Fall 2024 | Princeton University
This 8-week segment will cover competitive trade theory, including the gains from trade, the sources of comparative advantage, the effects of trade on income distribution, trade under imperfect competition, and the theory of trade policy.
General
Readings
[\c] Dixit, Avinash, and Victor Norman. Theory of International Trade. (DN)
[\c] Feenstra, Robert C. Advanced International Trade: Theory and Evidence. 2nd ed. (F)
[\c] Helpman, Elhanan, and Paul R. Krugman. Market Structure and Foreign Trade. (HK)
I. GAINS FROM COMPETITIVE TRADE
Essential:
[\c] Dixit, Avinash, and Victor Norman. Theory of International Trade. (DN) pp. 65–79, 94–96.
[\c] Feenstra, Robert. Advanced International Trade: Theory and Evidence, 2nd ed. (F), pp. 187–196.
Required:
[\a] Dixit, Avinash, and Victor Norman. “Gains from Trade without Lump-Sum Compensation.” Journal of International Economics 21, no. 1–2 (1986): 111–122.
[\a] Deardorff, Alan. “The General Validity of the Law of Comparative Advantage.” Journal of Political Economy 88, no. 5 (1980): 941–957.
[\a] Bernhofen, Daniel, and John C. Brown. “An Empirical Assessment of the Comparative Advantage Gains from Trade: Evidence from Japan.” American Economic Review 95, no. 1 (2005): 208–225.
[\a] Bernhofen, Daniel, and John C. Brown. “A Direct Test of the Theory of Comparative Advantage: The Case of Japan.” Journal of Political Economy 112, no. 1 (2004): 48–67.
[\a] Arkolakis, Costas, Arnaud Costinot, and Andrés Rodríguez-Clare. “New Trade Models, Same Old Gains?” American Economic Review 102, no. 1 (2012): 94–130.
[\a] Donaldson, Dave. “The Gains from Market Integration.” Annual Review of Economics 7 (2015): 619–647.
II. TRADE EQUILIBRIUM: PERFECT COMPETITION
A. Factor Endowments: Special Models
Essential:
[\c] Feenstra, Robert C. Advanced International Trade: Theory and Evidence. 2nd ed. (F), pp. 4–23, 25–33, 75–79.
[\a] Jones, Ronald W., and J. Peter Neary. “The Positive Theory of International Trade.” In Handbook of International Economics, Vol. 1, edited by Ronald W. Jones and Peter B. Kenen, 1–62 (esp. pp. 14–27). Amsterdam: North-Holland, 1984.
Required:
[\a] Jones, Ronald W. “The Structure of Simple General-Equilibrium Models.” Journal of Political Economy 73, no. 6 (1965): 557–572.
[\a] Grossman, Gene M., and Esteban Rossi-Hansberg. “Trading Tasks: A Simple Theory of Offshoring.” American Economic Review 98, no. 5 (2008): 1978–1997.
B. Factor Endowments: General Theory
Essential:
[\c] Feenstra, Robert C. Advanced International Trade: Theory and Evidence, pp. 51–60, 67–70.
Required:
[\c] Dixit, Avinash, and Victor Norman. Theory of International Trade (DN), chs. 2 and 4.
[\c] Helpman, Elhanan, and Paul R. Krugman. Market Structure and Foreign Trade (HK), ch. 1.
[\a] Ethier, Wilfred J. “Higher Dimensional Trade Theory.” In Handbook of International Economics, Vol. 1, edited by Ronald W. Jones and Peter B. Kenen, 131–184. Amsterdam: North-Holland, 1984.
C. Technological Differences
Essential:
[\c] Feenstra, Robert C. Advanced International Trade: Theory and Evidence, pp. 1–3, 70–75, 172–174.
[\a] Matsuyama, Kiminori. “Ricardian Trade Theory.” In The New Palgrave Dictionary of Economics, 2nd ed., edited by Lawrence E. Blume and Steven N. Durlauf. London: Macmillan, 2008.
Required:
[\a] Dornbusch, Rudiger, Stanley Fischer, and Paul A. Samuelson. “Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods.” American Economic Review 67, no. 5 (1977): 823–839.
[\a] Eaton, Jonathan, and Samuel Kortum. “Technology, Geography, and Trade.” Econometrica 70, no. 5 (2002): 1741–1779.
[\o] Costinot, Arnaud, Dave Donaldson, and Iván Komunjer. “What Goods Do Countries Trade? A Quantitative Exploration of Ricardo’s Ideas.” Review of Economic Studies 79, no. 2 (2012): 581–608.
[\a] Caliendo, Lorenzo, and Fernando Parro. “Estimates of the Trade and Welfare Effects of NAFTA.” Review of Economic Studies 82, no. 1 (2015): 1–44.
[\a] Dekle, Robert, Jonathan Eaton, and Samuel Kortum. “Unbalanced Trade.” American Economic Review 97, no. 2 (2007): 351–355.
D. Empirical Studies of the Trade Pattern
Essential:
[\c] Feenstra, Robert C. Advanced International Trade: Theory and Evidence, pp. 33–48, 60–66, 78–79.
[\a] Helpman, Elhanan. “The Structure of Foreign Trade.” Journal of Economic Perspectives 13, no. 2 (1999): 121–144.
Required:
[\a] Bowen, Harry P., Edward E. Leamer, and Leo Sveikauskas. “Multicountry, Multifactor Tests of the Factor Abundance Theory.” American Economic Review 77, no. 5 (1987): 791–809.
[\a] Trefler, Daniel. “International Factor Price Differences: Leontief Was Right!” Journal of Political Economy 101, no. 6 (1993): 961–987.
[\a] Trefler, Daniel. “The Case of the Missing Trade and Other HOV Mysteries.” American Economic Review 85, no. 5 (1995): 1029–1046.
[\a] Davis, Donald R., and David E. Weinstein. “An Account of Global Factor Trade.” American Economic Review 91, no. 5 (2001): 1423–1453.
E. Empirical Studies of the Welfare and Distributional Effects of Trade
Essential:
[\a] Feenstra, Robert C., and Gordon H. Hanson. “Global Production and Inequality: A Survey of Trade and Wages.” In Handbook of International Trade, edited by E. Kwan Choi and James Harrigan, 146–196. Malden, MA: Blackwell, 2003.
Required:
[\a] Autor, David H., David Dorn, and Gordon H. Hanson. “The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade.” Annual Review of Economics 8 (2016): 205–240.
[\a] Fajgelbaum, Pablo D., and Amit K. Khandelwal. “Measuring the Unequal Gains from Trade.” Quarterly Journal of Economics 131, no. 3 (2016): 1113–1180.
[\a] Adao, Rodrigo, Paul Carrillo, Arnaud Costinot, Dave Donaldson, and Dina Pomeranz. “Imports, Exports, and Earnings Inequality: Measures of Exposure and Estimates of Incidence.” Quarterly Journal of Economics 137, no. 3 (2022): 1153–1614.
G. Sorting: Heterogeneous Workers
Essential:
[\a] Grossman, Gene M. “Heterogeneous Workers and International Trade.” Review of World Economics 149, no. 2 (2013): 211–245.
[\a] Costinot, Arnaud. “An Elementary Theory of Comparative Advantage.” Econometrica 77, no. 4 (2009): 1165–1192.
Required:
[\a] Grossman, Gene M., and Giovanni Maggi. “Diversity and Trade.” American Economic Review 90, no. 5 (2000): 1255–1275.
[\a] Costinot, Arnaud, and Jonathan Vogel. “Matching and Inequality in the World Economy.” Journal of Political Economy 118, no. 4 (2010): 747–786.
[\a] Grossman, Gene M., Elhanan Helpman, and Philipp Kircher. “Matching, Sorting, and the Distributional Effects of International Trade.” Journal of Political Economy 125, no. 1 (2017): 224–264.
III. THEORY OF TRADE POLICY
A. First and Second Best Trade Policy
Essential:
[\c] Feenstra, Robert C. Advanced International Trade: Theory and Evidence. 2nd ed. (F), pp. 217–224.
[\a] Dixit, Avinash. “Tax Policy in Open Economies.” In Handbook of Public Economics, Vol. 1, edited by Alan J. Auerbach and Martin Feldstein, 313–374. Amsterdam: North-Holland, 1985.
Required:
[\c] Dixit, Avinash, and Victor Norman. Theory of International Trade. (DN), ch. 5 (pp. 149–163), ch. 6 (pp. 165–175).
[\a] Krishna, Pravin, and Arvind Panagariya. “A Unification of Second-Best Results in International Trade.” Journal of International Economics 52, no. 2 (2000): 235–257.
[\a] Broda, Christian, Nuno Limão, and David E. Weinstein. “Optimal Tariffs and Market Power: The Evidence.” American Economic Review 98, no. 5 (2008): 2032–2065.
[\a] Magee, Christopher, and Stephen P. Magee. “The United States Is a Small Country in World Trade.” Review of International Economics 16, no. 5 (2008): 990–1004.
[\a] Caliendo, Lorenzo, and Fernando Parro. “Trade Policy.” In Handbook of International Economics, Vol. 5, edited by Gita Gopinath, Elhanan Helpman, and Kenneth Rogoff, 197–261. Amsterdam: North-Holland, 2014.
B. The Political Economy of Trade Policy
Essential:
[\c] Feenstra, Robert C. Advanced International Trade: Theory and Evidence, pp. 299–310.
Required:
[\a] Grossman, Gene M., and Elhanan Helpman. “Protection for Sale.” American Economic Review 84, no. 4 (1994): 833–850.
[\a] Dixit, Avinash, and John Londregan. “The Determinants of Success of Special Interests in Redistributive Politics.” Journal of Politics 58, no. 4 (1996): 1132–1155.
[\a] Goldberg, Pinelopi Koujianou, and Giovanni Maggi. “Protection for Sale: An Empirical Investigation.” American Economic Review 89, no. 5 (1999): 1135–1155.
[\a] Baldwin, Robert E., and Christopher Magee. “Is Trade Policy for Sale? Congressional Votes on Recent Trade Bills.” Public Choice 105, no. 1 (2000): 79–101.
C. Trade Agreements
Essential:
[\c] Feenstra, Robert C. Advanced International Trade: Theory and Evidence pp. 311–322.
[\a] Bagwell, Kyle, and Robert W. Staiger. “The World Trade Organization: Theory and Practice.” Annual Review of Economics 2 (2010): 223–256.
[\a] Freund, Caroline, and Emanuel Ornelas. “Regional Trade Agreements.” Annual Review of Economics 2 (2010): 139–166.
Required:
[\a] Grossman, Gene M., and Elhanan Helpman. “Trade Wars and Trade Talks.” Journal of Political Economy 103, no. 4 (1995): 675–708.
[\a] Maggi, Giovanni, and Andrés Rodríguez-Clare. “The Value of Trade Agreements in the Presence of Political Pressures.” Journal of Political Economy 106, no. 3 (1998): 574–601.
[\a] Panagariya, Arvind. “Preferential Trade Liberalization: The Traditional Theory and New Developments.” Journal of Economic Literature 38, no. 2 (2000): 287–331.
IV. IMPERFECT COMPETITION AND TRADE
A. Monopolistic Competition and Gains from Variety
Essential:
[\a] Helpman, Elhanan, and Paul R. Krugman. Market Structure and Foreign Trade (HK), chs. 1, 6–8.
[\a] Krugman, Paul R. “Increasing Returns, Monopolistic Competition, and International Trade.” Journal of International Economics 9, no. 4 (1979): 469–479.
Required:
[\c] Feenstra, Robert C. Advanced International Trade: Theory and Evidence. 2nd ed. (F), ch. 5.
[\a] Zhelobodko, Evgeny, Sergey Kokovin, Mathieu Parenti, and Jacques-François Thisse. “Monopolistic Competition: Beyond the CES.” Econometrica 80, no. 6 (2012): 2765–2784.
[\a] Feenstra, Robert C. “New Product Varieties and the Measurement of International Prices.” American Economic Review 84, no. 1 (1994): 157–177.
[\a] Broda, Christian, and David E. Weinstein. “Globalization and the Gains from Variety.” Quarterly Journal of Economics 121, no. 2 (2006): 541–585.
B. Monopolistic Competition and Home Market Effects
Essential:
[\a] Krugman, Paul R. “Scale Economies, Product Differentiation, and the Pattern of Trade.” American Economic Review 70, no. 5 (1980): 950–959.
Required:
[\a] Venables, Anthony J. “Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model.” Economic Journal 97, no. 387 (1987): 700–717.
[\a] Fajgelbaum, Pablo, Gene M. Grossman, and Elhanan Helpman. “Income Distribution, Product Quality, and International Trade.” Journal of Political Economy 119, no. 4 (2011): 721–765.
[\a] Romalis, John. “Factor Proportions and the Structure of Commodity Trade.” American Economic Review 94, no. 1 (2004): 67–97.
[\a] Hanson, Gordon H., and Chong Xiang. “The Home-Market Effect and Bilateral Trade Patterns.” American Economic Review 94, no. 4 (2004): 1108–1129.
C. Heterogeneous Firms: Reduced Form Evidence
Essential:
[\a] Bernard, Andrew B., J. Bradford Jensen, Stephen J. Redding, and Peter K. Schott. “Global Firms.” Journal of Economic Literature 56, no. 2 (2018): 565–619.
Required:
[\a] Bernard, Andrew B., J. Bradford Jensen, Stephen J. Redding, and Peter K. Schott. “The Empirics of Firm Heterogeneity and International Trade.” Annual Review of Economics 4 (2012): 283–313.
[\a] Eaton, Jonathan, Samuel Kortum, and Francis Kramarz. “An Anatomy of International Trade: Evidence from French Firms.” Econometrica 79, no. 5 (2011): 1453–1498.
D. Heterogeneous Firms: Theory
Essential:
[\a] Melitz, Marc J. “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity.” Econometrica 71, no. 6 (2003): 1695–1725.
[\a] Melitz, Marc J., and Stephen J. Redding. “Heterogeneous Firms and Trade.” In Handbook of International Economics, Vol. 4, edited by Elhanan Helpman, Gita Gopinath, and Kenneth Rogoff, 1–54. Amsterdam: North-Holland, 2014.
Required:
[\a] Melitz, Marc J., and Gianmarco I.P. Ottaviano. “Market Size, Trade, and Productivity.” Review of Economic Studies 72, no. 1 (2005): 295–316.
[\a] Dhingra, Swati, and John Morrow. “Monopolistic Competition and Optimum Product Diversity under Firm Heterogeneity.” Journal of Political Economy 127, no. 1 (2019): 196–232.
[\a] Arkolakis, Costas, Arnaud Costinot, and Andrés Rodríguez-Clare. “New Trade Models, Same Old Gains?” American Economic Review 102, no. 1 (2012): 94–130.
[\c] Matsuyama, Kiminori, and Philip Ushchev. “Selection and Sorting of Heterogeneous Firms through Competitive Pressures.” (Working paper version circulated; forthcoming journal publication details may vary).
E. Oligopoly
Essential:
[\c] Helpman, Elhanan, and Paul R. Krugman. Market Structure and Foreign Trade (HK), ch. 5.
Required:
[\a] Brander, James, and Paul Krugman. “A Reciprocal Dumping Model of International Trade.” Journal of International Economics 15, no. 3–4 (1983): 313–321.
[\a] Bernheim, B. Douglas, and Michael D. Whinston. “Multimarket Contact and Collusive Behavior.” RAND Journal of Economics 21, no. 1 (1990): 1–26.
[\a] Atkeson, Andrew, and Ariel Burstein. “Pricing-to-Market, Trade Costs, and International Relative Prices.” American Economic Review 98, no. 5 (2008): 1998–2031.
F. Trade Policy and Imperfect Competition
Essential:
[\c] Helpman, Elhanan, and Paul R. Krugman. Trade Policy and Market Structure. Cambridge, MA: MIT Press, 1989, chs. 4–6.
Required:
[\a] Dixit, Avinash. “International Trade Policy for Oligopolistic Industries.” Economic Journal 94, Supplement (1984): 1–16.
[\a] Gros, Daniel. “A Note on the Optimal Tariff, Retaliation, and the Welfare Loss from Tariff Wars in a Framework with Intra-Industry Trade.” Journal of International Economics 23, no. 3–4 (1987): 357–367.
[\a] Felbermayr, Gabriel, Benjamin Jung, and Mario Larch. “Optimal Tariffs, Retaliation, and the Welfare Loss from Tariff Wars in the Melitz Model.” Journal of International Economics 89, no. 1 (2013): 13–25.