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					                                   International Economics
                                           Fall 2007

The course examines alternative theories and models of how international trade influences the
workings of national economies. For obtaining a broad picture of international economics, students
are strongly encouraged to take the course “International Finance” as well (available for 2nd year
MA students). Another complement is the specialized course on economic geography.

1. Trade and Technology – The Ricardian Model of Trade (4)
∗ Dornbusch, R., S. Fischer and P.A. Samuelson: Comparative Advantage, Trade and Payments in
    a Ricardian Model with a Continuum of Goods, American Economic Review, 1977.
∗ Young, A.: Learning-by-doing and the Dynamic Effects of International Trade, Quarterly
    Journal of Economics, 1991.
∗ Krugman, P.R.: The Narrow Moving Band, the Dutch Disease, and the Competitive
    Consequences of Mrs. Thatcher: Notes on Trade in the Presence of Scale Dynamic Economies,
    Journal of Development Economics, 1987.
o Brezis, E., P.R. Krugman and D. Tsiddon: Leapfrogging in International Competition,
    American Economic Review, 1993.
∗ Grossman, G.M. and E. Helpman: Innovation and Growth in the Global Economy, chapters 3
    and 9.

Feenstra chapter 1 (pp 1-4) for the Ricardian model; chapter 10 (pp. 348-358) for endogenous
growth.
Further readings from Feenstra: chapter 10 (pp 338-348, 358-367) on endogenous growth.

2. Trade and Factor Endowments: The Heckscher-Ohlin Model (3.5)
∗ Helpman, E. and P.R. Krugman: Market Structure and Foreign Trade, chapter 1.
∗ Davis, D.R.: Intraindustry Trade: A Heckscher-Ohlin-Ricardo Approach, Journal of
    International Economics, 1995.
o Stiglitz, J.: Factor-Price Equalization in a Dynamic Economy, Journal of Political Economy,
    1970.
∗ Ventura, J.: Growth and Interdependence, Quarterly Journal of Economics, 1997.
o Trefler, D.: The Case of the Missing Trade and Other HOV Mysteries, American Economic
    Review, 1995.
o Trefler, D. and S. Chun Zhu: Beyond the Algebra of Explanation: HOV for the Technology
    Age, mimeo, University of Toronto, 2000. (downloadable as
    http://www.chass.utoronto.ca/~trefler/hov-aerpp.pdf)
∗ Leamer, E.E. and J. Levinsohn: International Trade Theory: The Evidence, Handbook of
    International Economics III.

Feenstra chapters 1 (pp. 4-26), 2 and 3 for the Heckscher-Ohlin model (both the theory and its
testing); chapter 5 (pp 144-149) for the gravity equation.
Further readings from Feenstra: chapter 4 on H-O, chapter 5 (pp 149-169) on empirics of the
gravity equation.

3. Trade and Increasing Returns (3)
o Helpman, E. and P.R. Krugman: Market Structure and Foreign Trade, chapter 3.
∗ Krugman, P.R.: Rethinking International Trade, chapters 1-3.
∗ Romalis, J.: Factor Proportions and the Structure of Commodity Trade, American Economic
    Review, 2004.
∗   Krugman, P.R.: Increasing Returns and Economic Geography, Journal of Political Economy,
    1991.
∗   Melitz, M. J.: The Impact of Trade on Intra-industry Reallocations and Aggregate Industry
    Productivity, Econometrica, 2003.

Feenstra chapter 5 (pp 137-144, 163-166) for monopolistic competition models.
Further readings from Feenstra: chapter 11 on multinationals and organization of the firm.

4. Trade policy (1.5)
∗ Helpman, E. and P.R. Krugman: Trade Policy and Market Structure, chapter 2.
∗ Krugman, P.R.: Rethinking International Trade, chapter 14.
o Brander, J.A.: Strategic Trade Policy, Handbook of International Economics III.
o Rodrik, D.: Political Economy of Trade Policy, Handbook of International Economics III.
o Bagwell, K. and R.W. Staiger: An Economic Theory of the GATT, American Economic
    Review, 1999.
o Levy, P.I.: A Political-Economic Analysis of Free-Trade Agreements, American Economic
    Review, 1997.

Feenstra chapter 7 (pp 215-233), chapter 8 (pp 254-263, 281-297) on trade policies under perfect
and imperfect competition, chapter 9 (pp 321-327) on the political economy model of Levy.
Further readings from Feenstra: chapter 7 (pp 233-251) and chapter 8 (pp 263-281) on trade policy,
chapter 9 (pp 300-321, 327-335) on political economy models.

Starred articles are required readings, available in the reading package at the Department
Headquarters. As a complementary reading, I marked certain sections from Feenstra’s textbook
“Advanced International Trade: Theory and Evidence”. I will not follow the textbook, but it can
help to further clarify some parts of the class.

Grading will be based on a written final exam, and three problem sets (a full and two halves). The
problem sets will contribute 20-30% altogether to the total score.

				
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