Extended Program:
1. Introduction to International Economics.
What is International Economics about?
The gains from trade.
The pattern of trade.
How much trade.
The Balance of Payment.
Exchange rate determination.
International Policy coordination.
The International Capital market.
2. An overview of World Trade.
Size matters! The Gravity Model.
Impediments to trade: distance, barriers, borders.
Has the world gotten smaller?
What do we trade?
3. Labor Productivity and Comparative Advantage: the Ricardian Model.
We build a model to explain how trade takes place.
Production functions and the resource constraint. Deriving the Production Possibility Frontier (PPF), the scale parameter and MRT in a country.
Assumptions on labor input requirement and productivity in two countries.
An absolute advantage explanation of the gains from trade.
One-factor Ricardian model: assumptions, derivation and solution.
Comparative advantage and pattern of trade.
Case study: War of the Roses.
Opportunity cost of producing and MRT.
Formal definition of Comparative Advantage (CA).
Specialization.
4. Specific Factors and Income Distribution.
The specific factors model.
What is a specific factor?
International trade in the specific factors model.
Income distribution and the gains from trade.
5. Resources and Trade: the Heckscher-Ohlin Model.
Two-factors Heckscher-Ohlin Model.
Factor endowment, Capital and Labor.
Price of factors: returns to labor and capital.
Preferences.
Technology.
Factor returns with free trade.
Two resource constraints and derivation of the PPF.
Numerical example.
Substitutability in factor inputs and the concavity of the PPF.
Isovalue line and optimal production.
Relative Prices and the pattern of trade.
The declining labor share.
Empirical evidence of the HO model.
6. The Standard Trade Model.
A standard model of a Trading Economy.
Production Possibilities and Relative Supply.
Relative Prices and Demand.
The Welfare effects of changes in the terms of trade.
Determining relative prices.
7. External Economies of Scale and the International Location of Production.
Economies of scale and international trade.
Economies of scale and the market structure.
The theory of external economies.
Interregional trade.
8. Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises.
The theory of imperfect competition.
Monopolistic competition and trade.
Intra-industry trade.
Trade costs and export decisions.
Dumping.
Horizontal and vertical FDI.
Trade-offs in FDI, outsourcing, offshoring.
9. The Instruments of Trade Policy.
Import tariffs, customs duties.
Case study: Steel Industry in the US in 2001.
Case study: EU trade policy.
Export tariffs.
Case study: Pakistan raw cotton tax in 1988.
Type of tariff: ad valorem or specific tariff.
When a small importing country imposes a tariff: graphical representation, equilibrium prices, welfare effects.
When Two countries trading one product: imposition of a tariff, graphical representation, international equilibrium price, who trades with whom.
Quotas and subsidies.
10. The Political Economy of Trade Policy.
The case for free trade.
National welfare argument against free trade.
Income distribution and trade policy.
International negotiations and trade policy.
the History of GATT.
Case study: Banana Republic: trade dispute over bananas.
Free Trade Areas: NAFTA.
The degree of economic integration, regional integration in the world and free trade areas.
Do agricultural subsidies hurt the third world?
Other Trade policies: Government procurement, export credit subsidies, regulation.
Summarising the effect of alternative trade policies.
11. Trade Policy in Developing Countries.
Import-substituting industrialization.
The infant industry argument.
Case study: Mexico.
Trade liberalization since 1985.
India's boom.
12. Controversies in Trade Policy.
Technology and externalities.
Imperfect competition and strategic trade policy.
Globalization and low-wage labor.
Globalization and the environment.
(13. National Income Accounting and the Balance of Payments.)