APPLIED ECONOMICS IN INTERNATIONAL BUSINESS
A graduate course in International Business
Professor Tamir Agmon
September 2014
School of Business, Economics and Law, Goteborg University
Goteborg, Sweden
In a message to the membership of the AIB following the 2013 annual meeting in July 3-6
in Istanbul Professor S. Prakash Sethi commented that over 90% of the studies presented at
the Meeting dealt with: "(the) pursuit of making multinational corporations more efficient
and profitable". He indicated that by doing so research in International Business ignores
important and relevant issues.
Professor Sethi comment reflects the fact that in the last 25 years or so research in
International Business has focused on strategy, marketing and intercultural management all
pertaining to multinational corporations. International Business is not limited to
multinational enterprises. It is and it should be focused on the interrelations between
multinational enterprises and national states. Economics provide us with a tool kit to
discuss and analyzed these interrelations and how they affect the welfare of individuals in
the world.
The course "Applied economics in International Business" has two related objectives; first,
to help students to gain better understanding of the main issues in International Business by
using economic models. The second purpose is to teach graduate students in International
Business how to use research papers in economics as a tool to analyze different problems
and business issues that they will encounter in the future as professionals working in the
global market.
Economics is a good approach to the multifaceted nature of International Business.
Different fields in economics focus on different dimensions of International Business. The
general approach of economics that puts the individual in the center and looks at
intergeneration life-time consumption as an objective is appropriate as a global long term
point of view. It is a good starting point for the course. International Economics and
International Trade Theory are looking at the global allocation of resources, capital, labor,
and land and natural resources. Modern growth theory adds ideas and their spatial
distribution as major factor of production. International Economics deal with the distribution
of production, consumption and wealth in a world with no governments or other barriers
except transportation costs. The main dynamic factor in this abstract world is ideas. For
example, the invention and the development of internal combustion engine change
drastically the value of petroleum and affect many changes in the distribution of business,
investment, consumption and wealth in the world. These issues are discussed in the second
part of the course. Governments become important institutions in the world for the last 300
years or so. Development Economics is a field in economics that focus on the role of the
government in maximizing a community objective function as it is expressed in policy.
Industrialization, developing specific comparative advantages, economic and social growth,
and political power are some of the most common objectives of governments. They affect
International Business issues in many ways. Some of these issues are discussed in the third
part of the course. The most direct field of economics for International Business in Industrial
Organization. The discussion in this field centers on imperfect markets with monopolistic
competition. Often the internal market within a company replaces the external markets.
Information becomes an important competitive edge. Rents are generated, allocated and
contested. The most important issues in International Business research like outsourcing of
production fall within this field of economic analysis. Outsourcing and related issues are
discussed in the course using models of Industrial Organization and related area in
economics like game theory.
The course consists of ten sessions. The discussion in each of the first nine sessions is
organized around a specific research paper in economics. In general each class consists of
three parts;(1) describing and understanding an issue in International Business, (often an
issue that has been discussed in some other course in International Business like Global
Strategy, International Marketing, or such like). (2) Discussing a specific research paper
pertaining to the issue. (3) Applying the discussion of the paper and using the concepts
developed in the discussion to better understanding of some issues of International
Business.
Class schedule:
1. The economics of International Business
Session One: People, corporations and national states – The economics of International
Business
Read: Agmon, T. (2003)," Who gets what? The MNE, the national state and the distributional
effects of globalization”, Journal of International Business Studies, September
Krug, J.A., (2012), "New Challenge for International Business Research", Journal of Teaching
in International Business, 23:59-68
Main concepts: Compete and incomplete markets. The uneasy tension between national
state and multinational enterprise as the main feature of International Business
2. International trade theory and international economics
Session Two: Export of FDI: International trade and International Business
Read: Helpman et al., (2004), Export versus FDI, "Export versus FDI" AER, vol. 94 no. 1 pp.
300-316
Main concepts: National and corporate (competitive) comparative advantage. How tangible
and intangible costs affect international trade.
Session Three: Globalization a new paradigm of organization of production
Read: Baldwin, R. (2006) Globalization the great unbundling(s), The PM Office of Finland
Davidson, C. et al, (2001), Globalization and Organization of the Firm", Research Institute of
Industrial Economic, Sweden
Main concept: MNE as a part of historical process of reorganization of production and trade.
Session Four: The effects of outsourcing on developed and developing countries
Read: Grossman, G. and E. Helpman, (2002), Outsourcing in the global economy, Harvard
Institute of Economic Research, Discussion Paper # 1966
Bhagwati, J. et al (2004), " The muddles of outsourcing", Journal of Economic Perspectives,
93-111.
Main concepts: outsourcing as trade. The dynamics of outsourcing.
3.
Development economics
Session Five: Comparative advantage as a policy variable
Read: Findlay, R. (1970), Factor proportions and comparative advantage in the long run,
Journal of Political Economy, 78(1), 27-34
Agmon, T., (2009), "Market Globalization by Firms from Emerging Markets: an Application of
the Neoclassical Trade Model", Review of Market Integration, vol.2, no. 3, December
Session six: The globalization of Sweden
Read: Palmer, R., (2002), "Europeanization and Globalization", Stockholm University
McKinsey & Company, (2012), "Growth and Renewal in the Swedish Economy".
Main concepts: Changes in comparative advantages and competitive advantages and
government policy.
4. Industrial organisation
Session seven: Global competition in incomplete markets
Read: Clougherty, J.A. (2004) Integrating industrial organization and international business
to explain the cross national domestic airline merger phenomenon, GESY Discussion paper #
19.
Muendler, M.A., (2013), "Export or Merge?", NBER WP #19751, December
Main concept: competition in incomplete markets and Industrial Organization models.
5. Financial economics
Session eight: Risk taking by small countries in the global market: the case of Iceland
Read: Modigliani, F. and M.H. Miller (1958), "The cost of capital, corporation finance and the
theory of the firm", American Economic Review, June
Main concepts: risk taking and the cost of risk in International Business. The rise and fall of
Icelandic multinational enterprises.
Session nine: Access to the global capital market: exporting ideas
Read: Chaney, T. (2009), "Technological Mismatch: A Model of International Trade in Goods
and Ideas", the University of Chicago.
Main concepts: The separation theorem and the role of the capital market. Trust as an
economic good.
Session ten: The economics of International Business a summary discussion
Main themes: What we can learn from economics to gain better understanding of major
issues and processes in International Business? How we as professionals in International
Business can use research in economics in our future work?
August 2014.