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"This paper develops a simple theory of capital controls as dynamic terms-of-trade manipulation. We study an infinite horizon endowment economy with two countries. One country chooses taxes on international capital flows in order to maximize the welfare of its representative agent, while the other country is passive. We show that capital controls are not guided by the absolute desire to alter the intertemporal price of the goods produced in any given period, but rather by the relative strength of this desire between two consecutive periods. Specifically, it is optimal for the strategic country to tax capital inflows (or subsidize capital outflows) if it grows faster than the rest of the world and to tax capital outflows (or subsidize capital inflows) if it grows more slowly. In the long-run, if relative endowments converge to a steady state, taxes on international capital flows converge to zero. Although our theory emphasizes interest rate manipulation, the country's net financial position per se is irrelevant"--National Bureau of Economic Research web site

This paper develops an elementary theory of global supply chains. We consider a world economy with an arbitrary number of countries, one factor of production, a continuum of intermediate goods, and one final good. Production of the final good is sequential and subject to mistakes. In the unique free trade equilibrium, countries with lower probabilities of making mistakes at all stages specialize in later stages of production. Because of the sequential nature of production, absolute productivity differences are a source of comparative advantage among nations. Using this simple theoretical framework, we offer a first look at how vertical specialization shapes the interdependence of nations.

"The Ricardian model predicts that countries should produce and export relatively more in industries in which they are relatively more productive. Though one of the most celebrated insights in the theory of international trade, this prediction has received virtually no attention in the empirical literature since the mid-sixties. The main reason behind this lack of popularity is the absence of clear theoretical foundations to guide the empirical analysis. Building on the seminal work of Eaton and Kortum (2002), the present paper offers such foundations and uses them to quantify the importance of Ricardian comparative advantage. Using trade and productivity data from 1997, we estimate that, ceteris paribus, the elasticity of bilateral exports with respect to observed productivity is 6.53. From a welfare standpoint, however, the removal of Ricardian comparative advantage at the industry level would only lead, on average, to a 5.5% decrease in the total gains from trade"--National Bureau of Economic Research web site

This paper analyzes the determinants of protectionism in a small open economy with search frictions. This this environment, jobs generate rents whose access depends on the level of trade protectionn. By raising the domestic price of a good, a government may attract more firms in a particular industry. This raises the probability that workers will find jobs in this sector, and in turn, will benefit from the associated rents. Though simple, this channel may help explain a variety of stylized facts on the structure of trade protection and individual trade-policy preferences.

When asked to name one proposition in the social sciences that is both true and non-trivial, Paul Samuelson famously replied: 'Ricardo's theory of comparative advantage'. Truth, however, in Samuelson's reply refers to the fact that Ricardo's theory of comparative advantage is mathematically correct, not that it is empirically valid. In this paper we develop and implement an empirical test of Ricardo's ideas. We use novel agricultural data that describe the productivity in 17 crops of 1.6 million parcels of land in 55 countries around the world. We find that a regression of log observed output on log predicted output has a (precisely estimated) slope of 0.84 and an R-squared of 0.93. In our view, these findings offer considerable support for Ricardo's ideas.