Short course on general equilibrium analysis of trade, resources and development
May 21 - June 1, 2007
Department of Economics and Resource Management
Norwegian University of Life Sciences
Instructor: Ian Coxhead, University of Wisconsin coxhead@wisc.edu • http://www.aae.wisc.edu/coxhead
Scope and goals of the course
The goal of this course is to expose students currently equipped with mainly microeconomic, partial equilibrium research tools to a broader 'macro' framework of analysis for development issues. We will build simple but theoretically rigorous general equilibrium models based in trade theory, and use them to understand intersectoral linkages through that operate through factor and product markets; the effects of global market shocks and domestic policy innovations on economic structure, factor returns, investment incentives, income distribution and poverty (among others). These heuristic models are precursors to larger numerical or "computable" general equilibrium models, and we will examine some of these from recent literature.
Empirical and policy applications will be drawn to the greatest extent possible from the recent and contemporary experiences of sub-Saharan African countries. With a triple focus on SSA, trade and other forms of international integration, and development policy, there is a great deal to be read! Based on my own recent reading, some helpful preliminary “issues” readings include
Collier and Gunning (1999) , Sachs et al (2001) ;
UNCTAD (2001) , Rodrik (2006) , Bio-Tchané and Christenson (2006) , and Gupta and
Yang (2006) . Some of these are short, some long; all but the Collier and Gunning piece are non-technical.
Syllabus
1.
Theoretical building blocks (please review these prior to May 21)
Envelope theorem; cost, expenditure and revenue functions; trade-theoretic building blocks (Heckscher-Ohlin; Stolper-Samuelson and Rybczinski theorems; specific factors model).
Primary sources: Feenstra (2004), Ch. 1 , Ch. 3 ; Bhagwati et al (1999) Ch. 7, 9, 10 .
2.
A simple general equilibrium model based on trade theory (May 21 and 22)
Two and three sector models with traded goods and non-traded goods; real exchange rate; factor incomes and income distribution; trade, factor endowment and technology

726980260 shocks; structure of production and economic welfare.
Primary sources: as for topic 1, plus class notes (PPT) Class 1.1
Class 1.2
Class 2
3.
Some applications and amendments: Dutch disease, externalities, policies, natural resource issues (May 23 and 25)
Primary sources: Devarajan et al 1997 ; Corden and Neary 1982 ; Warr 2006 , plus class notes Class 3.1
Class 3.2
Class 4
4.
Review of some relevant contributions to the CGE literature (May 29 and 31)
• Effects of trade, FDI, and ODA on economic structure, resource management, poverty and income distribution, with special emphasis on Africa.
Primary sources: Benjamin et al. 1989 plus class notes Class 5
• Structure of a SAM (class 6, not covered in class).
Primary sources: class notes Class 6
• From macro to micro: poverty, inequality, labor and migration, environment
Primary sources: Winters 2002 plus class notes Class 7
5.
Student-designed policy experiments with the analytical model (June 1)
Presentations by class participants based on homework exercise 2, the “issues piece” referenced below.
Meeting times and location
We will meet for 7 2-hour classes, on May 21, 22, 23, 25, 29, 31, and June 1. Each class will run from 0915-1100. The location will be announced later.
Pedagogy and assessment
The course aims to motivate studies of development experience and growth strategy using general equilibrium trade models. There is inevitably a lot of lecturing involved in conveying the basic model, but my goal is that once we cover this, the class as a group and as individuals will be interactively involved in applying these models to real-world issues and evaluating and discussing the results. Because we will have very limited faceto-face time, it is essential that students read assigned materials before the class in which they are to be discussed.
Formal assessment will reflect this pattern. There will be one problem set , intended to
2

726980260 3 serve as a check on your command of relevant theory. There will be one short
‘issues’ piece in which you’ll be asked to use a simple trade model to analyze the development implications of a specific issue, such as a terms of trade shock, aid inflow or policy reform. Lastly, there will be a research paper , to be initiated during my residency and completed at a mutually agreed later date. All assignments should be submitted in order to be eligible for a passing grade. Each short assignment will contribute 25% to the total grade, with the term paper accounting for 50%.
Readings and sources
Anderson, Kym; Martin, Will, September 2005, Agricultural Trade Reform and the Doha
Development Agenda, World Economy, vol. 28, no.9, pp. 1301-27
Anderson, Kym; Martin, Will; van der Mensbrugghe, Dominique, 2005, Would
Multilateral Trade Reform Benefit Sub-Saharan Africans?, C.E.P.R. Discussion
Papers, CEPR Discussion Papers: 5049
Arndt, Channing; Tarp, Finn, 2004, On Trade Policy Reform and the Missing Revenue: an Application to Mozambique, University of Copenhagen. Institute of Economics,
Discussion Papers: 04-19, 26 pages
Auriol, Emmanuelle; Warlters, Michael, 2006, The Marginal Cost of Public Funds in
Developing Countries: An Application to 38 African Countries, C.E.P.R. Discussion
Papers, CEPR Discussion Papers: 6007
Bautista, Romeo M; et al, 2002, Macroeconomic policy reforms and agriculture: Towards equitable growth in Zimbabwe, Research Report 128. Washington, D.C.: International
Food Policy Research Institute, 2002, pp. xii, 137
Benjamin, N., S. Devarajan, and R. Weiner (1989). Dutch Disease in a Developing
Economy: Oil Shocks in Cameroon. Journal of Development Economics, 30.
Bhagwati, Jagdish; Panagariya, Arvind; Srinivasan, T.N., 1998, Lectures on International
Trade, Massachusetts Institute of Technology, 1998 Ch. 7, 9, 10
Bio-Tchané, Abdoulaye; Christenson, Benedicte Vibe, 2006, Right Time for Africa,
Finance and Development, IMF, December 2006, Vol. 43, Number 4
Collier, Paul; Gunning, Jan Willem, 1999, Trade Shocks and Developing Countries,
Clarendon Press, Oxford, 1999, Chpt. 1
Corden, W. Max and Peter J. Neary (1982). "Booming sector and de-industrialization in a small open economy," Economic Journal 92, pp. 825-848

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Devarajan Shantayanan, Go Delfin S., Lewis Jeffrey D., Robinson Sherman and Sinko
Pekka. 1997. Simple General Equilibrium Modeling. In Joseph François and Kenneth
Reinert (eds), Applied Methods for Trade Policy Analysis: A Handbook. Cambridge:
Cambridge University Press.
De Maio, Lorenzo; Stewart, Frances; van der Hoeven, Rolph, 1999, Computable General
Equilibrium Models, Adjustment and the Poor in Africa, World Development, vol. 27, no. 3, March 1999, pp. 453-70
Dorosh, Paul A; Sahn, David E., 2000, A General Equilibrium Analysis of the Effect of
Macroeconomic Adjustment on Poverty in Africa, Journal of Policy Modeling, vol. 22, no. 6, November 2000, pp. 753-76
Dorosh, Paul; Haggblade, Steven, 2003, Growth Linkages, Price Effects and Income
Distribution in Sub-Saharan Africa, Journal of African Economies, vol. 12, no. 2, July
2003, pp. 207-35
Feenstra, Robert, 2004, Advanced International Trade: Theory and Evidence, Princeton
University Press
Gibson, Bill; van Seventer, Dirk Ernst, 2000, A Tale of Two Models: Comparing
Structuralist and Neoclassical Computable General Equilibrium Models for South Africa,
International Review of Applied Economics, vol. 14, no. 2, May 2000, pp. 149-71
Lewis, Jeffrey D; Robinson, Sherman; Thierfelder, Karen, 2003, Free Trade Agreements and the SADC Economies, Journal of African Economies, vol. 12, no. 2, pp. 156-206
Naude, Willem; Coetzee, Rian, 2004, Globalisation and Inequality in South Africa:
Modelling the Labour, Market Transmission, Journal of Policy Modeling, vol. 26, no. 8-
9, pp. 911-25
Rodrik, Dani, 2006, Goodbye Washington Consensus, Hello Washington Confusion?,
Journal of Economic Literature, Vol XLIV, December 2006
Sachs, Jeffrey D. and Andrew M. Warner (2001): “The curse of natural resources”,
European Economic Review 45(4-6), May, pp. 827-838.
Sahn, David E; Dorosh, Paul A; Younger, Stephen D, 1999, A Reply to De Maio,
Stewart, and van der Hoeven, World Development, vol. 27, no. 3, March 1999, pp. 471-
75
Stifel, David C; Thorbecke, Erik, 2003, A Dual-Dual CGE Model of an Archetype
African Economy: Trade Reform, Migration and Poverty, Journal of Policy Modeling, vol. 25, no. 3, April 2003, pp. 207-35
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Robinson, Sherman; et al, 1999, From Stylized to Applied Models: Building Multisector
CGE Models for Policy Analysis, North American Journal of Economics and Finance, vol. 10, no. 1, 1999, pp. 5-38
Tarp, Finn; et al, 2002, Facing the development challenge in Mozambique: An economywide Perspective, Research Report, vol. 126. Washington, D.C.: International
Food Policy Research Institute, 2002, pp. xv, 189
UNCTAD (UN Conference on Development and Trade) (2001). Economic Development in Africa. New York and Geneva: UNCTAD.
Warr, Peter, 2006, The Gregory Thesis Visits the Tropics, Economic Record.
Wobst, Peter, 2001, Structural adjustment and intersectoral shifts in Tanzania: A computable general equilibrium analysis, Research Report 117. Washington, D.C.:
International Food Policy Research Institute, 2001, pp. xvii, 193
Wobst, Peter, 2003, The Impact of Domestic and Global Trade Liberalisation on Five
Southern African Countries, Journal of Development Studies, vol. 40, no. 2, pp. 70-92