Department of Economics

ECON 641

Fall 2014
Alan Deardorff and Sebastian Sotelo

Text Requirements Schedule Contacts Readings

Prerequisites: Econ 601, 602, 603, and 604
Organization: The course meets twice a week, Tuesdays and Thursdays, 4:00 - 5:30 PM, 1210 Weill Hall.


    There is no required textbook for the course, which will draw mostly on lectures, journal articles, and working papers.

    If you intend to specialize in international trade, we strongly suggest that you purchase the following books for your library and consult these for additional perspectives on the material covered in the course:

      Dixit, Avinash K. and Victor Norman, 1980 Theory of International Trade, Cambridge Univ. Press.

      Feenstra, Robert C., 2003 Advanced International Trade: Theory and Evidence, Princeton University Press.

      Helpman, Elhanan and Paul Krugman, 1986 Market Structure and Foreign Trade, MIT Press.

    Readings for the course will mostly be separate papers, and these will be available from various sources. Many can be found on the web, with links that are contained in this online syllabus. Click on "Online". Other published items and some unpublished ones are not on the web, and these will be made available under Resources in the course CTools site.


    Grades for the course will be based on two exams, each worth 50%. There will also be several ungraded problem sets. The course consists of two halves, the first taught by Prof. Deardorff and the second by Prof. Sotelo. The exam for the first half of the course will be in class on Tuesday, October 21. The exam for the second half of the course will be take-home.

    Students are also expected to attend the International Seminar. It will meet weekly, Thursdays 11:40-1:00, in 201 Lorch. See the online seminar schedule. The seminar will matter in your grade only if the two instructors assign you different letter grades that average on the borderline between two. Seminar attendance, and participation in both the class and the seminar, will then tip you up or down as the case may be.



Readings with a star ("*") are required; others are recommended.
I.Overview of World Trade and Trade Policy (Sep 2)
WTO. 2013. "Trends in International Trade," World Trade Report 2013, Part II.B.1-2 plus bibliography, World Trade Organization, 44-89, 103-108, 294-320.
OECD. 2014. Global Value Chains: Challenges, Opportunities, and Implications for Policy, Organization for Economic Cooperation and Development, 1-53.
II.Classic Trade Theories
A.Comparative Advantage (Sep 4)
*Deardorff, A.V. "Trade and Transformation Curve Diagram," in Terms of Trade: Glossary of International Economics, World Scientific, pp. 343-349. *Deardorff, A.V. 1980. "The General Validity of the Law of Comparative Advantage," Journal of Political Economy 88(5): 941-957, October.
*Bernhofen, D.M. and J.C. Brown. 2004. "A Direct Test of the Theory of Comparative Advantage: The Case of Japan," Journal of Political Economy 112(1), pp. 48-59, February.
Costinot, A. 2009. "An Elementary Theory of Comparative Advantage" Econometrica 77(4): 1165-1192, July.
B.The Gains from Trade (Sep 9)
*Bernhofen, D.M. and J.C. Brown. 2005. "An Empirical Assessment of the Comparative Advantage Gains from Trade: Evidence from Japan," American Economic Review 95(1), pp. 208-225, March.
Samuelson, P. 1962. "The Gains from International Trade Once Again," Economic Journal 72(288): 820-829, December.
Dixit, A. and V. Norman. 1986. "Gains from Trade without Lump-Sum Compensation," Journal of International Economics 21(1-2): 111-122, August.
Newbery, D. and J. Stiglitz. 1984. "Pareto Inferior Trade," Review of Economic Studies 51(1): 1-12, January.
Arkolakis, C.,, A. Costinot, and A. Rodríguez-Clare. 2012. "New Trade Models, Same Old Gains?" American Economic Review 102(1): 94-130, February.
C.The Simple Ricardian Model (Sep 11)
*Deardorff, A.V.. 2009. "The Ricardian Model ," in K.A. Reinert and R.S. Rajan (eds.), The Princeton Encyclopedia of the World Economy.
Deardorff, A.V.. 2005. "Ricardian Comparative Advantage with Intermediate Inputs," North American Journal of Economics and Finance 16: 11-34, March.
*Dornbusch, R., S. Fischer, and P.A. Samuelson. 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review 67: 823-839, December.
D.The Gravity Model (Sep 16 - Sotelo)
*Anderson, J.A. and E. van Wincoop. 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review 93(1), pp. 170-192, March.
*Head, K. and T. Mayer. 2015. "Gravity Equations: Workhorse, Toolkit, and Cookbook ," in Gopinath, Helpman, & Rogoff, eds., Handbook of International Economics Vol 4, pp. 131-195.
*Deardorff, A.V. 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?" In J.A. Frankel, ed., The Regionalization of the World Economy, University of Chicago Press, 7-32.
*McCallum, J. 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review 85(3), pp 615-623.
E.The Heckscher-Ohlin Model - Theory (Sep 18)
*Jones, R.W. 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, 73: 557-572, December.
*Deardorff, A.V. 1979. "Weak Links in the Chain of Comparative Advantage," Journal of International Economics 9(2): 197-209, May.
*Deardorff, A.V. 1994. "The Possibility of Factor Price Equalization, Revisited," Journal of International Economics 36(1-2), 167-175, February.
*Deardorff, A.V. 1982. "The General Validity of the Heckscher-Ohlin Theorem," American Economic Review 72(4): 683-694, September.
Ethier, W.J. 1984. "Higher Dimensional Issues in Trade Theory," in R.W. Jones and P.B. Kenen, eds., Handbook of International Economics Vol. I, North-Holland, 131-184.
F.The Heckscher-Ohlin Model - Empirics (Sep 23)
*Leamer, E.E. 1980. "The Leontief Paradox, Reconsidered," Journal of Political Economy 88(3): 495-503, June.
*Trefler, D. 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review 85(5): 1029-1046, December.
*Davis, D. and D. Weinstein. 2001. "An Account of Global Factor Trade," American Economic Review 91(5): 1423-1453, December.
Leamer, E. and J. Levinsohn. 1995. "International Trade Theory: The Evidence," G. Grossman and K. Rogoff, eds., Handbook of International Economics Vol. III, North-Holland, 1339-1394.
G.Trade and Factor Markets I (Sep 25)
*Deardorff, A.V. 1994. "Overview of the Stolper-Samuelson Theorem," in A.V. Deardorff and R.M. Stern, eds., The Stolper-Samuelson Theorem: A Golden Jubilee, University of Michigan Press, 7-34.
*Neary J.Peter 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal 88(351): 488-510, September.
*Deardorff, A.V. and R.W. Staiger. 1988. "An Interpretation of the Factor Content of Trade." Journal of International Economics 24(1-2): 93-107, February.
*Deardorff, A.V. and D.S. Hakura. 1994. "Trade and Wages -- What Are the Questions?" in J. Bhagwati and M. Kosters, eds., Trade and Wages: Leveling Wages Down? Washington, D.C.: The AEI Press, 76-107.
Freeman, R.B. 1988. "Are your wages set in Beijing?." Journal of Economic Perspectives 9(3): 15-32, Summer.
H.Trade and Factor Markets II (Sep 30 - Sotelo)
*Costinot, A. and J. Vogel. 2010. "Matching and Inequality in the World Economy." Journal of Political Economy 118(4): 747-786, August.
*Ohnsorge, F. and D. Trefler. 2007. "Sorting It Out: International Trade with Heterogeneous Workers." Journal of Political Economy 115(5): 868-892, October.
Autor, D.H., D. Dorn, and G. Hanson. 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review 103(6), 2121-2168, October.
Goldberg, P.K. and N. Pavcnik. 2007. "Distributional Effects of Globalization in Developing Countries." Journal of Economic Literature 45(1): 39-82, March.
I.The "New" Trade Theory (Oct 2)
*Ethier, W.J. 1982. "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica 50(5): 1243-1268, September.
*Krugman, P.R. 1979. "Increasing Returns, Monopolistic Competition, and International Trade," Journal of International Economics 9(4): 469-479, November.
*Krugman, P.R. 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review 70(5): 950-959, December.
*Brander, J. and P.R. Krugman. 1983. "A 'Reciprocal Dumping' Model of International Trade," Journal of International Economics 15(3-4): 313­321, November.
*Hummels, D. and J. Levinsohn. 1995. "Monopolistic Competition and International Trade: Reconsidering the Evidence." Quarterly Journal of Economics 110(3): 799-836, August.
III.Trade Policy
A.Trade Policy with Perfect Competition (Oct 7)
*Deardorff, A.V. "Tariff in Partial Equilibrium." In Terms of Trade: Glossary of International Economics, World Scientific, pp. 335-342.
*Deardorff, A.V. "Offer Curve," in Terms of Trade: Glossary of International Economics, World Scientific, pp. 322-330.
*Lerner, A.P. 1936. "The Symmetry between Import and Export Taxes," Economica 3(11): 306-313, August.
*Krishna, P. and A. Panagariya. 2000. "A Unification of Second Best Results in International Trade" Journal of International Economics 52(2), 235-257, December.
B.Trade Policy with Imperfect Competition (Oct 9)
*Dixit, A. 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal 94(Supplement): 1-16.
*Brander, J. and B. Spencer. 1985. "Export subsidies and international market share rivalry," Journal of International Economics, 18(1-2), February, 83-100.
***** Fall Study Break: Oct 13-14 *****
C.Preferential Trading Arrangements (Oct 16)
*Deardorff, A.V. 2014. "Trade Implications of the Trans-Pacific Partnership for ASEAN and Other Asian Countries," Asian Development Review, forthcoming.
*Freund, C. and E. Ornelas. 2010. "Regional Trade Agreements," Annual Review of Economics 2, September, 139-166.
Panagariya, A. 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature 38(2), June, 287-331.
C.Exam (Oct 21)