HACETTEPE UNIVERSITY
FACULTY OF ECONOMICS AND ADMINISTRATIVE SCIENCES
DEPARTMENT OF INTERNATIONAL RELATIONS
INT 645 INTERNATIONAL TRADE THEORY AND POLICY
2011-2012 FALL SEMESTER
Class Time:
Lecturer: Itır Özer, Ph.D.
Office Hours:
Phone: 297 81 11
E-mail: ozeri@hacettepe.edu.tr
Texts: Krugman, P.R. and M.Obstfeld, International Economics, Theory and Policy,
Eight edition, Addison Wesley, 2009 (KO on schedule).
Kreinin, E. M., International Economy: A Policy Approach, Eight Edition, The
Dryden Press, 1998 (K on schedule)
Suggested Texts: Bhagwati, J.N. (Ed.), International Trade, Penguin Modern
Economic Readings, 1969.
Baldwin, R.E. and J.David Richardson, International Trade and Finance: Readings,
Little Brown, 1981.
Mansfield, E.D. and H.V.Milner (Eds.), The Political Economy of Regionalism,
Columbia University Press, 1997.
Bhagwati, J.N. International Trade: Selected Readings, The MIT Press, 1987.
World Bank, Trade Blocks, Oxford University Press, 2000.
Course Objectives: The purpose of this course is to give students the basic
understanding of the nature and the causes of production, trade, terms of trade,
North-South trade relations, foreign debt, foreign direct investment, global
production system, and the topics which form the basis of “international political
economy”.
Course Requirements: There will be one homework and a comprehensive final
examination (the dates of the exams are to be announced in due course). The
homework will account for 40%, and final exam 60% of the final grade. You are also
required to get at least 50 out of 100 in the final exam, no matter what your grade was
in the homework.
TENTATIVE COURSE OUTLINE
Week 1. What Is International Economics About?
Text References: KO 1, K 1
The Gains from Trade
The Pattern of Trade
How much Trade?
Balance of Payments
Exchange Rate Determination
International Policy Coordination
The International Capital Market
Week 2. World Trade: An Overview
Text Reference: KO 2
Suggested Reading: KO 2, pp.25-26.
Who Trades with Whom?
Size Matters: The Gravity Model
The Logic of Gravity Model
Using the Gravity Model: Looking for Anomalies
Impediments to Trade: Distance, Barriers, and Borders
The Changing Pattern of World Trade
Has the World Gotten Smaller?
What Do We Trade?
Service Outsourcing
Do Old Rules Still Apply?
Week 3. Labor Productivity and Comparative Advantage: The
Ricardian Model
Text References: KO 3, K 2
The Concept of Comparative Advantage
A One Factor Economy
Production Possibilities
Relative Prices and Supply
Trade in a One-Factor World
Determining the Relative Price After Trade
Week 4. Labor Productivity and Comparative Advantage: The
Ricardian Model (Continued)
Text References: KO 3, K 2
Suggested Reading: KO 3, p. 53.
Misconceptions About Comparative Advantage
Productivity and Competitiveness
The Pauper Labor Argument
Exploitation
Adding Transport Costs and Nontraded Goods
Empirical Evidence on the Ricardian Model
Week 5. Resources, Comparative Advantage, and Income
Distribution
Text References: KO 4, K 3
A Model of a Two-Factor Economy
Prices and Production
Choosing the Mix of Inputs
Factor Prices and Goods Prices
Resources and Output
Effects of International Trade Between Two-Factor Economies
Relative Prices and the Pattern of Trade
Trade and the Distribution of Income
Factor-Price Equalization
Trade and Income Distribution in the Short-Run
CASE STUDY: North-South Trade and Income Inequality
Week 6. Resources, Comparative Advantage, and Income
Distribution (Continued)
Text References: KO 4, K 3
Suggested Reading: KO 4, pp. 83-84.
The Political Economy of Trade
The Gains from Trade, Revisited
Optimal Trade Policy
Income Distribution and Trade Politics
Empirical Evidence on the Heckscher-Ohlin Model
Testing the Heckscher-Ohlin Model
Implications of the Tests
Week 7. The Standard Trade Model
Text Reference: KO 5
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
Economic Growth: A Shift of the RS Curve
Growth and Production Possibility Frontier
Relative Supply and the Terms of Trade
International Effects of Growth
CASE STUDY: Has the Growth of Newly Industrializing Countries Hurt Advanced
Nations?
Week 8. Midterm Exam
Week 9. The Standard Trade Model (Continued)
Text Reference: KO 5
Suggested Readings: KO 5, pp. 109-110.
International Transfers of Income
The Transfer Problem
Effects of a Transfer on the Terms of Trade
Presumptions About the Terms of Trade Effects of the Transfers
CASE STUDY: The Transfer Problem and the Asian Crisis
Tariffs and Export Subsidies: Simultaneous Shifts in RS and RD
Relative Demand and Supply Effects of a Tariff
Effects of an Export Subsidy
Implications of Terms of Trade Effects: Who Gains and Who Loses?
Week 10. Economies of Scale, Imperfect Competition, and
International Trade
Text References: KO 6, K 3
Economies of Scale and International Trade: An Overview
Economies of Scale and Market Structure
The Theory of Imperfect Competition
Monopoly: A Brief Review
Monopolistic Competition
Limitations of the Monopolistic Competition Model
Monopolistic Competition and Trade
The Effects of Increased Market Size
Gains From an Integrated Market: A Numerical Example
Economies of Scale and Comparative Advantage
The Significance of Intraindustry Trade
Why Intraindustry Trade Matters
CASE STUDY: Intraindustry Trade in Action: The North American Auto Pact of
1964
Week 11. Economies of Scale, Imperfect Competition, and
International Trade (Continued)
Text Reference: KO 6
Suggested Reading: KO 6, p. 151.
Dumping
The Economics of Dumping
Reciprocal Dumping
CASE STUDY: Antidumping as Protectionism
The Theory of External Economies
Specialized Suppliers
Labor Market Pooling
Knowledge Spillovers
External Economies and Increasing Returns
External Economies and International Trade
External Economies and the Pattern of Trade
Trade and Welfare with External Economies
Dynamic Increasing Returns
Interregional Trade and Economic Geography
Week 12. The Instruments of Trade Policy
Text References: KO 8, K 4
Basic Tariff Analysis
Supply, Demand, and Trade in a Single Industry
Effects of a Tariff
Measuring the Amount of Protection
Costs and Benefits of a Tariff
Consumer and Producer Surplus
Measuring the Costs and Benefits
Week 13. The Instruments of Trade Policy (Continued)
Text References: KO 8, K 5
Suggested Readings: KO 8, p. 203.
Other Instruments of Trade Policy
Export Subsidies: Theory
CASE STUDY: Europe’s Common Agricultural Policy
Import Quotas: Theory
CASE STUDY: An Import Quota in Practice: U.S Sugar
Voluntary Export Restraints
CASE STUDY: A Voluntary Export Restraint in Practice: Japanese Autos
Local Content Requirements
Other Trade Policy Instruments
Week 14: The Political Economy of Trade Policy
Text References: KO 9
Krugman, Paul R. “Is Free Trade Passé?” Journal of Economic Perspectives, I, 2,
1987: 131-144.
Bhagwati, Jagdish. “Is Free Trade Passe After All?” Weltwirtschaftliches Archiv,
1989: 17-44.
Suggested Readings: KO 9, p. 246.
The Case for Free Trade
Free Trade and Efficiency
Additional Gains From Free Trade
Rent-Seeking
Political Argument for Free Trade
National Welfare Arguments Against Free Trade
Income Distribution and Trade Policy
International Negotiations and Trade Policy
International Trade Agreements: A Brief History
The Uruguay Round
Trade Liberalization
From the GATT to the WTO
The Doha Round
CASE STUDY: Testing the WTO’s Mettle
Extra Class Hours May be Scheduled to Cover the Following
Additional Chapters:
Trade Policy in Developing Countries
Text Reference: KO 10
Import-Substituting Industrialization
Export-Oriented Industrialization: The East Asian Miracle
Controversies in Trade Policy
Text Reference: KO 11
Sophisticated Arguments for Activist Trade Policy
Globalization and Low-Wage Labor
Globalization and the Environment