B2206 - International Economics and Trade

Learning outcomes

The course aims at helping students navigate the realities of the global economy. The course will emphasize blending theory and data with real-world policies, events, and evidence. The course will discuss patterns of trade, the gains and losses from liberalizing or restricting trade, and the role of increasing returns. At the end of the course the student will be expected to become familiar with policy relevant questions concerning migrations, income distribution, multinational enterprises and ‘North-south’ issues. Protectionism, trade and the environment and the role of international institutions and agreements (the EU, the World Trade Organization (WTO)) will also be discussed.

Course contents

The course is structured in three pillars:

1. International trade theory. Comparative advantage and Ricardian models (Ricardo, Dornbusch-Fischer-Samuelson); the Eaton-Kortum model and the gravity equation; gains from trade and quantitative applications (ACR formula; tariffs, Brexit, trade wars); Heckscher-Ohlin and the distributional effects of trade (Stolper-Samuelson, Rybczynski); increasing returns and "New Trade Theory" (Krugman); firm heterogeneity and selection (Melitz).

2. Empirical analysis with firm-level microdata. Estimation of production functions and total factor productivity (OLS, Levinsohn-Petrin, Wooldridge); markup measurement (price-cost margin and De Loecker-Warzynski). Students apply these methods in a mandatory group assignment on a real dataset of European firms, using Stata.

3. Research in practice. Sessions devoted to recent research on multinational firms and globalisation (conflict, labour markets, the environment, innovation), based on articles published in international journals, plus a workshop where students critically discuss an ongoing research project, simulating the work of a referee.

Readings/Bibliography

The slides are the primary and self-contained reference for the course: they include all mathematical derivations in full, and are sufficient to prepare the written exam. No textbook purchase is required.

The only additional required material is the set of academic papers discussed in the research sessions, posted on Virtuale at the beginning of the course with precise indication of the parts relevant for the exam (the introductions).

For students who wish to go deeper, the following optional readings are suggested:

• Feenstra, R. (2016). Advanced International Trade: Theory and Evidence, 2nd ed., Princeton University Press.
• Altomonte, C. and di Mauro, F., The Economics of Firm Productivity, Cambridge University Press (selected chapters for the empirical part, provided on Virtuale).
• Helpman, E. (2011). Understanding Global Trade, Harvard University Press.
• Krugman, P., Obstfeld, M. and Melitz, M., International Economics: Theory and Policy, Pearson.
  

Earlier editions are acceptable.

Teaching methods

Lectures with slides containing all mathematical derivations in full: class time is devoted to economic intuition and key steps. Optional problem sets with solutions posted the following week, for independent practice. Research sessions on recent papers and an interactive workshop on an ongoing research project. An empirical group assignment on real firm-level data using Stata, supported by a hands-on lecture dedicated to the estimation methods.

Assessment methods

The final grade is based on two components, both on a 31-point scale (31 = 30 cum laude):

• Final written exam (50%): in person, closed book. Four sections: short questions, analytical exercises, one advanced exercise, and questions on the papers discussed in the research sessions.
  
• Group Take Home (50%): an empirical analysis of a real dataset of European firms (production function estimation, productivity, markups) in groups, submitting a written report and the Stata code. The take home can be completed entirely remotely.
  

The complete rules (dates, deadlines, consequences of withdrawal, failure and grade rejection, and special cases such as students on Erasmus exchange during the course period or students with recognised working-student status) are published in the "Assessment Rules" document on Virtuale, which is the only official source.

Grading scale: <18 Fail; 18–23 Sufficient; 24–27 Average/Good; 28–29 Very good; 30 Excellent; 30 cum laude Outstanding.

Teaching tools

All resources are distributed through Virtuale: slides with complete derivations, problem sets with solutions, a mock exam, research papers, the dataset and instructions for the group assignment. Empirical sessions use Stata.

Office hours

See the website of Tommaso Sonno