Organization: Topics in International Trade Summer 2014 Lectures: Tuesday 12-16 (Ludwigstrasse 28, Vgb., Room 221) Tutorials: Friday 10-12 (Ludwigstrasse 28, Vgb., Room 221) Instructor: Prof. Dr. Dalia Marin and Alexander Tarasov, Ph.D. E-mail: dalia.marin@lrz.uni-muenchen.de, alexander.tarasov@lrz.uni-muenchen.de O ce hours: Prof. Dalia Marin: Monday, 16.30-17.30, Alexander Tarasov: Tuesday, 16.00-17.00 and by appointment Course Requirements: This course covers the theory of international trade at a graduate level. The nal grade will consist of two parts: a class presentation (50%) and a nal exam (50%). It is assumed that students have taken a graduate course in Microeconomics or have an equivalent background. A working knowledge of calculus is required. Students who have any doubts about their ability to deal with the course 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. 1985. The following books are recommended but not required: 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. Grossman, Gene M. (Ed.), "Imperfect Competition and International Trade," MIT Press, 1992. 1
Helpman, E., Marin D. and Verdier T., "The Organization of Firms in a Global Economy," Harvard University Press, 2008. Course Outline and Readings: Papers and chapters marked with (**) are will be extensively covered in class. The remaining items are suggested readings: items marked with (P) are papers that can be presented in the class. 1 Basic Models and Concepts 1.1 Heckscher-Ohlin Trade Theory **Feenstra (2003), "Advanced International Trade: Theory and Evidence," Chapters 1-2 **Leamer, E. "The Leontief Paradox, Reconsidered", Journal of Political Economy, 1980, Vol. 88(3), pp. 495-503. Helpman, E. and P. Krugman (1985), "Market Structure and Foreign Trade," Chapters 1-2 (P-2) Tre er, D. The Case of the Missing Trade and Other Mysteries, American Economic Review, 1995, Vol. 85(5), pp. 1029-46. Davis, D. and D. Weinstein, An Account of Global Factor Trade, American Economic Review, 2001, Vol. 91(5), pp. 1423-1453 2
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, Trade and Payments in a Ricardian Model with a Continuum of Goods, American Economic Review, 1977, Vol. 67(5), pp. 823-39. Matsuyama K. (2008), "Ricardian Trade Theory," The New Palgrave Dictionary of Economics, 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 Trade Theory) **Feenstra (2003), "Advanced International Trade: Theory and Evidence," Chapter 5 **Krugman, P. (1980), "Scale Economies, Product Di erentiation and the Pattern of Trade," American Economic Review, Vol. 70(5), pp. 950-59. Davis, D. and Weinstein, D. (2003), "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, 59, 1-23. Krugman, P., Increasing Returns, Monopolistic Competition, and International Trade, Journal of International Economics, 1979, Vol. 9(4), pp. 469-79. Helpman, E. and P. Krugman (1985), "Market Structure and Foreign Trade," Chapters 6-9 3
1.4 Trade Volumes and The Gravity Equation **Feenstra (2003), "Advanced International Trade: Theory and Evidence," Chapters 5 pp. 144-173 (P-1) McCallum, J. (1995), "National Borders Matter: Canada-US Regional Trade Patterns," American Economic Review, Vol. 85(3), pp. 615-623. (P-2 ) Anderson, J. and E. van Wincoop (2003), "Gravity with Gravitas: A Solution to the Border Puzzle," American Economics Review, Vol. 93(1), pp. 170-192. Armenter, R. and Koren, M. (2010), "A Balls-and-Bins Model of Trade," mimeo. 2 The New New Trade Theories 2.1 International Trade and Firm Heterogeneity 2.1.1 Theory **Melitz, M.J. (2003), The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity, Econometrica, Vol. 71(6), pp. 1695-1725. 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 of International Trade," American Economic Review, Vol. 98(4), pp. 1707-1721 (P-3) Arkolakis, C. (2010), "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, 118(6), 1151-1199. Bernard, A., S. Redding and P. Schott (2007), Comparative Advantage and Heterogeneous Firms, Review of Economic Studies, Vol. 74(1). 4
(P-2) Vogel, J. (2008): "Spatial Competition with Heterogeneous Firms," Journal of Political Economy, 116, 423-466. (P-2) Melitz, M.J. and Redding, S. (2013), "Firm Heterogeneity and Aggregate Welfare," NBER Working Paper 18919. 2.1.2 Empirics Bernard, A.B., J.B. Jensen, S. Redding and P. Schott (2007), "Firms in International Trade," 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. (P-2) Pavcnik, N. (2002), "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, 69, 245-76. (P-1) Tre er (2004), "The long and short of the Canada-US free trade agreement", American Economic Review: Vol. 94 No. 4 (September 2004) 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 Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, 87(4), 545-565 (P-2) Das, S., Roberts, M. and Tybout, J. (2007), "Market Entry Costs, Producer Heterogeneity and Export Dynamics," Econometrica, 75(3), 837-873. 2.2 Generalization of The Ricardian Model of Trade: The Eaton- Kortum Model 5
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. (P-2) Bernard, A.B., J. Eaton, J.B. Jensen and S. Kortum (2003), "Plants and Productivity in International Trade," American Economic Review, 93(4), 1268-1290 (P-3) Eaton, J., S. Kortum and F. Kramarz (2011), "An Anatomy of International Trade: Evidence from French Firms," Econometrica. 3 Assorted Topics 3.1 Multinational Production 3.1.1 The Classical Theory Feenstra (2003), "Advanced International Trade: Theory and Evidence," Chapter 11 Helpman, E. and P. Krugman (1985), "Market Structure and Foreign Trade," Chapters 12-13 Helpman, E. (1984), "A Simple Theory of International Trade and Multinational Corporations," Journal of Political Economy, 92(3), 451-471 Helpman, E. (1985), "Multinational Corporations and Trade Structure," Review of Economic Studies, 52(3), 443-457. 3.1.2 The Proximity-Concentration Trade O (P-2) Helpman, E., M. Melitz and S. Yeaple (2004), "Exports versus FDI with Heterogenous Firms," American Economic Review, 94(5), 300-16. 6
Brainard, S. L. (1997), "An Empirical Assessment of the Proximity-Concentration Trade-O Between Multinational Sales and Trade," American Economic Review, 87(4), 520-44. Markusen, J. R. (1984), "Multinationals, Multi-Plant Economies and the Gains from Trade," Journal of International Economics, 16, 205-226. 3.2 Trade in Tasks ** Grossman, G. and E. Rossi-Hansberg (2008), "Trading Tasks: A Simple Theory of O shoring," American Economic Review, 98(5), 1978-1997 Rodriguez-Clare A., "O shoring in a Ricardian World", American Economic Journal: Macroeconomics. 3.3 Trade and the Organization of Firms ** Marin D. and Verdier Th. (2008), "Power Inside the Firm and the Market: A General Equilibrium Approach," Journal of the European Economic Association, 6(4), 752-788. **Marin D. and Verdier Th. (2012), "Globalization and the Empowerment of Talent," Journal of International Economics, 86 (2), 209-223. **Marin D. and Verdier Th. (2014), "Corporate Hierarchies and International Trade: Theory and Evidence," mimeo. Caliendo and Rossi-Hansberg (2012), "The Impact of Trade on Organization and Productivity," Quarterly Journal of Economics 127(3), 1393-1467. Marin (2014), "The theory of the rm goes global," forthcoming in: Aghion, P., Legros, P. and Zingales, L. (Eds.): Grossman and Hart at 25, Cambridge University Press. 7
Marin D. and Verdier Th. (2008), "Competing in Organizations: Firm Heterogeneity and International Trade," in: E. Helpman, D. Marin, Th. Verdier (Eds.): The Organization of Firms in a Global Economy, 142-172, Harvard University Press. 3.4 Organizational Economics of Multinational Firms 3.4.1 The Boundaries of Multinational Firms **Antràs P. (2003), "Firms, Contracts, and Trade Structure," Quarterly Journal of Economics, 118(4), 1375-1418 (P-2) Antràs P. and E. Helpman (2004), "Global Sourcing," Journal of Political Economy, 112(3), 552-80. ** 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 a Global Economy, 142-172, Harvard University Press. **Marin, D. (2006), "A New International Division of Labor: Outsourcing and O shoring to Eastern Europe," Journal of the European Economic Association, Papers and Proceedings. Yi, K. (2003), "Can Vertical Specialization Explain the Growth of World Trade?" Journal of Political Economy, 111(1), 51-102 Hanson, G. H., R. Mataloni and M. Slaughter (2005), "Vertical Production Networks in Multinational Firms," Review of Economics and Statistics, 87(4), 664-78. Grossman, G. and E. Helpman (2002), "Integration vs. Outsourcing in Industry Equilibrium," Quarterly Journal of Economics, 117(1), 85-120 Grossman, G. and E. Helpman (2005), "Outsourcing in a Global Economy," Review of Economic Studies, 72(1), 135-159. 8
Nunn, N. (2007), "Relationship-Speci city, Incomplete Contracts and the Pattern of Trade," Quarterly Journal of Economics, 122(2), 569-600. 3.4.2 The Internal Organization of Multinational Firms ** Marin, Schymik, and Tarasov (2014),"Trade in Tasks and the Organization of Firms," mimeo. **Marin, Rousova, and Verdier (2013), "Do Multinationals Transplant their Business Model? ", SFB/TR 15 Discussion Paper No. 398 3.4.3 Firm Organization and Competitiveness ** Marin, Schymik, Tscheke (2014), "Organizations as Competitive Advantage: How Decentralized Management and O shoring Can Explain the Export Performance of Firms," mimeo Marin, Schymik, Tscheke (2014), "Competitiveness in Europe: The Role of Firm Organization," mimeo. 3.5 Income Distribution, Nonhomothetic Preferences and Trade Patterns and Volumes Caron, J., T. Fally, and J. Markusen (2011): Skill premium and trade puzzles: a solution linking production and preferences, NBER Working Paper No. 18131. Flam, H. and Helpman, E. (1987), "Vertical Product Di erentiation and North-South Trade," The American Economic Review, 77, 810-822. (P-1) Hunter, L. C. (1991), "The Contribution of Nonhomothetic Preferences to Trade," Journal of International Economics, 30, 345 58. 9
(P-2 ) Matsuyama, K. (2000), "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade," Journal of Political Economy, 108, 1093-1120. (P-2 ) Fajgelbaum, P., Grossman, G. and Helpman, E. (2011), "Income Distribution, Product Quality, and International Trade," Journal of Political Economy (P-1) Hummels, D. and Klenow, P. J. (2002), "The Variety and Quality of a Nation s Trade," NBER WP 8712. Fieler, A. C. (2010), "Non-Homotheticity and Bilateral Trade: Evidence and a Quantitative Explanation," Econometrica Waugh, M. (2010), "International Trade and Income Di erences," American Economic Review (P-2) Tarasov, A. (2012), "Per Capita Income, Market Access Costs, and Trade Volumes," Journal of International Economics 86(2), 284-294. Hepenstrick, C. and Tarasov, A. (2014), "Per capita income and the extensive margin of bilateral trade," mimeo. Tarasov, A. (2011), "Trade Liberalization and Welfare Inequality: A Demand-Based Approach", Scandinavian Journal of Economics, forthcoming. 3.6 Market Imperfections and Trade (P-2 ) Manova, K. (2008), "Credit Constraints, Equity Market Liberalizations and International Trade", Journal of International Economics 76, pp. 33-47. (P-3 ) Antràs, P., M. Desai and F. Foley (2009), "Multinational Firms, FDI Flows and Imperfect Capital Markets", Quarterly Journal of Economics, 124(3), 1171-1219. 10
(P-3 ) Antràs, P. and R. Caballero (2009), " Trade and Capital Flows: A Financial Frictions Perspective, Journal of Political Economy, 117(4), 701-744 Chesnokova, T. (2007): "Immiserizing Deindustrialization: A Dynamic Trade Model with Credit Constraints," Journal of International Economics, 73. (P-3) Helpman, E. and O. Itskhoki (2010): "Labor Market Rigidities, Trade and Unemployment," Review of Economic Studies, 77(3), 1100-1137. (P-3) Helpman, E., O. Itskhoki and S. Redding (2010): "Inequality and Unemployment in a Global Economy," Econometrica, 78(4), 1239-1283. Manova, K., Shang-Jin Wei and Zhiwei Zhang (2010), "Firm Exports and Multinational Activity under Credit Constraints," working paper. 3.7 Trade, Innovations, and Growth Feenstra (2003), "Advanced International Trade: Theory and Evidence," Chapter 10 Krugman, P., The Narrow Moving Band, the Dutch Disease, and the Competitive Consequences 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 and Measurement," International Economic Review, 40(3), 537-570. Eaton, J. and S. Kortum (2001), "Technology, Trade, and Growth," European Economic Review, 45, 742-755. 11
Song, Zheng; Storesletten, Kjetil; Zilibotti, Fabrizio (2011), "Growing like China," American Economic Review, 101(1), 196-233. 3.8 Political Economy of Trade Feenstra (2003), "Advanced International Trade: Theory and Evidence," Chapter 9 Grossman, G. and E. Helpman (1994), "Protection for Sale," American Economic Review. Grossman, G. and E. Helpman (1995), "Trade Wars and Trade Talks," Journal of Political Economy P. Goldberg and G. Maggi (1999), "Is Protection for Sale? An Empirical Investigation," American Economic Review, 89(5), pp. 1135-55. (P-2) Martin, Mayer and Thoenig (2008), "Make Trade Not War?" Review of Economics Studies, 75, pp. 865-900. (P-2) Seitz, M., Tarasov, A. and Zakharenko, R. (2014), "Trade Costs, Con icts, and Defense Spending," mimeo. 12