., S. Redding and P. Schott (2011), “Comparative advantage and heterogeneous firms,” Review of Economic Studies, 74, 31-66 Atkeson, A., A. Burstein (2010) “Innovation, Firm Dynamics, and International Trade,” Journal of Political Economy, 118, 433-484 

Evidence (surveys)

CH chapter 13 by Tybout Bernard, A., J.B. Jensen, S. Redding and P. Schott (2007), “Firms in international trade,” Journal of Economic Perspectives, 21(3), 105-130 Bernard, A., J.B. Jensen, P. Schott (2008), “Importers, Exporters, and Multinationals: A Portrait of firms in the US that trade goods,” in Dunne, T., J.B. Jensen and M. Roberts (ed) Producer Dynamics: New Evidence from Micro Data, Chicago University Press 

Variable markups

* Atkeson, A. and A. Burstein (2008) “Pricing to market, trade costs, and international relative prices,” American Economic Review, 98(5), 1998-2031 Bernard, A., J. Eaton, J. B. Jensen, S. Kortum, “Plants and productivity in international trade,” American Economic Review, 93(4), 1268-1290


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Melitz, M. and G. Ottaviano, “Market size, trade and productivity,” Review of Economic Studies, 75(1), 295-316 

Investment

* Bustos, P. (2011) “Trade liberalization, exports and technology upgrading,” American Economic Review, 101, 304-340 * Lileeva, A. and D. Trefler (2010) “Improved Access to foreign markets raises plant-level productivity…for some plants,” Quarterly Journal of Economics, 1051-1099 5. Monopolistic competition: Confronting theory with data (lecture 8) * Eaton, J., S. Kortum, F. Kramarz (2011), “An anatomy of international trade: Evidence from French firms,” Econometrica, 79(5), 1453-1498 Cherkashin, I., S. Demidova, H.L. Kee, K. Krishna, “Firm heterogeneity and costly trade: A new estimation strategy and policy experiments,” mimeo, Penn State University Arkolakis, C, N. Ramondo, A. Rodriguez-Clare, S. Yeaple (2011) “Innovation and production in the global economy,” NBER working paper 18792 Irarrazabal, A., A. Moxnes, L.D. Opromolla (2013) “The margins of multinational production and the role of intrafirm trade,” Journal of Political Economy, 121, 74-126 Das, S., M. Roberts, J. Tybout (2007), “Market entry costs, producer heterogeneity and export dynamics,” Econometrica, 75(3), 837-873 Other topics 6. FDI and offshoring (approaches different from Ricardo and heterogeneous firms) Antràs P. and E. Helpman (2004), “Global sourcing,” Jounal of Political Economy, 112(3), 552-580 Grossman, G. and E. Rossi-Hansberg (2011), “Task trade between similar countries,” Econometrica, forthcoming 7. Quality (lecture 9) 

Theory

Linder, S. B., An Essay on Trade and Transformation, Garland Pub., New York, NY Flam, H. and E. Helpman (1987), “Vertical product differentiation and North-South trade,” American Economic Review, 77(5), 810-822 Fajgelbaum, P., G. Grossman, E. Helpman (2011), “Income distribution, product quality and international trade,” Journal of Political Economy, 119(4), 721-765 

Evidence

Schott, P. (2004) “Across-product versus within-product specialization in international trade,” The Quarterly Journal of Economics, 119(2), 647-678 Manova, K. and Z. Zhang (2011), “Export prices across firms and destinations,” Quarterly Journal of Economics, forthcoming


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Khandelwal, A. (2010), “The long and short (of) quality ladders,” The Review of Economic Studies, 77(4), 1450-1476 Verhoogen, E. and M. Kugler (2011), “Prices, plant size, and product quality,” The Review of Economic Studies, forthcoming Amiti, M. and A. Khandelwal (2011), “Import competition and quality upgrading,” The Review of Economics and Statistics, forthcoming Hallak, J.C. (2010), “A product quality view of the Linder hypothesis,” The Review of Economics and Statistics, 92(3), 453-466 8. Product cycle, trade and growth GH Grossman, G. and E. Helpman (1991), “Quality ladders in the theory of growth,” The Review of Economic Studies, 58(1), 43-61 Vernon, R. (1966), “International investment and international trade in the product cycle,” The Quarterly Journal of Economics, 80(2), 190-207 Antràs P. (2005) “Incomplete contracts and the product cycle,” American Economic Review, 95, 1054-1073 Alvarez, F., F. Buera, R. Lucas (2011), “Idea flows, economic growth and trade” mimeo, UCLA and Chicago Perla, J., C. Tonetti, M. Waugh (2012) “Equilibrium technology diffusion, trade, and growth”, mimeo, Stanford GSB 9. Labor markets * Helpman, E., O. Itskhoki, S. Redding (2010) “Inequality and unemployment in a global economy,” Econometrica, 78, 1239-1283 * Helpman, E., O. Itskhoki, M. Mundler, S. Redding (2011) “Trade and inequality: From theory to estimation,” mimeo, Princeton University Thoenig and Verdier (2003) “A Theory of defensive skill-biased innovation and globalization,” American Economic Review, 93, 709-728 Feenstra and Hanson (1997) “Foreign direct investment and relative wages: Evidence from Mexico’s maquiladoras,” Journal of International Economics, 42, 371-393 Feenstra, R. (2010) Offshoring in the global economy: microeconomic structure and macroeconomic implications, MIT Press, Cambridge, MA Burnstein, A., J. Cravino and J. Vogel (2013) “Importing Skill-Bias Technology,” AEJ: Macroeconomics, 5, 32-71 Burstein, A. and J. Vogel (2012) “International trade, technology, and the skill-premium,” mimeo, Columbia University  Evidence from trade liberalization in developing countries: Goldberg, P. and N. Pavcnik (2007) “Distributional effects of globalization in developing countries,” Journal of Economic Literature, 45(1), 39-82 Goldberg, P. and N. Pavcnik (2004) “Trade, Inequality, and Poverty: What do we know?” Brookings Trade Forum, 223-269


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10. Political economy of trade policy Bagwell, K. and R. Staiger (2011) “What do negotiators negotiate about? Empirical evidence from the World Trade Organization”, 101, 1238-1273 Grossman, G. and E. Helpman (1994), “Protection for Sale”, The American Economic Review, 84(4), 833-850