International Macroeconomics and Trade

BUSN 33946 & ECON 35101
Rodrigo Adao & Jonathan Dingel
Autumn 2022

This is a graduate course in international trade. It introduces the fundamental concepts and tools of international trade and economic geography to prepare students to tackle research questions in these areas. This course is the first in the Economics Department's second-year Trade and Growth sequence.

We will meet in person consistent with University policies.

Logistics

Email: rodrigo.adao@chicagobooth.edu & jdingel@chicagobooth.edu
Office: Harper 381 & 380
Office hours: By appointment, please email
Teaching assistant: Raman Singh Chhina (rschhina@uchicago.edu)
Course materials: github.com/jdingel/econ35101 and canvas.uchicago.edu
Class schedule: Wednesdays 8:30 AM - 11:30 AM

Assessment

Grades will be based on comprehension checks (15%), assignments (60%), and a final exam (25%).

• Comprehension checks should require little more than comprehending the assigned readings.

• We will give three types of assignments, which require more time and creativity:

  1. Economics: derive a theoretical result or survey an empirical literature.

  2. Programming: write a function that solves for equilibrium or estimates a parameter(see comments on computation below)

  3. Referee reports: write a referee report on a recent working paper or rewrite one section of a recently published paper

• In addition to course material, the final exam may ask you to propose an original research idea, so you should be thinking about these during our class (and for the rest of your life!).

Comprehension checks and assignments will be posted to this GitHub repository. Submit your work via the Canvas site.

Computation

Scientific computation is important. We hope that you have already been exposed to the basics. Please glance at Jesus Fernandez-Villaverde's "Computational Methods for Economists" course. Jonathan's workflow is outlined in my project template.

You have choices to make. See "A Comparison of Programming Languages in Economics." Jonathan recommends the Julia language. Julia's advantages are that it is open source and typically faster than Matlab. To get started doing economics in Julia, see Perla, Sargent, and Stachurski's "Lectures in Quantitative Economics." You may submit Julia or Matlab code as homework solutions. Please confer with us before submitting code written in other languages.

Standards for transparency and replicability are rising quickly. The AEA has appointed a Data Editor who will verify that code works prior to accepting papers for publication. Please write code for this class that is transparent and self-contained.

Other resources

• We borrow considerably from Arnaud Costinot and Dave Donaldson's PhD class materials

• We will link to relevant Trade Diversion blog posts

• Alan Deardorff's Glossary of International Economics

Presentation and writing

Graduate students often underestimate the importance of good writing and presentation skills. A job market paper must teach us something new. Teaching means communicating your content to the audience. A useful idea that cannot be conveyed is not a useful idea.

Clear presentations also build others’ confidence that you are a clear thinker. As a well-known IO economist once said, “if I see typos in your slides, I know there are typos in your code.”

Course Outline and Reading List

Jonathan teaches weeks 1 and 6-9 and Rodrigo teaches weeks 2-5 and 10.

We have opted for a minimalist reading list. Every reading listed below is required. We will discuss each paper and chapter that is listed in considerable detail. Do the readings before class each week. If you don't have time to do all the readings before class, we have marked the highest-priority item in each week with an exclamation point.

If you’re going to be a trade economist, you ought to own the following books:

• Avinash Dixit and Victor Norman, Theory of International Trade: A Dual, General Equilibrium Approach, 1980.

• Elhanan Helpman and Paul R. Krugman, Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy, 1985.

• Robert C. Feenstra, Advanced International Trade: Theory and Evidence, 2016.

Week 1: Gains from Trade and Comparative Advantage

• Dixit and Norman textbook, chapters 1 and 3.

• ❗ Deardorff, Alan V. 1980. "The General Validity of the Law of Comparative Advantage." Journal of Political Economy, 88(5): 941-957.

• Bernhofen, Daniel, M., and John C. Brown. 2004. "A Direct Test of the Theory of Comparative Advantage: The Case of Japan", Journal of Political Economy, 112 (1): 48-67.

• Bernhofen, Daniel, M., and John C. Brown. 2005. "An Empirical Assessment of the Comparative Advantage Gains from Trade: Evidence from Japan." American Economic Review, 95 (1): 208-225.

Week 2: Ricardian models

• ❗ Dornbusch, Rudiger, Stanley Fischer, and Paul Samuelson. 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods." American Economic Review, 67(5): 823-839

• ❗ Eaton, Jonathan and Samuel Kortum. 2002. "Technology, Geography, and Trade." Econometrica, 70(5): 1741-1779.

• Eaton, Jonathan, and Samuel Kortum. 2012. "Putting Ricardo to Work." Journal of Economic Perspectives, 26 (2): 65-90.

• Alvarez, Fernando and Robert E. Lucas. 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade." Journal of Monetary Economics. 54(6): 1726-1768.

Week 3: Ricardian models

• Costinot, Arnaud, Dave Donaldson, and Ivana Komunjer. 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas." Review of Economic Studies, 79(2): 581-608.

• Caliendo, Lorenzo, and Fernando Parro. 2015. "Estimates of the Trade and Welfare Effects of NAFTA." The Review of Economic Studies, 82(1): 1-44.

Week 4: Multiple factors of production

• Jones, Ronald W. and J. Peter Neary. 1984. "The positive theory of international trade." in Handbook of International Economics, Vol. 1, 1-62.

• Feenstra textbook, chapters 1 and 2.

• Davis, Donald and David Weinstein. 2001. "An Account of Global Factor Trade. American Economic Review, 91(5): 1423-1453.

Week 5: Gravity and gains from trade

• Head, Keith, and Thierry Mayer. 2014. "Gravity Equations: Workhorse, Toolkit, and Cookbook." in Handbook of International Economics, Vol. 4, 131-195.

• Kehoe, Timothy J., Pau S. Pujolàs, Jack Rossbach. 2017. "Quantitative Trade Models: Developments and Challenges." Annual Review of Economics 9:1, 295-325.

• Costinot, Arnaud and Andres Rodriguez-Clare. 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization." in Handbook of International Economics, Vol. 4, 197-261.

• Allen, Treb, Costas Arkolakis, and Yuta Takahashi. 2020. "Universal Gravity," Journal of Political Economy, 128(2).

• Feyrer, James. 2021. "Distance, Trade, and Income -- The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment." Journal of Development Economics.

• Feyrer, James. 2019. "Trade and Income - Exploiting Time Series in Geography." American Economic Journal: Applied Economics, 11(4): 1-35.

Week 6: Increasing returns and home-market effects

• Krugman, Paul R. 1979. "Increasing returns, monopolistic competition, and international trade." Journal of International Economics, 9(4): 469-479.

• ❗ Krugman, Paul. 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade." American Economic Review, 70(5): 950-959.

• Fajgelbaum, Pablo, Gene M. Grossman, and Elhanan Helpman. 2011. "Income Distribution, Product Quality, and International Trade." Journal of Political Economy, 119(4): 721-765.

• Dingel, Jonathan I. 2017. "The Determinants of Quality Specialization", Review of Economic Studies, 84(4): 1551-1582.

• Matsuyama, Kiminori. 2019. "Engel's Law in the Global Economy: Demand‐Induced Patterns of Structural Change, Innovation, and Trade", Econometrica 87: 497-528.

• Costinot, Arnaud, Dave Donaldson, Margaret Kyle, and Heidi Williams. 2019. "The More We Die, The More We Sell? A Simple Test of the Home-Market Effect". Quarterly Journal of Economics, 134(2): 843–894.

Week 7: Models of agglomeration

• Glaeser, Edward L., and Joshua D. Gottlieb. 2009. "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States." Journal of Economic Literature, 47 (4): 983-1028.

• Henderson, J.V. 1974. "The Sizes and Types of Cities." American Economic Review, 64(4): 640-656.

• ❗ Ahfeldt, Gabriel M., Stephen J. Redding, Daniel M. Sturm, and Nikolaus Wolf. 2015. "The Economics of Density: Evidence from the Berlin Wall." Econometrica, 83(6): 2127–2189.

• Dingel, Jonathan I. and Felix Tintelnot. 2021. "Spatial Economics for Granular Settings." Working paper.

Week 8: Spatial sorting of skills and sectors

• Costinot, Arnaud and Jonathan Vogel. 2010. "Matching and Inequality in the World Economy." Journal of Political Economy, 118(4): 747-786.

• ❗ Diamond, Rebecca. 2016. "The Determinants and Welfare Implications of US Workers’ Diverging Location Choices by Skill: 1980-2000." American Economic Review, 106(3): 479-524.

• Davis, Donald R. and Jonathan I. Dingel. 2019. "A Spatial Knowledge Economy." American Economic Review, 109 (1): 153-70.

• Davis, Donald R. and Jonathan I. Dingel. 2020. "The Comparative Advantage of Cities." Journal of International Economics.

Week 9: Open-economy growth

• Matsuyama, Kimonori. 1992. "Agricultural Productivity, Comparative Advantage, and Economic Growth," Journal of Economic Theory, 58: 317-334.

• Acemoglu, Daron and Jaume Ventura. 2002. "The World Income Distribution," The Quarterly Journal of Economics, 117(2): 659-694.

• Grossman, Gene M. and Elhanan Helpman. 1994. "Endogenous Innovation in the Theory of Growth", Journal of Economic Perspectives, 8(1): 23-44.

• Rivera-Batiz, Luis A. and Paul M. Romer. 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, 106(2): 531-555.

• ❗ Buera, Francisco J. and Ezra Oberfield. 2020. "The Global Diffusion of Ideas," Econometrica.

Week 10: Heterogeneous firms

• ❗ Melitz, Marc J. 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity." Econometrica, 71(6): 1695-1725.

• Melitz, Marc and Daniel Trefler. 2012. "Gains from Trade when Firms Matter." Journal of Economic Perspectives, 26(2): 91-118.