Case Studies to learn

Question 1

Ricardian Model tests

Answer 1

MacDougall

Golub and Hsieh

Costinot et al

Question 2

MacDougall (1951)

Answer 2

Used data on labour productivity and exports to compare the US and UK

Wages were twice as high in the US so he concluded costs of production were lower in the US where US labour was twice as productive

Showed a positive relationship between exports and labour productivity

Question 3

Golub and Hsieh (2000)

Answer 3

Looked at US bilateral trade flows based on relative exports to see how well they were explained by lagged relative productivity

Majority of coefficients were significant

Question 4

Costinot et al. (2012)

Answer 4

Measure variation in productivity across countries and industries using differences in producer price indices and see how well it explains values of bilateral trade exports between a set of countries

Question 5

Hecksher Ohlin Model tests

Answer 5

Leontief
Baldwin
Romalis
Ito et al

Question 6

Leontief (1953, 1956)

Answer 6

The US had factor endowments in capital so tested the imports and exports of the US in capital intensive and labour intensive products

Led to the Leontief Paradox as it was expected to be an importer of labour intensive goods and an exporter of capital intensive ones but it was actually an exporter of labour intensive goods

Question 7

Baldwin

Answer 7

Carried on the work of Leontief and factored in the impact of Human Capital i.e. quality of education and this eliminated the Leontief paradox

Question 8

Romalis (2004)

Answer 8

Compared US imports from skill scarce countries to skill abundant ones (Bangladesh and Germany)

Agreed with the Hecksher Ohlin model, with Germany as skill intensity increased so did the share of imports from Germany while the opposite was true with Bangladesh

Question 9

Ito et al (2017)

Answer 9

Found that the Hecksher Ohlin model predicts manufacturing trade in value added.

While countries export across a broad range of sectors, they contribute more value-added in techniques using their abundant factor intensively.

Question 10

Empirical studies of the gains from trade in a monopolistic competition

Answer 10

Feenstra and Weinstein
Broda and Weinstein
Trefler

Question 11

Feenstra and Weinstein (2017)

Answer 11

Using a monopolistic competition model, they found US welfare increased by 0.85% of GDP per year with half of it being pro-competitive gains due to reduced markups

Question 12

Broda and Weinstein (2006)

Answer 12

Estimate the value to the US consumers of monopolistic competition and product differentiation was 2.6% of GDP

Question 13

Trefler (2004)

Answer 13

In formerly sheltered industries affected heavily by tariff cuts, labour productivity jumped by 15% from closing inefficient plants

Question 14

Tests on political models of trade theory

Answer 14

Baldwin and Magee
Fajgelbaum et al
Colatone and Stanig
Autor et al
Blanchard
Autor et al (2024)
Fotak et al

Question 15

3 issues presented in Baldwin and Magee

Answer 15

NAFTA - Removed tariffs and trade unions opposed it but the business community was for it

Uruguay Round - Phased out Multi-Fiber Arrangement that environmentalists did not agree with

MFN to China - Was after Tiananmen Square but the business community pressured the President into recommending a renewal

Question 16

Baldwin and Magee (2000)

Answer 16

Created a model to test the impact of business and labour union contributions on Congress votes. All 3 issues were approved by Congress and their model showed that the issues would have been approved if there had been no contributions from either party.

Question 17

Fajgelbaum et al (2020)

Answer 17

Provided evidence for the Median Voter Theorem as US tariffs targeted towards sectors in politically competitive states. Trading partners retaliated with tariffs on Republican States.

Question 18

Colatone and Stanig (2018)

Answer 18

Looked at the role of imports from China on electoral outcomes, found an increase in support for nationalist parties but none for protectionist economic let parties

Question 19

Autor et al (2017) and (2020)

Answer 19

Rising import competition led to an increase in votes for the Republican Party(2017). Growing import concentration from China has caused an increase in support for far right parties (2020)

Question 20

Blanchard et al (2024)

Answer 20

US - China trade war impacted Congressional voting outcome for midterms as states that experienced the heaviest retaliatory tariffs saw Republicans losing their seats.

Republicans would have lost 10 fewer seats if there wasn’t a trade war