International Trade: Economics 507A

Fall, 2007

Professor:       James Tybout
E-mail:            jtybout@psu.edu
Office:             517 Kern Building
Phone:            865-4259

Office hours:  Wednesdays 2-3

Thursdays 4-5

And by appointment

Course structure

This course develops the core models that underlie modern trade theory and examines their empirical relevance. It then treats several areas of active research in particular detail: trade and labor markets, the global fragmentation of production, and the relationship between trade and innovative activity.

There will be a midterm and a final exam. In addition, students will be required to do several homework assignments, and to present at least one article from the reading list. (With prior approval, presentations may be done on papers that do not appear on the reading list.)

Please refer to the bottom of this syllabus for policies concerning missed course work, disabilities and academic integrity.

Assignments

Assignment 1 suggested answers

Assignment 2 suggested answers

Assignment 3 suggested answers

Assignment 4 suggested answers

Old exams

Fall 2006 midterm Suggested answers

Spring 2002 midterm Suggested answers

Fall 2007 midterm Suggested answers

Fall 2006 final Suggested answers

Fall 2007 final, with answers

Section I: Core Models

1.    Factor endowments as a basis for trade: the Heckscher-Ohlin-Samuelson model 

a. Theory ( lecture 1, lecture 2)

Jones, R., 1965, " The Structure of Simple General Equilibrium Models," Journal of Political Economy 73: 557-572.

Helpman, E. and P. Krugman, P., 1985. Market Structure and Foreign Trade, MIT Press, Chapter 1.

Feenstra, R. 2004. Advanced International Trade, Princeton, N.J.: Princeton University Press, Chapter 1.

Dixit, A. K. and V. Norman, 1980. Chapters 1-3, pp. 93-100 and Mathematical Appendix

b. Empirical relevance ( lecture 3, lecture 4)

Trefler, D., 1995. " The Case of the Missing Trade and Other Mysteries," American Economic Review (December), 1029-46.

Davis, D. and D. Weinstein, 2001, " An Account of Global Factor Trade," American Economic Review (December): 1423-1453.

Feenstra, R. 2004. Advanced International Trade, Princeton, N.J.: Princeton University Press, Chapter 2.

2.    Technology differences and trade: Ricardian trade theory ( lecture 5, lecture 6) lecture 7)

Dornbusch, R. S. Fisher, and P. Samuelson, 1977. " Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods,” American Economic Review, 823-39.

Eaton, J. and S Kortum, 2002. " Technology, Geography, and Trade," Econometrica.

3.    Trade with monopolistic competition

a. With representative firms ( lecture 8, lecture 9)

Helpman, E. and P. Krugman, P., 1985. Market Structure and Foreign Trade, MIT Press, Chapter 6-8.

b. With heterogeneous firms ( lecture 10, lecture 11, lecture 12, lecture 13 , lecture 14)

Melitz, M. 2003. " The Impact of Trade on Aggregate Industry Productivity and Intra-Industry Reallocations," Econometrica 71(6), pp. 1695-1726.

Melitz, M. and G. Ottaviano. 2005. " Market Size, Trade and Productivity." Harvard University, Department of Economics.

Bernard, A., Eaton, J., Jensen, J., and S. Kortum. 2003. " Plants and Productivity in International Trade," American Economic Review Vol. 93, No. 4 , pp. 1268-1290.

Bernard, A. S. Redding and P. Schott. 2007. " Comparative Advantage and Heterogeneous Firms" Review of Economic Studies.

c.  Does heterogeneity matter? Recent evidence ( lecture 15)

Helpman, E., M. Melitz and A. Rubenstein. 2006. “ Trading Partners and Trading Volumes,” Harvard University, Department of Economics Working Paper.

Eaton, J., S. Kortum and F. Kramarz. 2005. “ An Anatomy of International Trade: Evidence from French Firms,” New York University, Department of Economics Working Paper.

d.  Evidence on productivity effects in heterogeneous firm models  ( lecture 16) ( lecture 17)

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.

Bernard, A., J. B. Jensen and P. Schott. 2006 " Trade Costs, Firms and Productivity," Journal of Monetary Economics 53(5), pp: 917-937.

Pacvnik, N. 2002. " Trade Liberalization, Exit and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies 69, pp. 245-76.

Trefler, D., 2004. “ The Long and Short of the Canada-U.S. Free Trade Agreement,” American Economic Review 94(4), pp. 870-95.

e. Evidence on exporting behavior in heterogeneous firm models ( lecture 18)

Roberts, M. and J. Tybout, 1997. " The Decision to Export in Colombia," American Economic Review 87, pp. 545-65.

Das, S., M. Roberts and J. Tybout, 2007. "Market Entry Costs, Producer Heterogeneity and Export Dynamics," Econometrica. 75(3), pp. 837-873. (available on-line from Blackwell-synergy)

Eaton, J., M. Eslava, M. Kugler and J. Tybout, 2007. "The Margins of Entry into Export Markets: Evidence from Colombia," forthcoming in The Organization of Firms in a Global Economy, edited by Elhanan Helpman, Dalia Marin, and Thierry Verdier (Harvard University Press).

Section II: Selected Topics

4.   Trade and labor markets: beyond the Stolper-Samuelson theorem 

a. Selected models ( lecture 19, lecture 20, lecture 21, lecture 22)

Yeaple, S. 2005. “ A Simple Model of Firm Heterogeneity, International Trade, and Wages,” Journal of International Economics 65(1), pp. 1-20.

Albrecht, J. and S. Vroman 2002. “ A matching model with endogenous skill requirements”  International Economic Review 43(1), pp. 283-305  (available on-line from Blackwell-synergy)

Gabriel, Felbermayr, G. J. Prat and H-J Schmerer. 2007. “ Melitz meets Pissarides. Firm Heterogeneity, Search Unemployment, and Trade Liberalization,” Working Paper, The University of Vienna.

Acemoglu, D. 2003. “ Patterns of Skill Premia,” Review of Economic Studies. 70, pp. 199-230.

Davidson, C., S. Matusz and A. Schevchenko. 2007. “ Globalization and Firm-Level Adjustment with Imperfect Labor Markets,” Working Paper, Michigan State University, Department of Economics.

Helpman, E., and O. Itskhoki. 2007. “Labor Market Rigidities, Trade and Unemployment,” Harvard University, Department of Economics

b.  Recent evidence

Feenstra, R. and G. Hanson, 1999. " The Impact of Outsourcing and High Technology Capital on Wages: Estimates for the United States, 1979-1990," Quarterly Journal of Economics, 869-906.

Feenstra, R. and G. Hanson, 2003. " Global Production and Inequality: A Survey of Trade and Wages," in E. K. Choi and J. Harrigan, eds., Handbook of International Trade, Oxford: Basil-Blackwell.

5.    Multinationals and global fragmentation of production

a.  Global fragmentation of production (lecture 23, lecture 24, lecture 25, lecture 26)

Barba Navaretti, G. and A. Venables. 2004. Multinational Firms in the World Economy, Princeton, NJ: Princeton U. Press. Chapters 1-4.

Helpman, E. and P. Krugman, 1985. Market Structure and Foreign Trade, MIT Press. Chapters 7, 12 and 13.

Markusen, J. and A. Venables. 1998. “ Multinational Firms and New Trade Theory,” Journal of International Economics (December) 183-204.

Yi, Kei-Mu. 2003. “ Can Vertical Specialization Explain the Growth of World Trade?” Journal of Political Economy. (February) 111(1) pp. 52-102.

Antras, P., L. Garicano and E. Rossi-Hansberg. 2006. “ Offshoring in a Knowledge Economy, Quarterly Journal of Economics.121(1) pp. 31-78.

Helpman, E., M. Melitz and S. Yeaple. 2004. " Export versus FDI with Heterogeneous Firms," American Economic Review (March) 300-316.

Mitra, D. and P. Ranjan. 2007. “ Offshoring and Unemployment ,” Syracuse University, Department of Economics.

b.  When do multinationals emerge? (lecture 27, lecture 28)

Markusen, J. 1995. " The Boundaries of the International Enterprise," Journal of Economic Perspectives (Spring) pp. 169-189.

Barba Navaretti, G. and A. Venables. 2004. Multinational Firms in the World Economy, Princeton, NJ: Princeton U. Press. Chapters 5.

Grossman, G. and E. Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," Quarterly Journal of Economics, vol.117, no.1, pp, 85-120.

Antras, P., 2003. "Firms, Contracts and Trade Structure," Quarterly Journal of Economics 118(4), pp. 1375-1418.

Antras, P. and E. Helpman, 2004. "Global Sourcing," Journal of Political Economy, Vol. 112, No. 3, pp. 552-580.

c.   Evidence on the patterns and consequences of multinational investments

Barba Navaretti, G. and A. Venables. 2005. Multinational Firms in the World Economy, Princeton, NJ: Princeton U. Press. Chapters 6-8.

Brainard, L. 1997. "An Empirical Assessment of the Proximity-Concentration Tradeoff Between Multinational Sales and Trade," American Economic Review. pp. 520-44.

Carr, D., J. Markusen and K. Maskus. 2001. "Estimating the Knowledge Capital Model of the Multinational Enterprise," American Economic Review, pp. 693-708.

Feenstra, R. and G. Hanson. 2005. “Ownership and Control in Outsourcing to China: Estimating the Property Rights Theory of the Firm,” Quarterly Journal of Economics 120(2), pp. 729-761.

6.    Openness, Learning and Innovation

a. Selected theories

Burnstein, A. and A. Atkeson, 2006. “Innovation, firm dynamics, and international trade,” UCLA working paper.

Eaton, J. and S. Kortum. 2001. “Technology, Trade and Growth: A Unified Framework,” European Economic Review 45: 742-755.

Eaton, J. and S. Kortum. 2006. “Innovation, Diffusion and Trade,” NBER Working Paper 12385.

Grossman, G. and E. Helpman. 1991. Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press, Chapters 3, 6, 12.

Grossman, G. and E. Helpman. 1991. "Quality Ladders and Product Cycles," Quarterly Journal of Economics 106: 557-586.

Young, A. 1991. "Learning by Doing and the Dynamic Effects of International Trade,” Quarterly Journal of Economics. 106: 369-405.

b. Some micro evidence

Irwin, D. and P. Klenow. 1994. "Learning by Doing Spillovers in the Semiconductor Industry." Journal of Political Economy. 102: 1200-1227.

Thornton, R. and P. Thompson. 2001. "Learning from Experience and Learning from Others: An Exploration of Learning and Spillovers in Wartime Shipbuilding." American Economic Review. 91: 1350-1368.

Aghion, P., R. Burgess, S. Redding, and F. Zilibotti, 2003. "The Unequal Effects of Liberalization: Theory and Evidence from India," Harvard University, Department of Economics.

Clerides, S., S. Lach and J. Tybout, 1998. "Is Learning by Exporting Important? Micro-dynamic Evidence from Colombia, Mexico and Morocco,” The Quarterly Journal of Economics 113, pp. 903-47.

Erdem, E. and J. Tybout. 2004. "Import Competition and Industrial Sector Performance: Interpreting the Evidence," in S. Collins and D. Rodrik, eds., Brookings Trade Forum, 2003.

Lileeva, A. and D. Trefler. 2007. “Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants,” Working Paper, University of Toronto.

Policies concerning missed coursework, disabilities and academic integrity

Valid Excuses: During the course many possible situations may arise that would result in your inability to attend class, attend exams, or perform at a minimally acceptable level during an examination. Illness or injury, family emergencies, certain University-approved curricular and extra-curricular activities, and religious holidays can be legitimate reasons to miss class or to be excused from a scheduled examination. 

In the case of your own illness or injury, confirmation from a physician, physician’s assistant, a nurse-practitioner, or a nurse is required. Be advised that University Health Services cannot provide such verification unless they have provided treatment and the student authorizes release of information to the instructor. Further, barring extraordinary circumstances, the confirmation must be available to the instructor prior to the missed course event. 

With regard to family emergencies, you must provide verifiable documentation of the emergency. Given the vast array of family emergencies the instructor will provide precise guidance as to what constitutes adequate documentation. Unless the emergency is critical you should notify the instructor in advance of your absence from the scheduled course event. In cases of critical emergencies, you must notify the instructor within one week of your absence.

For University-approved curricular and extra-curricular activities, verifiable documentation is also required. The student should obtain from the unit or department sponsoring the activity a letter (or class absence form) indicating the anticipated absence(s). The letter must be presented to the instructor at least one week prior to the first absence. 

In the case of religious holidays, the student should notify the instructor by the third week of the course of any potential conflicts.

If a student misses a class during which an evaluative event (e.g., a quiz or an exam) takes place, and the student has a valid excuse, it is the policy of the Economics Department that the missed event may be made up in one of two ways that are to be decided by the instructor: i) the student will take a make-up version for the missed evaluative event; or ii) the student will be excused from the missed event, and the weight of that event in the overall course grade will be reassigned to either the course final exam or to a subset of the subsequent evaluative events in the course.

Disability Message: 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.

Academic Integrity: Guidelines for the Department of Economics, Penn State University

The ability of the University to achieve its purposes depends upon the quality and integrity of the academic work that its faculty, staff and students perform. Academic freedom can flourish only in a community of scholars which recognizes that intellectual integrity, with its accompanying rights and responsibilities, lies at the heart of its mission. Observing basic honesty in one's work, words, ideas, and actions is a principle to which all members of the community are required to subscribe.

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.  For further details on Penn State policies concerning academic integrity, please refer to: University policies on academic integrity.