Instructors: Maria Luigia Segnana, marialuigia.segnana [at] unitn.it
Class hours: 48 (8 ECTS)

Course objectives 

As the world economy grows, international trade increases in importance and complexity, creating many new challenges for international relations. This course deals with  international trade as integral part to the process of globalization, looking at his causes and consequences. It explores the actors (countries and firms), the policies(free trade vs. protection) and their distributional consequences. 

The course will help students to understand trade-related problems that countries and firms face in today's new international environment with the following specific aims:

• identify causes and consequences of international trade in the framework of the country and the firm level of analysis.
• identify the role of the firms in international trade in line with the "new new"  theories.
• identify economic reasons and cases for free trade and protection on the basis of the instruments of trade policy. 
• Identify and interpret the empirical evidence associated with the main theoretical predictions 

Course structure 

The course is organised in 24 lectures. Some of them will be  devoted to in-class student presentations (2 of). In addition and if necessary, some review classes can be added. All topics will be introduced and discussed during the lectures according to the timetable. Review classes will review key concepts and will help students to become familiar with some exercises and empirics. The schedule and timetable of review classes will be available after the beginning of the course.

Grading

The final grade will range from 1 to 30. The points will be acquired as follows

• Students are expected to attend all lectures and review classes. Students are strongly recommended to read the material and to come to class with a printed copy of the slides. 10% of the final grade will depend on class participation
• Students fill a  written exam covering all the materials presented during the course. The exam counts for 70% of the final grade.
• At the end of the course students will meet in groups. Each group will prepare one in-class presentation. Each group is asked to analyse an empirical work/report regarding a topic, covered during the course, among lecture topics. Each group is expected to a) identify why the topic has to be considered b) summarise the main theoretical and empirical findings c) connect their results to the structure, the economic concepts and models discussed during the course.
• Presentations will focus on one of the topics suggested during the course. These presentations contribute to the final grade for 20%.

Teaching Material and Comunità  on Line (COL)

The syllabus and the slides used in class will be posted in advance on COL which all students are expected to enrol in as soon as the course starts. Additional material will be posted as far as allowed by copyrights. Students are encouraged to use and share physical copies of books available in the library, to download the electronic publications through the library online access, and to download all freely accessible material from the websites addresses indicated in the reading list. Since all relevant news will be posted in "bacheca" of the COL, students are expected to check on a regular basis.

Course outline: List of lecture topics, and readings week by week

• L1. INTRODUCTORY LECTURE. Outline of the course. World trade patterns. From autharky to trade (1) General equilibrium in closed and open economies. From autharky to trade (2)From no trade to trade models. A frame for causes and consequences of trade. Gains from trade (GFT), comparative advantage (CA) and sources of CA.
  Readings and references: Ch. 2 and 3 of MMKM on micro tools; Irwin A.D.(2001), A brief history of International Trade Policy, available from the web.
  Baldwin, R.E. and Martin P. (1999), ‘Two Waves of Globalisation: Superficial Similarities, Fundamental Differences,' NBER Working Paper No. 6904
  WTO, (2008), World Trade Report. Trade in a Globalizing World, World Trade Report,(part A).
• L2. DIFFERENCES in TECHNOLOGY. The concepts of absolute and comparative advantages. Technological differences across countries as source of trade. The Ricardian model. The role of wages. Specialisation as source of GFT. The distribution of GFT.
  Readings and References: Ch. 7 MMKM;
  Dornbusch, R.,  Fischer, S. and Samuelson P.(1977),Comparative advantage, trade and payments in a Ricardian model with a continuum of goods, American Economic Review,  67, 5, pp.823-839.
• L3. and 4. THE H.-O. MODEL. Endowment differences across countries as source of trade. The 4 basic theorems: The Stolper-Samuelson theorem, the Rybczynski theorem, the H-O theorem and the factor price equalization theorem. Specialisation as source of GFT. The implications of trade on factor returns: the distribution of GFT. Empirics of H.O model
  Readings and References: Ch. 8 MMKM.
• L5. INTRA-INDUSTRY TRADE(IIT) and imperfect competition (IC): Monopoly and Oligopoly. Inter and intra-industry trade and the Linder paradox. Imperfect competition as a source of trade. Price setting and the role of mark-up. Pro-competitive effects of trade: GFT, market segmentation and price discrimination. IC with homogeneous goods as source of trade. Dumping on foreign markets: reasons and effects. The Brander's model and the two-way IIT. Dumping and anti-dumping. 
  Readings and references: MMKM1995 Ch 11;
  Brander, J.A. (1981), ‘Intra-industry trade in identical commodities,' Journal of International Economics, 11, pp.1-14.
  Brander, J.A. and Krugman, P.R.(1983), A "Reciprocal Dumping' Model of International Trade, Journal of International Economics, 15, pp. 313-323.
   Krugman 1989,'Industrial organization and international trade,' in R. Schmalensee & R. Willig (ed.) Handbook of Industrial Organization, vol. 2, chapter 20, pp. 1179-122,  Elsevier. 
• L6. IIT and TRADE OVERLAP (I). Increasing Returns to Scale (IRS) as source of trade: Monopolistic competition. External and internal economies of scale. Sources of the gains from trade with increasing returns to scale. 
  Readings and References: MMKM 1995 Ch. 12.
• L7. IIT and TRADE OVERLAP (II). Monopolistic competition with differentiated products: The NEW  theory
  Differentiated products and love for variety. IC with differentiated goods, free entry and IRS as a source of trade. Gains from variety and restructuring effects. The home market effect in  presence of trade costs.
  Readings and references:  
  Krugman, P., (1979), ‘Increasing returns, monopolistic competition, and international trade,' Journal of International Economics, vol. 9(4), p. 469-479
  Krugman, P., (1980) ‘Scale Economies, Product Differentiation, and the Pattern of Trade,' American Economic Review, American Economic Association, 70, 5, pp. 950-59,  December.
  Krugman, P., (1989), Industrial organization and international trade, in Handbook of International Organization
  Krugman, P., (1990), Rethinking International Trade, The MIT Press, Ch. 5, pp. 64-89.
  Krugman, P., 1989, see the ref. in Handbook, par. 2 and A.1; 
  MMKM (1995), Ch 12, Ch. 13.4, Ch. 14 (p.229-236).
• L8. EMPIRICS 1: BALASSA Indices of CA, VERTICAL and HORIZONTAL IIT. How to measure CA. Examples of monopolistic competition (see KO) and trade overlap: VIIT and HIIT. Measures of trade overlap.
  Readings and References: 
  Rivera-Batiz and Oliva, 2004, chapter 2, pp. 39-42.
  Fontagnè, Freudenberg, Gaullier, (2006), ‘A Systematic Decomposition of World Trade into Horizontal and Vertical IIT', Review of World Economics,142(3), 459-475. 
• L9. EMPIRICS 2:  Around the GRAVITY equation
  Readings and References: TBA
• L10.EMPIRICS 3: FDI and offshoring. FDI vs. portfolio investments Greenfield FDI and M&A. Vertical and horizontal FDI. Historical FDI patterns. Choosing the location of production: OLI, proximity vs. concentration, and empirics.International fragmentation of production.
  Readings and references: 
  Feenstra R. (1998), Integration of Trade, Disintegration of production in the Global Economy, JEP, vol. 12, pp. 31-50 
  WTO, (2008), World Trade Report. Trade in a Globalizing World, World Trade Report,(part D).
• L11. THE BALANCE OF PAYMENTS. Trade in National Accounting. Net Investment Position. Balances in the short and in the long run.
  Readings: any good chapter from basic textbook
• L12. NEW NEW: WHY? Empirical Challenges to Old and New Trade Theory: 1) Firms are heterogeneous; 2) Firm Exporting is Relatively Rare; 3) Trade Liberalization Raises Industry Productivity. The development of Heterogeneous-Firm Trade Theories: the Melitz model.
  Readings and References:'
  (*)Bernard, Andrew B. and J. Bradford Jensen (1995) ‘Exporters, Jobs, and Wages in US Manufacturing: 1976-87', Brookings Papers on Economic Activity: Microeconomics, 67-112;
  Pavcnik, Nina (2002) ‘Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants', Review of Economic Studies, 69(1), 245- 76; 
  Bernard, Andrew B. and J. Bradford Jensen (1999) ‘Exceptional Exporter Performance: Cause, Effect, or Both?', Journal of International Economics, 47(1), 1-25.
• L13. THE MELITZ MODEL: Monopolistic competition with heterogeneous firms. Fixed and variable trade costs. Zero-profit productivity cutoff and self-selection effect. Trade liberalization and Intra-Industry Reallocation.
  Readings and References:
  (*) Melitz, MJ. (2003), ‘The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity. Econometrica. 71: 1695-725.
  (*) Redding, S. (2011), ‘Theories of Heterogeneous Firms and Trade', Annual Review of Economics, forthcoming.
• L14. EXTENSIONS OF MELITZ: GRAVITY. Asymmetric countries. Gravity equation. the extensive and intensive margins of trade. Empirical evidence on the two margins. 
  Readings and References: (*)Chaney T. 2008. ‘Distorted Gravity: The Intensive and Extensive Margins of International Trade'. American Economic Review. 98(4): 1707-21.
• L15. EMPIRICS OF MELITZ's MODEL and NEW EVIDENCE. Self-selection and learning by exporting effect. Concentration of trade. Importing and Exporting firms. Product and Country extensive margins. Indirect Exports.
  Readings and References:
   (*) Wagner, J. (2007), Exports and Productivity: A Survey of the Evidence from Firm- Level Data. The World Economy 30 (1): 60-82
  (*) Bernard, A., B. Jensen, S. Redding and P. Schott (2007), ‘Firms in International Trade', Journal of Economic Perspectives, 21, 3, 105-30; 
  Andrew B. Bernard & Marco Grazzi & Chiara Tomasi (2010), ‘Intermediaries in international trade : Direct versus indirect modes of export,' Working Paper Research 199, National Bank of Belgium.
• L16. TRADE POLICY: Tariffs and non tariff barriers Instruments of trade policy: tariffs and quotas. Review of small and large country cases. The terms of trade argument and its shortcomings. Other instruments of trade policy:  subsidies. Tariffs, quotas and subsidy in a comparative perfectly competitive perspective.  Hints on other forms of protection. Export subsidies in agriculture and high techn.
  Readings and References: 
  Basic review from KO Ch. 8; MMKM 16.4;
• L17.  FREE TRADE and TRADE PROTECTION with market failures. Market power, The infant industry argument. Strategic protection. Market failures and other distortions.
  Readings and References: 
  Krugman 1989, MMKM ch.17
• L18. THE POLITICAL ECONOMY OF TRADE POLICY
  Determinants of Trade Policy: Theoretical Models. Hints on median voters and interest group models. The empirics of.
  Readings and References: 
  Kishore Gawande and Pravin Krishna (2003), The Political Economy of Trade Policy: Empirical Approaches,
  Published in Handbook of International Trade, James Harrigan and E. Kwan Choi (eds.). Basil Blackwell,  213-250.
  World Trade Report (2008) selected parts
• L19. The multilateral trading system (MTS
  The institution: WTO, Dispute Settlement and enforcement of rules, Negotiating forum. The multilateral agreements. Holes and loopholes.
  Readings and references: 
  MMKM, Ch. 20, 
  WTO (2007), Understanding the WTO, available on the web
  WTO, (2007) Six decades of Multilateralism. What have we learned? World Trade Report (part D)
• L20. The MTS: Cornerstones and economic viewpoints
  Descriptive, institutional and econometric viewpoints. The cornerstones: how do we read them from a theoretical point of view?
  Readings and references: 
  Bagwell K. and Staiger R.W.(2002), The Economics of the World Trading System, MIT Press, Cambridge Massachusetts (selected parts)
  WTO, (2007) Six decades of Multilateralism. What have we learned? World Trade Report (a selection of part B D).
• L21. THE ROLE OF TRADE AGREEMENTS: multilateralism versus regionalism.
  Motivations for regional economic Integration, under GATT Article XXIV. Trade diversion and trade creation. Stepping stones versus stumbling blocks.
  Readings and refences:
  Bhagwati J., D.Greenaway, A. Panagariya,(1998), Trading preferentially: theory and policy, The Economic Journal,  108, July, pp. 1128-1148 
  Crawford J.- A. and Fiorentino R.(2005), The Changing Landscape of Regional Trade Agreements, WTO, WP
  Krueger A. (1999) Are preferential trading arrangements trade-liberalizing or protectionist ?, Journal of Economic Perspectives, 13, 4 pp. 105-124.
• L22. EMPIRICS on tariffs and contingent protection
   WTO Tariff Reports Tariff: differences across sectors, lines of products and countries. Tariff dispersion: diversity across countries and sectors. The effective rate of protection and tariff escalation. AD and CVD measures in the real world.
  Readings and references:
  WTO, 2009 sect. B-D; World trade profile 2006; WTO website.

NOTES
MMKM= Markusen, Melvin, Kaempfer and Maskus, 1995, International trade. Theory and evidence, McGraw-Hill, The entire MMKM 1995 book can be downloaded at http://spot.colorado.edu/~markusen/textbook.html
Overview reading for L2-L7 and L12-L15:
WTO, (2008), World Trade Report. Trade in a Globalizing World, World Trade Report,(part C and E).
Other basic textbooks:
KO = Krugman P. R. and Obstfeld M., International Economics, Addison Wesley.
Feenstra R.C. and Taylor A.M., International Trade, Worth Publishers.

Advanced reference textbooks

• Feenstra R.C. (2004), Advanced International Trade. Theory and Evidence, Princeton University Press.
• Helpman and Krugman (1987)  Market Structure and Foreign Trade, The MIT Press.
• Hoeckman B.M. and Kostecky M.M. (2001), The Political Economy of the World Trading System, O.U.P.