Economics serving society

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This PSE summer school addresses recent debates at the frontier of the field: globalization, the distributive effects of trade, the role of large firms in the global economy, advances in methods to analyze firm level export data and finally the revival of trade policies.

Structure

  • International trade and new quantitative approaches (Arnaud Costinot, MIT, NBER and CEPR) – 8h
  • Large firms in the global economy (Mathieu Parenti, ULB and CEPR) ‐ 8 h
  • Impact of trade liberalization: Measurement issues (Sandra Poncet, PSE) – 3h
  • Trade and Income Distribution (Ariell Reshef, PSE and CEPII) ‐ 6 h

Workshop: present your paper
Participants will have the opportunity to submit a paper to be presented within this program. The three selected papers will be presented in front of participants and faculty in a slot reserved for such presentations.


International trade and new quantitative approaches – Arnaud Costinot

Overview
The goal of this mini-course is to offer an introduction to new quantitative approaches used to revisit classical questions in the international trade literature. The first part focuses on the relationship between technology and trade and its implications for the measurement of the welfare gains from trade. The second part focuses on the relationship between factor endowments and trade and its implications for earnings inequality. The final part focuses on the design and consequences of trade and industrial policy. For each topic, we will start with a brief overview of classical theoretical results and then study how recent papers have brought the previous theoretical ideas to the data.

Structure

  • What are the consequences of technological change in a global economy?
  • How large are the welfare gains from trade liberalization?
  • How large are the redistributional consequences of globalization?
  • How should we design trade policy to alleviate adverse redistributional consequences?
  • How should we design industrial policy in a global economy?

References
• Dornbusch, R., S. Fischer and P. Samuelson (1977), “Comparative advantage, trade, and payments in a Ricardian model with a continuum of goods,” AER, pp. 823-39.
• Eaton, J. and S. Kortum (2002), “Technology, geography and trade,“ ECMA, pp. 1741-1779
• Arkolakis, C., Costinot, A. and A. Rodriguez-Clare (2012), “New Trade Models, Same Old Gains?,” AER
• A. Costinot and A. Rodriguez-Clare (2013), “Trade Theory with Numbers: Quantifying the Consequences of Globalization”, in Handbook of International Economics Vol. 4
• Adao, Costinot and Donaldson (2017), “Nonparametric counterfactual predictions in neoclassical models of international trade”, AER.
• Costinot and Rodriguez-Clare (2018) “The U.S. Gains from Trade”, JEP
• Jones, R. and P. Neary (1984), “The positive theory of international trade,” in Handbook of International Economics Vol.1, pp 21-27.
• Deardorff and Staiger (1988), “An Interpretation of the Factor Content of Trade”, JIE.
• JIE special jubilee issue (2000), articles by Krugman, Leamer and others
• Adao, Carrillo, Costinot, Donaldson, and Pomeranz (2021), “Imports, Exports, and Earnings Inequality: Measures of Exposure and Estimates of Incidence,” mimeo MIT
• A Dixit (1985), “Tax policy in open economies,” in A. Auerbach and M. Feldstein (eds.), Handbook of Public Economics
• Costinot and Werning (2020), “Robots, Trade and Luddism: A Sufficient Statistics Approach to Optimal Technology Regulation,” mimeo MIT
• Bartleme, Costinot, Donaldson and Rodriguez-Clare (2021) “The Textbook Case for Industrial Policy: Theory meets Data,” mimeo MIT


Large firms in the global economy – Mathieu Parenti

Overview
The goal of this course is to study on the role of large firms in the global economy. The first part of the course reviews theoretical developments under imperfect competition to model firms’ market power and shed light on the determinants of firm-level mark-ups and pass-through rates. The second part of the course discusses a range of aggregate implications of the dominance of these players for the gains from trade, product-market misallocation and the political economy of trade agreements. Last, the course explores how large multinationals may exploit interjurisdictional loopholes to reduce their corporate tax burden and how it matters for macroeconomic aggregates.

Structure

  • Firm-level mark-ups and pass-through rates under imperfect competition.
  • From micro to macro: how superstar firms shape trade flows and trade policy.
  • Multinational firms and profit shifting in the global economy.

References
• Autor, D., Dorn, D., Katz, L. F., Patterson, C., & Van Reenen, J. (2020). The fall of the labor share and the rise of superstar firms. The Quarterly Journal of Economics, 135(2), 645-709.
• Baqaee, D., & Farhi, E. (2020). The darwinian returns to scale (No. w27139). National Bureau of Economic Research.
• Davies, Ronald B., Julien Martin, Mathieu Parenti, and Farid Toubal (2018) Knocking on Tax Haven’s Door: Multinational Firms and Transfer Pricing, The Review of Economics and Statistics.
• Dhingra, S., & Morrow, J. (2019). Monopolistic competition and optimum product diversity under firm heterogeneity. Journal of Political Economy, 127(1), 196-232.
• Egger Strecker Zoller‐Rydzek (2018) Estimating Bargaining‐related Tax Advantages of Multinational Firms, Journal of International Economics
• Gaubert, C., & Itskhoki, O. (2021). Granular comparative advantage. Journal of Political Economy, 129(3), 871-939.
• Head, K., & Mayer, T. (2019). Brands in motion: How frictions shape multinational production. American Economic Review, 109(9), 3073-3124.
• Laffite, S., Parenti, M., Souillard, B., Toubal, F. (2021) Quantifying the Effects of International Tax Reforms, mimeo
• Li Liu, Tim Schmidt‐Eisenlohr, and Dongxian Guo (2019) International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade‐Tax Statistics in the UK, The Review of Economics and Statistics.
• Mrázová, M., Neary, J. P., & Parenti, M. (2021). Sales and markup dispersion: theory and empirics. Econometrica, 89(4), 1753-1788.
• Parenti, M., Ushchev, P., & Thisse, J. F. (2017). Toward a theory of monopolistic competition. Journal of Economic Theory, 167, 86-115.
• Tørsløv, LS Wier, G Zucman (2020) Missing profits of nations, NBER WP
• Zhelobodko, E., Kokovin, S., Parenti, M., & Thisse, J. F. (2012). Monopolistic competition: Beyond the constant elasticity of substitution. Econometrica, 80(6), 2765-2784.


Impact of trade liberalization: Measurement issues – Sandra Poncet

Overview
A growing empirical literature highlights the importance of the impacts of trade liberalization at the macro (country and regions), meso (sector) and micro (firm and individual) levels. The impacts measured are not limited to purely economic effects (firm productivity, individual wages, unemployment) and include effects on innovation, happiness, electoral outcomes. This course discusses two of the major challenges facing this work: 1) appropriate measuring of liberalization shocks and 2) credible identification. The first challenge relates to the fact that trade liberalization initially comes from a change in protection levels that are defined at the disaggregated level of products (nomenclature of several thousand products). Trade liberalization shocks need to be measured and connected to the affected entity. For example, domestic firms will not be affected the same way if they use imports or goods that are competing with imports, produce products in competition with imports or are exporters. The measured trade shock has to incorporate sourcing information typically available from input-output tables. The second challenge is how to deal with endogeneity of the computed trade liberalization shocks.

Structure

  • What shocks do tariffs changes trigger?
  • Tariff shock computations
  • Identification and Discussion

References
• Adao, Rodrigo, Michal Kolesár, and Eduardo Morales. 2019. “Shift-Share Designs: Theory and Inference.” Quarterly Journal of Economics 134 (4): 1949–2010
• Amiti, M. and Konings, J. 2007, Trade Liberalization, Intermediate Inputs, and Productivity, American Economic Review, 97 (5), 1611-1638.
• Autor, David H., David Dorn, and Gordon H. Hanson. 2013. “The China Syndrome: Local Labor Market Impacts of Import Competition in the United States.” American Economic Review 103 (6): 2121–68.
• Bartik, Timothy J. 1991. Who Benefits from State and Local Economic Development Policies? Kalamazoo, MI: W. E. Upjohn Institute for Employment Research.
• Brandt, L., Van Biesebroeck, J., Wang, L. and Zhang, Y. 2017. WTO accession and performance of Chinese manufacturing firms. American Economic Review, 107 (9), 2784–2820.
• Goldsmith-Pinkham, Paul, Isaac Sorkin, and Henry Swift. 2020. “Bartik Instruments: What, When, Why, and How.” American Economic Review, 110 (8): 2586-2624.
• Kovak, Brian K. 2013. “Regional Effects of Trade Reform: What Is the Correct Measure of Liberalization?” American Economic Review 103 (5): 1960-76.
• Shu P. and Steinwender, C. 2019. The Impact of Trade Liberalization on Firm Productivity and Innovation, Innovation Policy and the Economy, University of Chicago Press, vol. 19(1), pages 39-68.
• Topalova, P. and Khandelwal A. 2011, Trade Liberalization and Firm Productivity: The Case of India. Review of Economics and Statistics 93 (3): 995-1009.


Trade and Income Distribution – Ariell Reshef

Overview
The goal is to study micro-mechanisms of how globalization may affect income distribution: trade in final goods, trade in intermediate inputs, trade in capital, offshoring. We will consider several channels through which globalization affects domestic labor markets, for example, through changes in relative demand for different types of labor inputs, or through changes in incentives to invest and technological responses. These manifest themselves in the distribution of income via reallocation of resources across productive units, changes in the internal organization of productive units, fair wages, sorting, and more. Relate to this, Prof. Poncet will discuss impacts on local labor markets.

Structure

  • Why do we think trade and income distribution are linked?
  • Market access and variation in composition of activities.
  • The capital input channel of trade liberalization.
  • Foreign direct investment and offshoring.
  • Individual effects and sorting.

References
• Burstein, Cravino and Vogel (2013): “Importing Skill‐Biased Technology”, AEJ: Macroeconomics.
• Egger and Kreickemeier (2009): “Firm heterogeneity and the labor market effects of trade liberalization”. International Economic Review.
• Harrigan and Reshef (2015): “Skill Biased Heterogeneous Firms, Trade Liberalization and the Skill Premium”, Canadian Journal of Economics.
• Harrigan, Reshef and Toubal (2020): Techies, Trade and Skill-Biased Productitvity, NBER Working Paper No. 25295
• Helpman, Itskhoki and Redding (2010), “Inequality and unemployment in the global economy”, Econometrica.
• Raveh and Reshef (2016), “Capital Imports Composition, Complementarities, and the Skill Premium in Developing Countries”, Journal of Development Economics.
• Reshef and Santoni (2021), “Are Your Labor Shares Set in Beijing? The View Through the Lens of Global Value Chains”. Working paper.
• Sampson (2014): “Selection into Trade and Wage Inequality”, American Economic Journal: Microeconomics.
• Thoenig, and Verdier (2003), “A theory of defensive skill-biased innovation and globalization”, American Economic Review.


Contents - International Trade