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Masterclass by Dave Donaldson, Empirical Models of Comparative Advantage and the Gains from Trade

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We will begin with a presentation of standard models of comparative advantage that have been used to explain the pattern of trade (who trades what with whom) and the normative effects of trade (who gains and who loses when trade becomes easier to do) both between and within nations.  This will span the perfectly competitive models of Ricardo and Heckscher-Ohlin (including their modern versions such as that due to Eaton and Kortum), as well as the monopolistically competitive models of Krugman and Melitz.

We will then turn to the recent empirical literature that aims to connect these models to the data in order to understand the consequences of various trade policies, both realized (e.g. China’s entry into the WTO, or the construction of a vast railroad network) and counterfactual (e.g. the future consequences of post-Brexit UK trade policy).
 
Because of the complexities of the many cross-market interactions that occur in multi-market spatial settings, we will emphasize some of the recently developed methods (“sufficient statistic”-like strategies, but ones that are applicable to general equilibrium problems) that researchers use to enhance credibility by reducing empirical dimensionality.
 
These tools have been applied to problems in the fields of International Trade, Urban Economics, Labor Economics, Development Economics, and Economic History.