Coursetexts
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.