Economics 507, Spring 2007

 

Professor: Andrés Rodríguez-Clare

Office:  617 Kern

E-mail: andres@psu.edu

Phone: 863-1295

Office Hours: Tuesday 11:00am to 12:00pm, Wednesday 1:30 to 2:30pm, and by appointment

 

This course covers the theory of international trade at a graduate level. There will be three exams, each weighting 25. The remaining 25% will consist of a short paper proposal that will be discussed with me at the end of the term.


We will use three books:

Feenstra, Advanced International Trade: Theory and Evidence (Princeton University Press, 2003) - F

Dixit and Norman, Theory of International Trade (Cambridge University Press, 1980) - DN

Elhanan Helpman and Paul Krugman, Market Structure and Foreign Trade (MIT Press, 1985) – HK

 

We will also use some chapters from a book that Jonathan Eaton and Samuel Kortum are writing. This is referred to as EK below. They are posted on the web, click here or go to http://www.econ.umn.edu/~kortum/courses/spring06/s06_texas.htm

 

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All course work by students is to be done on an individual basis unless an instructor clearly states that an alternative is acceptable. Any reference materials used in the preparation of any assignment must be explicitly cited. In an examination setting, unless the instructor gives explicit prior instructions to the contrary, whether the examination is in-class or take-home, violations of academic integrity shall consist of any attempt to receive assistance from written or printed aids, or from any person or papers or electronic devices, or of any attempt to give assistance, whether the one so doing has completed his or her own work or not. Other violations include, but are not limited to, any attempt to gain an unfair advantage in regard to an examination, such as tampering with a graded exam or claiming another's work to be one's own.

Violations shall also consist of obtaining or attempting to obtain, previous to any examinations, copies of the examination papers or the questions to appear thereon, or to obtain any illegal knowledge of these questions. Lying to the instructor or purposely misleading any Penn State administrator shall also constitute a violation of academic integrity.

In cases of a violation of academic integrity it is the policy of the Department of Economics to impose the most severe penalties that are consistent with University guidelines.

 

Disabilities

The Pennsylvania State University encourages qualified people with disabilities to participate in its programs and activities and is committed to the policy that all people shall have equal access to programs, facility, and admissions without regards to personal characteristics not related to ability, performance, or qualifications as determined by University policy or by state or federal authorities. If you anticipate needing any kind of accommodation in this course or have questions about physical access, please tell the instructor as soon as possible.

 

 

Course Outline and Readings

 

1.      Some basic concepts (2)

    1. Basic models, key propositions, and gains from trade – Review notes, DN chapter 1 and F chapter 1
    2. DN, chapter 2 (focus only on revenue function, cost function, expenditure function), chapter 3 (sections 1 and 2 only), and chapter 4 (only section 1).
    3. Deardorff, “The general validity of the law of comparative advantage,” JPE 1980, 941-957
    4. Bernhofen, D. and J. Brown, 2004, “A Direct Test of the Theory of Comparative Advantage: The Case of Japan” JPE, February.
    5. Dixit and Norman, “Gains from trade without lump-sum compensation,” JIE 1986, 111-122.
    6. Irwin, D., 2001: “The Welfare Costs of Autarky: Evidence from the Jeffersonian Trade Embargo,” NBER Working Paper No. 8692
  1. The pattern of trade: the Hecksher-Ohlin model (3)
    1. F, chapter 2
    2. Trefler, “The case of the missing trade and other HOV mysteries” AER 1995
    3. Choi and Krishna, The Factor Content of Bilateral Trade, JPE 2004
  1. Generalizations of factor proportions theory and more empirics (2)
    1. Class notes
    2. F, chapter 3
    3. DN, chapter 4
    4. HK, chapter 1
    5. Davis, “Intra-Industry Trade: A Hecksher-Ohlin-Ricardo approach” JIE 1995, 201-226
    6. Davis and Weinstein, “An account of global factor trade,” AER 2001, 1423-53
    7. Davis and Weinstein, "What Role for Empirics in International Trade," NBER WP 8543
    8. Helpman, “Structure of Foreign Trade,” JEP 1999, 121 – 144 (first part)
    9. Schott, “Across-product versus within-product specialization in international trade,” QJE May 2004
  1. The short and the long run in the Hecksher-Ohlin model (2)
    1. Neary, P., 1978, "Short Run Specificity and the Pure Theory of International Trade," Economic Journal Vol. 88, No. 351, pp. 488-510.
    2. Class notes on the Specific Factors Model
    3. Class notes on HO dynamics, and steady state HO trade
    4. Atkeson and Kehoe, “Paths of Development for Early and Late Bloomers in a Dynamic HO model,” Federal Reserve Bank of Minneapolis Staff Report No. 256
    5. Ventura, “Growth and interdependence,” QJE 1997, 57-84
  2. Intra-industry trade (2)
    1. Krugman, “Increasing Returns, Monopolistic Competition, and International Trade,” Journal of International Economics 9:469-79 (1979)
    2. F chapter 5
    3. Krugman, Handbook of International Economics Vol. III, edited by Grossman and Rogoff, Chapter 24
    4. Monopolistic competition and HO trade, HK part III
  3. Trade Volumes (5)
    1. A first look at the data, the Gravity Equation, and three theories (Armington, Krugman, Ricardo)

                                                               i.      EK chapters 2 (section 2.1) and 3

                               ii.  Anderson and Van Wincoop, Gravity with Gravitas, AER 2003

    1. Quantitative Ricardian Theory

                                                               i.      Dornbusch, Fischer and Samuelson, “Comparative Advantage, trade, and payments in a Ricardian model with a continuum of goods,” AER 1977, 823-839

                                                             ii.      Eaton and Kortum, “Technology, Geography and Trade,” Econometrica 2002, 1741-1779

iii.      Alvarez and Lucas, “General Equilibrium Analysis of the Eaton-Kortum model of international Trade” Working Paper, University of Chicago

  1. Quantitative models of trade and growth (4)
    1. Kortum, “Research, Patenting, and Technological Change,” Econometrica, 65(6), 1997, 1389-1419.
    2. Eaton and Kortum,  “Technology, Trade and Growth: A Unified Framework,” European Economic Review: Papers and Proceedings, 45(4-6), 2001, 742-755.
    3. Eaton and Kortum, “Innovation, Diffusion and Trade,” NBER Working Paper No. 12385
    4. Rodriguez-Clare, “Trade, Diffusion and the Gains from Openness,” working paper, PSU
  2. Matching firm-level data (5)
    1. EK chapters 4-6
    1. Bernard, Eaton, Kortum and Jensen, “Plants and Productivity in International Trade,” American Economic Review, 93(4), 2003, 1268-1290.
    2. Chaney, “Distorted Gravity: Heterogenous Firms, Market Structure, and the Geography of International Trade” working paper, University of Chicago
    3. Eaton, Kortum, Kremerz, “An Anatomy of International Trade: Evidence from French Firms,” working paper, University of Chicago and NYU
    1. Arkolakis, “Market Access Costs and the New Consumer Markets in International Trade,” working paper, University of Minnessotta
  1. Variety gains from trade (1)
    1. Romer, “New Goods, Old Theory, and the Welfare Costs of Trade Restrictions,” Journal of Development Economics 43 (February 1994):5-38
    2. Klenow and Rodriguez-Clare, “Quantifying Variety Gains from Trade Liberalization,” working paper, Stanford and PSU
  2. Effects of trade barriers (2)

a.       F, chapters 6, 7 and 8

b.       DN, chapter 6

c.       Bhagwati, “Generalized Theory of Distortions and Welfare,” chapter 16 in B

d.       Dixit, “Tax Policy in Open Economies,” in Auerbach and Feldstein, Handbook of Public Economics (1985).

  1. The Political Economy of Trade Policy (1)

a.       Feenstra, chapter 9

b.       Grossman and Helpman, “Protection for Sale,” AER 1994

c.       Helpman, “Politics and Trade Policy,” NBER Working Paper No. 5309 (published: in Kneps and Wallis (eds), Advances in Economics and Econometrics: Theory and Applications. Cambridge University Press 1997)

  1. Theories of Trade Agreements (2)
    1.     Dixit, “Strategic Aspects of Trade Policy,” in T. Bewley, ed., Advances in Economic         Theory: Fifth World Congress, 1987, Cambridge University Press

b.       Bagwell and Staiger, 1999: “An Economic Theory of GATT,” American Economic Review 89: 215-48.

c.       Helpman, E. and G. Grossman, 1995: “Trade Wars and Trade Talks,” Journal of Political Economy.

d.       Maggi, G., and Rodríguez-Clare, A. “The Value of Trade Agreements in the Presence of Political Pressures,” Journal of Political Economy, June 1998 (No. 3, Vol. 106)

e.   Maggi, G., and Rodríguez-Clare, A. “A Political Economy Theory of Trade Agreements,” NBER Working Paper No. 11716