Professor Kala Krishna Tel: 865-1106
Office Hours: Tue./Th. 5:30-6:30
and by appointment in 523 Kern.
This course deals with international trade theory, policy and evidence at a graduate level. The aim of the course is to give students some idea about research in the area. A working knowledge of multivariable calculus and linear algebra is required. It will be assumed that students have taken the graduate courses in micro-economic theory or have the equivalent background. Students who have any doubt about their ability to deal with the course should see me.
This is the second semester of a two semester course. The first semester develops the basic models used in international trade theory and policy and the extensions to deal with imperfect competition. This semester deals with a number of special topics.
Course Requirements
Paper 20%
First Exam 40%
Second Exam 40%
There will be a number of problem sets which should be done as a group and turned in but which will not count toward the grade. Please make sure you can do them on your own.
Required readings are indicated by an asterisk(*).
If you plan on working in the area, you might want to buy some or all of these books since they are used a lot.
Bhagwati, J.N. (ed.), Import Competition and Response, NBER, University of Chicago Press, 1982.
Bhagwati, J.N. (ed.), International Trade: Selected Readings, MIT Press, 1985.
*Dixit, A.K. and V. Norman, Theory of International Trade, Cambridge University Press, 1980.
Grossman, G. and E. Helpman, Innovation and Growth in the Global Economy,
MIT Press, 1991.
Helpman, E. and P. Krugman, Market Structure and Foreign Trade, MIT Press, 1984.
Helpman, E. and P. Krugman, Trade Policy and Market Structure, MIT Press, 1989.
Leamer, E., Sources of International Comparative Advantage, MIT Press, 1984.
*Krugman, P., Geography and Trade, MIT Press, 1991.
Vousden, N., The Economics of Protection, Cambridge University Press, 1990.
Some useful collections of readings are:
Caves, R.E. and H.G. Johnson (eds.), Readings in International Economics, (Richard D. Erwin for American Economic Association, 1968).
*Jones, R.W. and P.B. Kenen (eds.), Handbook of International Economics, North-Holland, 1984, Vol.1.
*Grossman, G.M. and K. Rogoff (eds.), Handbook of International Economics, North-Holland, 1995, Vol.,3.
Greenaway, D. and L. Alan Winters (eds.), Surveys in International Trade, Blackwell, 1994.
*Grossman, Gene M. (ed.), Imperfect Competition and International Trade,
MIT Press, 1992.
The following abbreviations are used for journal titles:
AER American Economic Review
BPEA Brookings Papers on Economic Activity
CJE Canadian Journal of Economics
EMA Econometrica
EJ Economic Journal
IER International Economic Review
EER European Economic Review
JDE Journal of Development Economics
JIE Journal of International Economics
JITED Journal of International Trade and Economic Development
JPE Journal of Political Economy
QJE Quarterly Journal of Economics
ReStud Review of Economic Studies
RIE Review of International Economics
WBER World Bank Economic Review
Reading List
(a) Tariffs versus Quotas
*Krishna, K., "Trade Restrictions as Facilitating Practices," JIE, 26, 1989, pp. 251-270. Also in Grossman (Ed.) volume.
Krishna, K., "Theoretical Implications of Imperfect Competition on Quota License Prices and Auctions," World Bank Economic Review, Vol. 7, No. 1, 1993, pp. 113-136.
Krishna, K. and M. Itoh, "Content Protection and Oligopolistic Interactions," ReStud, LV, pp. 107-125.
*Krishna, K., "The Case of the Vanishing Revenues: Auction Quotas with Monopoly," AER, September 1990.
*Krishna, K. and T. Winston, "A New Model of Quality", Mimeo, Pennsylvania State University, 1999.
(b) Implementing Trade Policy
Staiger, R. and F. Wolak, "Measuring Industry Specific Protection: Antidumping in the United States," BPEA, Microeconomics, 1994, pp. 51-103.
*Prusa, T., "Why are so Many Antidumping Petitions Withdrawn?" JIE Vol. 33, 1992, pp. 339-342.
R. Staiger and F. Wolak, "The Effect of Domestic Antidumping Law in the Presence of Foreign Monopoly," JIE, Vol 32, No. 3/4, May 1992, pp. 265-288.
Eichengreen, B. and H. Van der ver, "U.S. Antidumping Policies: The Case of Steel" in R. Baldwin and A. Krueger (eds.), The Structure and Evolution of Recent U.S. Trade Policy, (Chicago: University of Chicago Press, 1984).
Krishna K. and M. Thursby, "Whither Flat Panel Displays?" in R. C. Feenstra (Ed.) The Effects of U.S. Trade Protection and Promotion Policies, University of Chicago Press, 1997.
*Krishna K. and L. H. Tan, Rags and Riches: Implementing Apparel Quotas Under the MFA, University of Michigan Press, 1998.
*Krishna, K. and J. Morgan, "Implementing Results Oriented Policies: The Case of the U.S. Japan Auto-Parts Dispute," EER, 1998.
*Krishna, K., S. Roy and M. Thursby, "Implementing Market Access," NBER WP. No. 5593. Forthcoming RIE, 1998.
*Krishna, K., "The Case of the Vanishing Revenues: Auction Quotas with Monopoly," AER, September, 1990.
Krishna, K. and L. H. Tan, "The Dynamic Behavior of License Price Paths," Journal of Development Economics, Vol. 48, No. 2, 1996, pp. 301-326.
Krishna, K. and L. H. Tan, "Transferable Licenses vs. Nontransferable Licenses: What Is the Difference?" International Economic Review, Vol. -, No -, pp. (1999).
*Gruenspecht, H., "Export Subsidies for Differentiated Products," JIE, Vol. 24, No. 3/4, pp. 331-44.
*Carmichael, C.M., "The Control of Export Credit Subsidies and its Welfare Consequences," JIE, Vol. 23, ½, August 1987.
*Brainard, S. Lael, "Last One Out Wins: Trade Policy in an International Exit Game," IER, Vol. 35, No. 1, February 1994, pp. 151-72.
*Lawrence and Lawrence, "Manufacturing Wage Dispersion: An End Game Analysis," BPEA, 1: 1985.
*Matsuyama, K., "Perfect Equilibrium in a Trade Liberalization Game," AER, Vol. 80, 1990, pp. 480-492.
(c) Targeting With Imperfect Competition
*Krishna, K. and M. Thursby, "Optimal Policies with Strategic Distortions," Journal of International Economics, Vol. 31, pp. 291-308, 1991.
Krishna, K. and Thursby, M. "Optimal Policies and Marketing Board Objectives," Journal of Development Economics, Vol. 38 pp. 1-15, 1992.
Krishna, K. "The Adding Up Problem: A Targeting Approach," Forthcoming JITED, 1998.
(d) Piecemeal Policy Reform
Krishna, K. and J. Ju, "Evaluating Trade Reform Using Ex-Post Criteria," forthcoming in the Canadian Journal of Economics.
Krishna, K. and J. Ju, "Market Access and Welfare Effects of Piecemeal Policy Reform," forthcoming in Journal of International Economics.
Krishna, K. and J. Ju, "Necessary Conditions for Welfare Improving Reform," forthcoming in Economics Letters.
(e) Calibration Models
*Baldwin, R. and P. Krugman, "Market Access and International Competition: A Simulation Study of 16 K Random Access Memories" in R.C. Feenstra (ed.), Empirical Methods for International Trade (Cambridge: MIT Press), 1988.
*Levinsohn J., "The Empirics of Taxes on Differentiated Products" in R.E. Baldwin (ed.), Trade Policy Issues and Empirical Analysis (Chicago: University of Chicago Press), 1988.
*Feenstra, R. and J. Levinsohn, "Identifying the Competition," JIE, Vol. 28, No. 3/4, May 1990, pp. 199-216.
*Dixit, A., "Optimal Trade and Industrial Policies for the U.S. Automobile Industry" in R.C. Feenstra (ed.), Empirical Methods for International Trade (Cambridge: MIT Press), 1988. Also in Grossman (Ed.) Volume.
*Baldwin, Richard E., "Measurable Dynamic Gains from Trade," JPE, Vol. 100, No. 1, February 1992, pages 162-74.
*Krishna, K., K. Hogan and P. Swagel, "The Non-Optimality of optimal Trade Policy: The U.S. Automobile Industry Revisited" in P. Krugman and A. Smith (eds.) Empirical Studies of Strategic Trade Policy (University of Chicago Press, 1994).
*Trefler, D. "Trade Liberalization and the Theory of Endogenous Protection: an Econometric Study of U.S. Import Policy," JPE, Vol. 10, No. 1, February, 1993, pp. 138-160.
Dixit, A., G. Grossman, and E. Helpman, "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, Vol. 105, No. 4, August 1997, pp. 752 -769.
Grossman, G. and E. Helpman, "Trade Wars and Trade Talks," Journal of Political Economy, 103, 1995, 675-708.
Grossman, G. and E. Helpman, "The Politics of Free Trade Agreements," American Economic Review, September 1995, 667-690.
*Brainard, S. Lael and Thierry Verdier, "The Political Economy of Declining Industries; Senescent Industry Collapse Revisited," JIE, Vol. 42, No ½, February 1997, pp. 221- 238.
*Rodrik, D., "Political Economy of Trade Policy," Handbook of International Economics, Vol. 3, Ch. 28.
*Bagwell, K. and R. Staiger, "The Simple Economics of Labor Standards and the GATT," NBER WP No. 6604.
*Levy, P., "A Political-Economic Analysis of Free Trade Agreement," AER, September 1997, pp. 506-519.
*Dixit and Norman, chapter 6, pp. 191-194.
Caplin and K. Krishna, "Tariffs and the MFN Clause: A Game Theoretic Approach," Seoul Journal of Economics, 1, 3, pp. 267-290.
K. Krishna and A. Krueger, "Rules of Origin and Hidden Protection" in A. Deardorff and R. Stern (eds.) New Directions in International Trade, University of Michigan Press, 1994. Reprinted in Bhagwati and Panagaria (ed.), forthcoming.
*J. Ju and K. Krishna, "Firm Behavior and Market Access Effects of FTAs with ROOs," NBER Working Paper No.
4. Group Ties and Diversity and Trade
*Casella, A. and J. Rauch, "Anonymous Market and Group Ties in International Trade," NBER WP No. 6186.
*Casella, A. and J. Rauch, "Overcoming Informational Barriers to International Resource Allocation: Prices and Group Ties," CEPR WP No. 1978.
*Grossman, G. and G. Maggi, "Diversity and Trade," NBER WP No. 6741.
*Grossman, G., "Imperfect Labor Contracts and International Trade," Mimeo, Princeton University.
*Grossman, G. and A. Krueger, "Environmental Impacts of a North American Free Trade Area", NBER Working Paper No. 3914. In P. Garber (Ed.) The U.S. Mexico Free Trade Agreement, MIT Press, 1994.
*Brander, J. and M. Scott Taylor, "The Simple Economics of Easter Island: A Ricardo-Malthus Model of Renewable Resource Use," AER, 1998.
Copeland, B. and M.S. Taylor, "Trade and Transboundary Pollution," AER, Vol. 85, No. 4, September 1995, pp. 716-737.
Taylor, M. Scott, "TRIPs, Trade and Growth," IER Vol. 35, No. 2, May 1994, pp. 361-381.
Antweiler W., B. Copeland and M.S. Taylor, "Is Free Trade Good for the Environment," NBER WP. No. 6707.
6. Geography and Trade
*Krugman, P., Geography and Trade, MIT Press, 1991.
*Davis, D., "The Home Market, Trade and Industrial Structure," AER, December 1998, pp. 1264-1276.
Ottaviano, G. and J.F. Thisse, "Agglomeration and Trade Revisited," CEPR Working Paper No. 1903.
Feenstra, R., J. Markusen and A. Rose, "Understanding the Home Market Effect and the Gravity Equation: The Role of Differentiating Goods," NBER WP No. 6804.
Ottaviano, Gianmarco and Jean-Francois Thisse, "Integration, Agglomeration and the Political Economics of Factor Mobility," CEPR Discussion Paper 2185, 1999.
Dixit, A., "Hysterisis, Import Penetration, and Exchange Rate Pass-Through," QJE, May 1989.
*Baldwin, R. and P. Krugman, "Persistent Trade Effects of Large Exchange Rate Shocks," QJE, November 1989, Vol. 104, No. 4, pp. 635-654.
*Baldwin, R. and P. Krugman, "Persistence of the U.S. Trade Deficit," BPEA, Vol. 0, No. 1, 1987, pp. 1-43.
Baldwin, R., "Hysteresis in Import Prices: The Beachead Effect," AER, Vol. 78, No. 4, September 1988, pp. 773-785.
*Anderson, J. and J. P. Neary, "A New Approach to Evaluating Trade Policy," ReStud, Vol. 63, No. 1, January 1996, pp. 107-125.
*Anderson, J. and J. P. Neary, "Measuring the Restrictiveness of Trade Policy," WBER, Vol. 8, No. 2, May 1994, pp. 151-189.
*Anderson, J. and J. P. Neary, "The Mercantilist Index of Trade Policy," CEPR WP No. 2044.
*Krishna, K., "Openness: A Conceptual Approach" Mimeo.
*Romer, P., "New Goods, Old Theory and the Welfare Costs of Trade Restrictions," JDE, Vol. 43, No. 1, February 1994, pp. 5-77.
*Feenstra, R., " New Product Varieties and the Measurement of International Prices," AER, Vol 84, No. 1, March 1994, pp. 157-177.
Krishna, K. and M. Thursby, "Flexibility: A Partial Ordering," NBER WP. No. 4615.
Lawrence, R., "How Open is Japan?" in Paul Krugman (Ed.), Trade with Japan: Has the Door Opened Wider? pp. 9-37. University of Chicago Press, 1991.
Lawrence, R., "Imports in Japan: Closed Markets or Closed Minds?" BPEA, 2, 1987, pp. 517-554.
*Krugman, P., "History versus Expectations," QJE, May 1991, Vol. CVI, No. 2, pp. 651-667.
*Matsuyama, K., "Increasing Returns, Industrialization, and the Indeterminacy of Equilibrium," QJE, May 1991, Vol. CVI, No. 2, pp. 617-650.
Xu, Bin, "Trade Liberalization, Wage Inequality, and Endogenously Determined Nontraded Goods," Mimeo, March 2000, University of Florida.
Zeira, Joseph, "Wage Inequality, Technology and Trade," Mimeo, Hebrew University of Jerusalem, February 2000.
Schott, Peter K., "One Size Fits All? Specialization, Trade and Income Inequality," Mimeo, Yale University, SOM, October 1999.
Helpman, E., "The Simple Analytics of Debt-Equity Swaps," AER, Vol. 79, June 1989.
Bulow, J. and K. Rogoff, "The Buyback Boondoggle," BPEA, 1988, pp.675-98.
Bulow, J. and K. Rogoff, "Cleaning up the Debt Crisis Without Getting Taken to the Cleaners," JEP, Vol. IV, 1990, pp. 31-42.
Bulow, J. and K. Rogoff, "A Constant Recontracting Model of Sovereign Debt," JPE, Feb. 1989.
12. Indivisibilities and Credit Constraints
Banerjee, Abhijit and A. Newman, "Poverty, Incentives and Development," American Economic Review, May 1994, 211-215.
*Banerjee, Abhijit and A. Newman, "Occupational Choice and the Process of Development," Journal of Political Economy, April 1993.
*Galor, Oded, and Daniel Tsiddon, "Technological Progress, Mobility, and Economic Growth," AER, Vol. 87, No. 3, June 1997, pp. 363-382.
*Ghatak, Maitreesh and Nien-Huei Jiang, "A Simple Model of Inequality, Occupational Choice, and Development," Mimeo, University of Chicago, February 2000.
Krishna, K and C. Yavas, "Costs of Wage Equality in a General Equilibrium Model with Distortions," Mimeo, Penn State, 2000.
1. Disability Message: The Pennsylvania State University encourages qualified persons with disabilities to participate in its programs and activities. If you anticipate needing any type of accommodation in this course or have questions about physical access, please tell the instructor as soon as possible.