This document gives the preliminary readings for the PhD macro reading group for the spring semester 2020 at TSE. The overall topic of the reading group focusses on macro development, although a couple of seminal non-development macro papers will be discussed as well. The schedule of the reading group will consist of a number of semi-independent parts that will all take between 1 to 3 weeks. PhD students wanting to participate in a few sessions of the reading group should seek to commit at least for entire parts. Below, each section will outline readings for a separate part. Readings in bold are required reading before each session. Other readings listed are optional readings that may also be discussed during the sessions or can be read afterwards.

Part 1: Public & Industrial Policy

Here we will look at optimal industrial and public policy in developing countries. We are excited to read two recent papers that take different approaches to make a case for industrial policies in the development process

Session 1 (Date: 9.01., 3:30-5pm, Salle de Seminaire 1, -1 floor) Industrial policy with production networks

Liu, E. (2019). Industrial policies in production networks. Quarterly Journal of Economics

Session 2 (Date: 16.01., 3:30-5pm, Salle de Seminaire 1, -1 floor) Development-dependent Ramsey problem

Itskhoki, O., & Moll, B. (2019). Optimal Development Policies With Financial Frictions. Econometrica, 87(1), 139-173.

Part 2: Political Economy

This part focusses on the large literature on Political Economy. There are multiple subliteratures that are potentially of interest from a macro-development perspective. Here, we focus on two important parts of the literature. The first looks at the role of State Capacity as there is wide consensus in the development community that it determines long-run development. This is also a nice complement to the industrial and public policy part as public policies require state capacity. In the second session, we look at the role of political transitions and fundamental differences between political regimes.

Session 1 (Date: 23.01., 3:30-5pm, Salle de Seminaire 1, -1 floor) State Capacity

Acemoglu, D. (2005). Politics and economics in weak and strong states. Journal of monetary Economics, 52(7), 1199-1226.

Besley, T., & Persson, T. (2009). The origins of state capacity: Property rights, taxation, and politics. American Economic Review, 99(4), 1218-44.

Besley, T., & Persson, T. (2010). State capacity, conflict, and development. Econometrica, 78(1), 1-34.

Acemoglu, D., García-Jimeno, C., & Robinson, J. A. (2015). State capacity and economic development: A network approach. American Economic Review, 105(8), 2364-2409.

Session 2 (Date: 30.01., 3:30-5pm, Salle de Seminaire 1, -1 floor) Political Transitions and Regime differences

Acemoglu, D., & Robinson, J. A. (2001). A theory of political transitions. American Economic Review, 91(4), 938-963.

Acemoglu, D., & Robinson, J. A. (2008). Persistence of power, elites, and institutions. American Economic Review, 98(1), 267-93.

Acemoglu, D., & Robinson, J. A. (2006). Economic backwardness in political perspective. American political science review, 100(1), 115-131.

Acemoglu, D. (2008). Oligarchic versus democratic societies. Journal of the European Economic Association, 6(1), 1-44.

Buchheim, L., & Ulbricht, R. (forthcoming). A Quantitative Theory of Political Transitions. Review of Economic Studies

Part 3: Geographic diffusion and spatial development

In this part we will take a look at two related subliteratures. In the first session we take a look at recent progress in the literature on technology diffusion.

Session 1 (Date: 06.02., 3:30-5pm, Salle de Seminaire 1, -1 floor) Technology diffusion

This week’s paper shows that there are considerable time lags and differences in adoption intensity in the diffusion of technologies across countries. The paper tries to show that these two facets of technology diffusion can explain most of the evolution of cross-country income differences over the last 200 years.

Comin, D., & Mestieri, M. (2018). If technology has arrived everywhere, why has income diverged?. American Economic Journal: Macroeconomics, 10(3), 137-78.

Session 2 (Date: 13.02., 3:30-5pm, Salle de Seminaire 1, -1 floor)

In this session we look at recent papers that model jointly the spatial/geographic dispersion of economic activity and the process of development. We will read the first of the two papers below, because it links more nicely with the technology diffusion paper from the session before.

Desmet, K., & Rossi-Hansberg, E. (2014). Spatial development. American Economic Review, 104(4), 1211-43.

Desmet, K., Nagy, D. K., & Rossi-Hansberg, E. (2018). The geography of development. Journal of Political Economy, 126(3), 903-983.

Part 4: Trade models (continued from last semester)

Given that there is a high demand for further trade-related papers, we use this part to look at newer papers that try to quantify the gains of trade. These are not specifically on development but have important consequences for development. The first session looks at static models of trade and the implied static gains.

Session 1 (Date: 26.02., 3:30-5pm, Salle de Seminaire 1, -1 floor) Static Gains from Trade

Arkolakis, C., Costinot, A., & Rodríguez-Clare, A. (2012). New trade models, same old gains?. American Economic Review, 102(1), 94-130.

Melitz, M. J., & Redding, S. J. (2015). New trade models, new welfare implications. American Economic Review, 105(3), 1105-46.

Arkolakis, C., Demidova, S., Klenow, P. J., & Rodriguez-Clare, A. (2008). Endogenous variety and the gains from trade. American Economic Review, 98(2), 444-50.

Hsieh, C. T., Li, N., Ossa, R., & Yang, M. J. (2018). Accounting for the new gains from trade liberalization (No. w22069). National Bureau of Economic Research.

Ramondo, N., & Rodríguez-Clare, A. (2013). Trade, multinational production, and the gains from openness. Journal of Political Economy, 121(2), 273-322.

Caliendo, L., & Parro, F. (2015). Estimates of the Trade and Welfare Effects of NAFTA. The Review of Economic Studies, 82(1), 1-44.

For a good recent overview, see:

Costinot, A., & Rodríguez-Clare, A. (2018). The US gains from trade: Valuation using the demand for foreign factor services. Journal of Economic Perspectives, 32(2), 3-24.

For developing countries, it is crucial to take into account cross-industry variation in trade elasticities as some industries may depend strongly on imports that cannot be substituted locally (e.g. crucial natural resources or high-tech intermediate inputs that cannot be produced domestically). Two important papers in this regard are:

Ossa, R. (2015). Why trade matters after all. Journal of International Economics, 97(2), 266-277.

Peter, A., & Ruane, C. (2020). The aggregate importance of intermediate input substitutability. Working Paper

Session 2 (Date: 04.03., 3:30-5pm, Salle de Seminaire 1, -1 floor) Dynamic Gains from Trade

We will read: Buera, F. J., & Oberfield, E. (2020). The global diffusion of ideas. Econometrica, 88(1), 83-114.

which gives a dynamic setting where trade interacts with innovation and generates endogenous growth. Below are a number of other papers in this specific literature.

Classical paper with learning by doing, which finds dynamic effects could go either way:

Young, A. (1991). Learning by doing and the dynamic effects of international trade. The Quarterly Journal of Economics, 106(2), 369-405.

Classical paper with market integration and flows of ideas:

Rivera-Batiz, L. A., & Romer, P. M. (1991). Economic integration and endogenous growth. The Quarterly Journal of Economics, 106(2), 531-555.

Also see: Baldwin, R. E., & Robert-Nicoud, F. (2008). Trade and growth with heterogeneous firms. Journal of International Economics, 74(1), 21-34.

Apart from the paper we read, other recent papers are:

Ourens, G. (2016). Trade and growth with heterogeneous firms revisited. Journal of International Economics, 100, 194-202.

Dynamic setting where trade induces technology adoption (+ study along transition path): Perla, J., Tonetti, C., & Waugh, M. E. (2019). Equilibrium technology diffusion, trade, and growth (No. w20881). National Bureau of Economic Research.

Dynamic setting with capital accumulation + trade imbalances: Ravikumar, B., Santacreu, A. M., & Sposi, M. (2019). Capital accumulation and dynamic gains from trade. Journal of International Economics, 119, 93-110.

Sampson, T. (2016). Dynamic selection: an idea flows theory of entry, trade, and growth. The Quarterly Journal of Economics, 131(1), 315-380.

Trade adjustment dynamics through exporters needing time to grow: Alessandria, G., Choi, H., & Ruhl, K. (2018). Trade adjustment dynamics and the welfare gains from trade (No. w20663). National Bureau of Economic Research.

Transitional dynamics through the labor market for case of Brazil: Dix‐Carneiro, R. (2014). Trade liberalization and labor market dynamics. Econometrica, 82(3), 825-885. (related to the China Syndrome work by Autor, Dorn et al)

Session 3 (Date: 20.03., 3:30-5pm, Online) Effects of trade for developing countries

Amiti, M., & Konings, J. (2007). Trade liberalization, intermediate inputs, and productivity: Evidence from Indonesia. American Economic Review, 97(5), 1611-1638.

Goldberg, P. K., Khandelwal, A. K., Pavcnik, N., & Topalova, P. (2010). Imported intermediate inputs and domestic product growth: Evidence from India. The Quarterly journal of economics, 125(4), 1727-1767.

Topalova, P., & Khandelwal, A. (2011). Trade liberalization and firm productivity: The case of India. Review of economics and statistics, 93(3), 995-1009.

Bustos, P. (2011). Trade liberalization, exports, and technology upgrading: Evidence on the impact of MERCOSUR on Argentinian firms. American economic review, 101(1), 304-40.

Part 5: “New Organizational Macro”

In this part, we will look at a number of papers that could be subsumed under the heading of organizational economics (looking at hierarchies and management within firms or organizations) but have a clear macro-twist.

Session 1 (Date 27.03., 3:30-5pm, Online) Firm dynamics in developing countries

Akcigit, U., Alp, H., & Peters, M. (2019). Lack of selection and limits to delegation: firm dynamics in developing countries. Working Paper

Hsieh, C. T., & Klenow, P. J. (2014). The life cycle of plants in India and Mexico. The Quarterly Journal of Economics, 129(3), 1035-1084.

Session 2 ()

Garicano, L., & Rossi-Hansberg, E. (2015). Knowledge-based hierarchies: Using organizations to understand the economy. economics, 7(1), 1-30.

Luttmer, E. G. (2018). Slow Convergence in Economies with Organization Capital (No. 748).

Caliendo, L., Monte, F., & Rossi-Hansberg, E. (2015). The anatomy of French production hierarchies. Journal of Political Economy, 123(4), 809-852.