Davide Suverato: Catalogue data in Spring Semester 2020

Name Dr. Davide Suverato
Professur für Applied Economics
ETH Zürich, LEE G 131
Leonhardstrasse 21
8092 Zürich
Telephone+41 44 633 92 64
DepartmentManagement, Technology, and Economics

363-0586-00LInternational Economics: Theory of New Trade and Multinational Firms3 credits2VD. Suverato
AbstractThe primary goal of the course is to familiarize students with recent work in international economics. Students will gain an essential set of guidelines to understand to current worldwide economic scenario dominated by: "trade wars", "Brexit", the "fear of import competition from China" and the links between globalization and technological change.
ObjectiveCovering models of international trade, of trade and multinational firms, and of factor mobility and agglomeration, students will get a good overview of key contributions in the field of international economics.

The introduction to this course provides a brief overview of classical trade models, where production cost differences between countries (through differences in factor productivity or in relative factor endowments) are the main source of gains from trade.

The core of the course will be on general equilibrium models of trade where the main reason for trade are consumer preferences and their love of variety and its major impediments are transport costs. Technology, structure of the product market and the functioning of the labor market will be the key drivers of the effect of international trade on growth, welfare and inequality.

At the end of the course student will be able to:

1. Define the concept of comparative advantage and understand how it shapes trade patterns.
2. Describe the main reasons for international trade and their relative importance in reality.
3. Explain the methodology used by modern economic models to quantify the gains from trade and the effects of changes in trade costs.
4. Summarize the main insights obtained by models which introduce firm heterogeneity in international trade.
5. Discuss the implications of international trade for inequality and the organization of production.
ContentIn this class we will cover the following topics.

1 Comparative Advantage. This is the main concept of "opportunity cost" applied to the questions "who produces what? and why?"

2 Gains from trade. International trade is a trigger for the development of welfare gains in terms of efficiency. We will understand why and how gains can be redistributed to mitigate losses for who loses in a more integrated economy.

3 Firms in the Global Economy. The main actors of international economics are globally integrated firms. We will examine their business model, in particular:
– Export Decisions
– Outsourcing Decisions and Organization of Multinationals
– Global Value Chains

4 Trade and Income Distribution. While efficiency gains are clear, the impact of international trade on the income distribution is a more complex issue to assess. We will discuss the most recent developments on this subject.

5 Trade Policy. Topics such as free trade agreements and trade wars are of high importance in the political agenda. We will discuss the main trade policy instruments (such as tariffs, quotas, export subsidies and regulations) and their effects on economic growth.

The detailed agenda of the course consists of these topics:
1.Ricardian Trade Theory, from Ricardo to Eaton-Kortum.
2.Heckscher-Ohlin Trade Theory and specific factor models.
3.Increasing Returns and Trade and gains from variety.
4.Firm Heterogeneity: the Melitz model and its applications.
5.Multinational firms and offshoring: a global organization of production.
6.Insights on trade policy: free trade agreements, tariffs, non-tariff barriers and regulations
7.New empirical insights on trade, development and inequality.
LiteratureCopies of the original articles and relevant chapters of books will be made available to participants of the course.
Prerequisites / NoticeTo follow the course well, you should have some basic knowledge about:
1. solving constrained and unconstrained optimization problems,
2. integral calculus and probability theory

Furthermore, you should be familiar with:
1. basic microeconomic concepts (such as General Equilibrium)
2. basic econometric concepts (such as Instrumental Variables)