Trade, resources and development:
a general equilibrium approach
ECN 454 (PhD course) – 5 ECTS
June 2. - 12. 2009
Department of Economics and Resource Management
Norwegian University of Life Sciences (UMB), Ås, Norway
Instructor: Prof. Ian Coxhead, University of Wisconsin
coxhead@wisc.edu • http://www.aae.wisc.edu/coxhead
Scope and goals of the course
Developing economies are increasingly tightly integrated with the global economy through trade,
investment and portfolio capital flows, migration and remittances, and participation in
international agreements. Through this process of “globalization” the world economy has everlarger influence over resource allocation, growth, income distribution and even development
policy.
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 related to globalization. We will build simple but theoretically rigorous
general equilibrium models, and use them to explore the effects of global market shocks and
domestic policy innovations on the structure of production and trade, factor returns, income
distribution, poverty, and environmental sustainability. These heuristic models are precursors to
larger numerical or "computable" general equilibrium models used for policy analysis. We will
examine some examples of these from recent and relevant development literature.
Pedagogy and assessment
The course aims to motivate studies of economic development and globalization 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, students will be interactively involved in
reviewing, evaluating and even constructing applications to real-world issues. Because we will
have very limited class time, it is essential that students read assigned materials before the class
in which they are to be discussed.
Formal assessment will consist of one problem set, intended to serve as a check on your
command of relevant theory, and one short written assignment using theoretical tools developed
in the class to analyze the development implications of a specific issue, such as a terms of trade
shock, FDI or aid inflow, international migration and remittance flow, or policy reform. Either
or both of these assignments may be constructed as an exam if one is needed to satisfy course
criteria. Lastly, those who wish to pursue the subject in more depth will be invited to prepare a
research paper, to be initiated during the course and completed at a mutually agreed later date.
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Syllabus
0. Microtheoretic building blocks (limited class treatment)
Envelope theorem; cost, expenditure and revenue functions; basic trade theory (HeckscherOhlin model).
1. Week 1: Foundations
1.1. Simple general equilibrium models from trade theory
Two and three sector models with traded goods and non-traded goods; real exchange
rate; factor incomes and distribution; trade, factor endowment and technology shocks;
structure of production and economic welfare.
Primary sources: Feenstra (2004), Ch. 1, Ch. 3; Bhagwati et al (1999) Ch. 7, 9, 10, plus
class notes.
1.2. Extensions to developing countries
Booming sectors and Dutch disease
Primary sources: Corden and Neary 1982, plus class notes.
International capital flows
Primary sources: Devarajan et al 1997, plus class notes.
Poverty and distribution
Primary sources: Warr 2006, plus class notes.
2. Week 2: From theory to empirics
2.1. Social accounting matrices
Primary source: Tarp al 2004.
2.2. Applied general equilibrium models
Primary source: Løfgren et al 2001.
2.3. Effects of trade, FDI, and other international shocks on income, structure, resources,
poverty and income distribution.
Sources: Warr 2006, and other papers to be decided according to class interests.
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Sources and suggested readings (subject to revision)
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
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
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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
Jensen, H.T., J. Rand and F. Tarp. 2000. A New Vietnam Social Accounting Matrix For The
Year 2000. Hanoi: CIEM.
Levy, Stephanie. 2007. Public investment to reverse Dutch Disease: The case of Chad. Journal
of African Economies 16(3): 439-484.
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
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
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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