20501 - TOPICS IN INTERNATIONAL ECONOMICS

International trade has been one of the most productive research areas in Economics over the last 30 years. This course aims to give students an overview over the workhouse models and to enable them to understand frontier research in this area. The focus will mainly be on theory, but empirical work will also be covered.

Te course is divided into three roughly equal parts. The first part covers the classical theories of why and how countries trade, due to Ricardo, Hecksher, Ohlin and the New Trade Theory of the 1980s. The second part deals with "New New Trade Theory", starting with Melitz's (2003) enormously influential article showing that firm heterogeneity matters for trade. The last part covers other modern topics, such as the emergence of offshoring, multinational firms and the effect of trade on economic growth.

Introduction: history and facts about international trade

• Part 1: Classical Trade theory:
• A modern version of David Ricardo's ideas.
• The Hecksher-Ohlin model.
• Increasing returns and New Trade Theory.

• Part 2: Firm level heterogeneity and the "New New Trade Theory":
• Empirical evidence: what is missing in classic trade theory?
• The Meliz model and its follow-ups.
• Does heterogeneity really matter?

• Part 3: Other topics:
• Offshoring and multinational firms.
• Trade and growth.

There will be several problem sets. Problem sets can be done in groups of up to three students, and will not be graded. However, handing in very incomplete problem sets (no attempt at solving the questions or extremely short and sloppy answers) will result in point deductions on the final exam.

The grade for the class will be based upon

•  A final exam (80%). The final exam will consist of several short questions on the material covered in class, and an exercise similar in style to the problem sets.
•  A referee report on an article published in a top journal in the last five to ten years (20%). Students may choose to write the report alone or in pairs, and have to agree upon the article with me.

A report should summarize the paper in 1-2 paragraphs, highlighting the main contributions

and shortly assessing their importance. It should then focus on the paper's limitations, and provide specific, concrete suggestions for improving the analysis. For an empirical paper, you could for example specify which regressions the paper should run in addition to or instead of the current ones, and why this is necessary. For a theory paper, you could specify which assumptions need to be changed (and why) and how doing so either risks overturning the existing conclusions, or would add something so relevant to be worth the additional effort. The total report should not exceed three double-spaced pages.

• R. Findlay ,K.H. O'Rourke, Power and Plenty: Trade, War, and the World Economy in the Second Millennium, Princeton University Press, 2009.
• J. Eaton ,S. Kortum, P. Ricardo to Work. Journal of Economic Perspectives, 2012.
• E. Helpman,P. Krugman, Market Structure and Foreign Trade, MIT Press  1985.

• M. Melitz,S. Redding, Heterogeneous Firms and Trade. Handbook of International Economics, Volume 4, 2015.
• C. Arkolakis, A. Costinot, A. Rodríguez-Clare. New Trade Models, Same Old Gains? American Economic Review12.
• P. Antràs,S. Yeaple, Multinational Firms and the Structure of International  Trade, , Volume 4, 2015.
• G. Grossman,E. Helpman, Innovation and Growth in the Global Economy,  MIT Press, 1991.