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Indian Institute of Foreign Trade

MA (Economics) 2018 – 20
Empirical Issues in Trade
Semester III
Course Outline
Introduction

This course is designed towards understanding how theories in international trade can be
meaningfully estimated using economic data. There are two aspects to empirically testing economic
theories:

 First, is to understand how empirically testable hypotheses can be derived from an existing
theory and
 Second, the use of trade analytical tools on actual trade data to understand implication of
various trade scenarios vis-à-vis trade theories

For teaching purposes this course will be divided into two parts (A& B): Empirical issues related to
trade theories and application of trade analytical tools to gauge the real life trade scenarios with
respect to policy stance ( ex-ante and ex-post).

Pedagogy

 Class Room teaching


 Use of Trade database and analytical tools
 Hands on exercises and demonstration

Evaluation

 Mid Term Test ( 30 Marks)


 Group Project ( 30 Marks)
 End Term Test ( 40 Marks)

Outline

Part A
Session No Topic Text/References
1-5 1. Trade at the sectoral level: Feenstra Ch 2 and 3 + Handout
a) The Heckscher – Ohlin – Vanek (HOV)
model
b) Partial tests of HOV model
c) Complete test of HOV Theorem
d) How to use data on different
technologies the HOV theorem
e) Estimating the GDP function
f) Wage inequality and trade
6-10 2. Trade at the Firm Level
a) Measurements of Intra Industry Trade
b) Distinguishing vertical versus horizontal
intra industry trade
c) Determinants of horizontal and vertical
intra industry trade
d) Empirical applications of the Melitz
model
11-15 3. Gravity Model of Trade Feenstra chapter 5 + handout
a) Derivation of the Gravity Equation from
Ricardian and Heckscher Ohlin models of
trade
b) Using the gravity equation to determine
trade potential among countries
c) Using the gravity equation to determine
trade creation and trade diversion of
Free Trade Agreements
d) Other empirical applications of the
gravity equation: Home market effect,
border effect

Part B
Session Topic Text/Reference / Cases

1-3 Product Space Analytics Chap 1-3 (NC), Chap 1 (MG),


a) Basics of Trade Data base Chap 1 (WTO)
b) Trade Outcome Analysis Trade Map, WITS online

Revealed Comparative Advantage resources, WITS and Trade
index
Map Manuals, Classroom
 Trade Complementarity index
 Export Similarity Index exercises
 Trade Intensity Index
 Export Specialization Index
 Export Diversification (or
Concentration) Index
5-7 Determining Competitiveness Chap 4-6 (NC), Chap 1 (RF),
a) Extensive and Intensive Margin Chap 1 (WTO), Classroom
b) Unit Price and Market Share analysis
exercises
c) Constant Market Share (CMS) Analysis
d) Shift-Share Analysis
e) Export Potential and Product Diversification
index
8-10 Intra-Industry Trade, Production Network Value Chap 16 (NC), WITS User
Chain
Manual, Version 2.01,
a) GLIndex and Sectoral GLI
b) Horizontal and LQ and HQ Vertical IIT Classroom exercises
c) Calculating Value addition and importance of
International I-O table (MRIO database)
d) TiVA and EORA database
e) Participation and Position Index
f) Forward and Backward Participation
11-13 Understanding Trade Potential and Policy Chap 13-15, 17 (NC), BT,
Implication
Classroom exercises
a) Estimating the Gravity Model
b) Finding trade creation and trade diversion in
the Gravity model
c) Estimating Trade Costs
d) Modeling Nob-Tariff Barriers
14-15 Partial Equlibrium through Simulation Chap 13-15, 17 (NC), BT,
a) Economics of partial equilibrium in trade
Chap 4 (WTO), JO
literature
b) Concepts of various elasticity and Armington Classroom exercises
Assumption
c) Implication of Price Effect
d) Tariff liberalisation and estimation through
SMART model

Text and References

 Feenstra
• (NC) Biswajit Nag and Debashis Chakraborty (eds.) (2019), “India’s Trade Analytics: Patterns and
Opportunities”, Sage.
 (WTO) World Trade Organization, “A Practical Guide to Trade Data Analysis”, WTO.
 (MG) Mikic, Mia and John Gilbert (2009), “Trade Statistics in Policymaking - A Handbook of
Commonly Used Trade Indices and Indicators”, Economic and Social Commission for Asia and
the Pacific.
 (RF) Reis, José Guilherme and Thomas Farole (2012), ‘Trade Competitiveness Diagnostic
Toolkit’, World Bank.
 (PT) Piermartini, Roberta and Robert Teh (2005), “Demystifying Modeling Methods for Trade
Policy”, Discussion Paper 10, WTO.
 (JO) Jammes, Olivier and Marcelo Olarreaga (2005), “Explaining SMART and GSIM”, The
World Bank
 (MP) Michael Plummer, et. al ( 2010): Methodology for Impact Analysis of Free Trade
Agreements ( Asian Development Bank)
 (BT) Luca De Benedictis and Daria Taglioni, ‘The Gravity Model in International Trade’, in Luca
De Benedictis and Daria Taglioni (Eds.), ‘The Trade Impact of European Union Preferential
Policies: An Analysis Through Gravity Models’, Springer, pp. 55-89.