International economics i

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week

14.04 Intermediate Microeconomic Theory

The course is comprised of two main sections, each of which touches on course models and topics in the study of international trade. Arnaud Costinot (AC) will primarily cover the theoretical side of each topics and Dave Donaldson (DD) the empirical side. The order of theory and empirical coverage of a topic will change, reflecting work on each topic.

We begin with the simplest approach to trade theory: trade among constant returns to scale, perfectly competitive economies. Here we first study, in completely general production settings, the conditions under which trading is Pareto efficient ('Gains from Trade') and the predictions about who will trade what with whom (leading to the 'Law of Comparative Advantage'). Then we move on to models that restrict the supply side in different manners (Ricardian, Heckscher-Ohlin and Ricardo-Viner) in order to generate richer predictions about what will happen when economies trade. We next examine models of international trade in which countries trade purely to exploit economies of scale, and in which production is imperfectly competitive. This approach allows one to speak coherently about a model's predictions at the firm-level. Because this body of theoretical work was heavily influenced by the arrival of firm-level datasets (in the mid-1990s) we begin with a discussion of those findings. Workhorse versions of all of the models discussed up to this point (neoclassical or otherwise) typically predict that trade flows take the 'gravity equation' form. We therefore, finally, discuss the conditions under which a model is therefore a 'gravity model' and relate this to the enormous body of work that estimates gravity equations using trade data (often to shed light on the magnitude of various barriers to trade).

See Section I topics in the Calendar section.

The remainder of the course will cover a series of unconnected topics that extend the above ideas to specific applications of interest. These include: methods to measure trade costs; the consequences of an ability to trade inputs to the production process such as intermediate goods/tasks (offshoring and fragmentation); and what sorts of trade policy we should expect to see if policymakers are self-interested (political economy of trade policy) and if countries set trade policy under various noncooperative or cooperative regimes (the WTO).

See Section II topics in the Calendar section.

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