1. ESA International Economics, 2 Lecture 16 Giorgia Giovannetti Professor of Economics, University of Firenze E-mail: giorgia.giovannetti@unifi.itgiorgia.giovannetti@unifi.it

2. Plan of the course/lectures 14/9 Introduction: globalization 15/9 Introduction, 2 21/9 Ricardo: an introduction (Marvasi) 22/9 Measuring Globalization, Indicators 28/9 Measuring globalization and specialization, Indicators 2 29/9 Overview trade models 5/10 Overview trade models (Bernard et al 2007; 2011) 6/10 Overview- end (new new trade) 12/10 Trade models: Ricardo and comparative advantage 13/10 Ricardo and comparative advantage, 2 /H-O, intro 19/10 Trade models: H-O 20/10 Trade models: H-O,2 26/10 H-O end; Trade and Imperfect competition 27/10 Trade and imperfect competition, exercises 2/11 Geography models/gravity 3/11 Hysteresis, Heterogeneous firms 9/11 Trade policy: TTIP 10/11 ? Lecture? Exercises? 16/11 EU policies (trade, development, industrial) 17/11 Heterogeneous firms presentation and Migration presentation 23/11 FDI and Multinationals: OLI theory/ Brain drain 2 presentations 24/11 FDI Offshoring/trade in tasks/GVCs presentation 30/11 China and India (BRICS)/ China presentation 1/12 Granularity and aggregate shocks/ other presentations

3. Group 1: Heterogeneous firms presentation November 17th (Baroncelli, Greppi, Gusella, Iannotta, Pietrini) M. Melitz, 2014, Palgrave (in Moodle) Marc J. Melitz and Daniel Trefler Gains from Trade when Firms Matter, Journal of Economic Perspectives—Volume 26, Number 2—Spring 2012— Pages 91–118 Bernard, Andrew B., J. Bradford Jensen, Stephen J. Redding, and Peter K. Schott (2007), “Firms in International Trade”, Journal of Economic Perspectives, 21(3): 105–130. Bernard, A.B., Jensen, J.B., (1995), “Exporters, jobs and wages in U.S. manufacturing, 1976-1987”, Brookings Papers on Economic Activity: Microeconomics, pp. 67-118. Helpman, Elhanan (2006),“Trade, FDI, and the Organization of Firms”, Journal of Economic Literature, 44(3): 589–630. Melitz, M. (2003),“The impact of trade on intraindustry reallocations and aggregate industry productivity”, Econometrica, vol. 71, pp. 1695-725. Theory (should understand equations and replicate them); evidence possibly reported from existing articles; descriptive evidence for Italy can be original

4. Group 2, Migration presentation November 17th (Bellanca, Bova, Coko, Fraczek, Lekovic) Docquier, F, C. Ozden and G. Peri (2010), “The Wage Effect of Emigration and Immigration”, NBER Working Paper n. 16646.. Ottaviano, Peri and Wright (2010), “Immigration, Outsourcing and the America Jobs”, NBER WP OECD, International Migration Outlook 2013 (cap.1 e 2); Sobotka T., Migration continent Europe, Vienna Yearbook of Population Research 2009 Ozden, C., Parsons, C. R., Schiff, M., Walmsley, T.L., Where on earth is everybody ? the evolution of global bilateral migration 1960-2000, Policy Research Working Paper 5709 Theory: what models can be used to explain migrations? (not in model we have studied) data: only every 5 years, how can we deal with this? Empirics: description of status quo, construction of database etc

5. Group 3-4, Brain Drain presentations 23/11 (Bianchini, Mora?, Rastbicher, Tauber, Sculen, Branchle, Brost) Docquier, F. and H. Rapoport (2012), “Globalization, Brain Drain and Development”, IRES-UCL Discussion Paper 2011-9 and Journal of Economic Literature Docquier, F. and H. Rapoport (2007), “Skilled Migration: the Perspective of Developing Countries”, CREAM Working Paper n. 10/07. BRAIN DRAIN, BRAIN EXCHANGE AND BRAIN CIRCULATION. THE CASE OF ITALY VIEWED FROM A GLOBAL PERSPECTIVE. Aspen, 2012 (in Moodle) Hussain, 2015, Reversing the Brain Drain: Is it Beneficial? World Economy Clemens, Ozden, Rappoport, Migration and Development Research is Moving Far Beyond Remittances, World Development, 2015 Delacroix, Docquir & Schiff, 2014, Brain Drain and Economic Performance in Small Island Developing States (chapter of book) Agrawal, 2014, Diaspora Networks, Knowledge Flows and Brain Drain Çaglar Özden David Phillips 2015 What really is Brain Drain? Location of Birth, Education, and Migration Dynamics of African Doctors Hatton: 2014, The economics of international migration: A short history of the debate, Labour Economics Data: http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTPROGRAMS/EXTT RADERESEARCH/0,,contentMDK:23074136~pagePK:64168182~piPK:64168060~theSitePK:54 4849,00.html http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTPROGRAMS/EXTT RADERESEARCH/0,,contentMDK:23074136~pagePK:64168182~piPK:64168060~theSitePK:54 4849,00.html

6. Group 5, GVCs, presentation 24 nov (Mazzoni, Mora) IMF, (2013) IMF Country Report No. 13/263, GERMAN-CENTRAL EUROPEAN SUPPLY CHAIN—CLUSTER REPORT, August Richard Baldwin, Javier Lopez-Gonzalez, 2013 SUPPLY-CHAIN TRADE: A PORTRAIT OF GLOBAL PATTERNS AND SEVERAL TESTABLE HYPOTHESES, Working Paper 18957, http://www.nber.org/papers/w18957 OECD, 2013 Interconnected Economies, Benefiting from Global Value Chains, DOI:10.1787/9789264189560-en10.1787/9789264189560-en Backer, K. D. and S. Miroudot (2013), “Mapping Global Value Chains”, OECD Trade Policy Papers, No. 159, OECD http://dx.doi.org/10.1787/5k3v1trgnbr4-enhttp://dx.doi.org/10.1787/5k3v1trgnbr4-en Antràs, P., D. Chor, T. Fally and R. Hillberry (2012). “Measuring the Upstreamness of Production and Trade Flows”, American Economic Review, Vol. 102, No. 3, pp. 412-16. Gereffi, G. and K. Fernandez-Stark (2011). “Global Value Chain Analysis: A Primer”, Center on Globalization, Governance & Competitiveness (CGGC), Duke University, North Carolina, USA. Van Biesebroeck, J. and T. J. Sturgeon (2010), “Effects of the 2008-09 Crisis on the Automotive Industry in Developing Countries: A Global Value Chain Perspective”, in O. Cattaneo, G. Gereffi and C. Staritz (eds.), Global Value Chains in a Postcrisis World, Washington, DC: The World Bank, pp. 209-244. Theory (little), data: the discussion of trade in Value added, why? Etc; Forward linkages and backward linkages: what does this mean?, descriptive analysis of developed and developing countries

7. Group 6, China presentation 30/11 (Bianchi, Fiumanò, Liu, Shi, Yakovleva) Carlo Altomonte, Marcella Nicolini, Dario Pellegrino. 2013, The impact of Chinese imports on Italian firms’ price-cost margins: An empirical assessment Isabelle Bensidoun, Françoise Lemoine and Deniz Ünal The integration of China and India into the world economy: a comparison The European Journal of Comparative Economics Vol. 6, n.1, pp. 131-155 Francoise Lemoine From foreign trade to international investment: a new step in China’s integration with the world economy, Econ Change Restruct (2013) 46:25–43 Landes D, 2006, Why Europe and the West? Why not China? Journal of Economic Perspectives Guonan Ma and Robert N. McCauley, Global and Euro Imbalances: China and Germany, 2014 China and world economy Cui Hu and Yong Tan, 2015, Export Spillover and Export Performance in China, Online at https://mpra.ub.uni-muenchen.de/67156/ MPRA Paper No. 67156, posted 10. October 2015 13:03 UTC Short theoretical part (description of the existing literature, what you expect) empirical: descriptive evidence on export shares of China versus those of Germany (or a country of your choice) (which indicator you use/ why etc); descriptive evidence of competitiveness of China vs Germany; etc.

8. Group 7, euro dollar, presentation 1 dec Euro dollar 2. ECB, 2014, "The international role of the euro“ http://www.ecb.europa.eu/pub/pdf/other/eu ro-international- role201307en.pdf?f4c76471697141917926e0f 0011372ee http://www.ecb.europa.eu/pub/pdf/other/eu ro-international- role201307en.pdf?f4c76471697141917926e0f 0011372ee

9. “Augmenting” the gravity equations Income per capita (higher income countries trade more) Adjacency Common language, colonial links Institutions, infrastructures, labour flows,... Surprisingly, bilateral tariff barriers often missing!!!

10. “Augmenting” gravity model Traditional approach to evaluate the impact of RTAs: Trade creation and trade diversion ln (Trade ij ) = a ln(GDP i ) + b ln(GDP j ) + +c ln(distance ij,,adjacency, language..) + d (Dummy i ) + + e (Dummy j ) + g (intra-RTA ij ) + h (extra-RTA ij ) + u ij IMPORTANT the gravity model does not estimate welfare effects

11. “Augmenting” gravity model...the problem of endogeneity of FTA (Baier and Bergstrand, 2005) dln TradeShare ij, t-(t-1) = b dRTA ij,t-(t-1) + d Dummy i,t-(t-1) + e Dummy j, t(t-1) + u ij n*t Country-and-time fixed effects

12. 2-12 The Gravity Model Other things besides size matter for trade: 1.Distance between markets influences transportation costs and therefore the cost of imports and exports. – Distance may also influence personal contact and communication, which may influence trade. 2.Cultural affinity: if two countries have cultural ties, it is likely that they also have strong economic ties. 3.Geography: ocean harbors and a lack of mountain barriers make transportation and trade easier.

13. 2-13 The Gravity Model (cont.) 4.Multinational corporations: corporations spread across different nations import and export many goods between their divisions. 5.Borders: crossing borders involves formalities that take time and perhaps monetary costs like tariffs. – These implicit and explicit costs reduce trade. – The existence of borders may also indicate the existence of different languages (see 2) or different currencies, either of which may impede trade more.

14. 2-14 The Gravity Model (cont.) In summary, in its basic form, the gravity model assumes that only size and distance are important for trade in the following way: T ij = A * (Y i * Y j )/D ij where T ij is the value of trade between country i and country j A is a constant Y i the GDP of country i Y j is the GDP of country j D ij is the distance between country i and country j

15. 2-15 The Gravity Model (cont.) In a slightly more general form, the gravity model that is commonly estimated is T ij = A x Y i a x Y j b /D ij c where a, b, and c are allowed to differ from 1. Perhaps surprisingly, the gravity model works fairly well in predicting actual trade flows.

16. exercises