Econ 165: American International Economic Policy
Duke University
Spring 2010
Instructor: Dr. Lori Leachman
Email : Leachman@econ.duke
Phone: 660-6894
Office and office hours: 329F,
TA: Kousha Navidar, email: kn19@duke.edu
Writing TA: ???
Class- TTH 10:05-11:20
Text: International Economics, 6th ed, Appleyard, Field & Cobb, McGraw-Hill.
Supplemental Reading – Where Does the Money Really Go? By Bittle and Johnson
-Class readings listed below on the Blackboard Web site for this course. Courseinfo help
desk: 684-2200
Course Objective/Content: In this course we will start with the development of the
basis of trade: comparative and absolute advantage, partial and general equilibrium
analysis, the Heckscher-Olin model and intra-industry trade. We will explore the
determination of the terms of trade, the process of factor price equalization, the
implications for winners and losers and government policy. This will lead us into a
discussion of protectionism, on the one hand, and integration on the other. Under the
topic of regionalism we will discuss NAFTA, the EU, Mercosur, etc. Finally, we will
explore the impact of trade on growth and develop and review development policy as it
relates to liberalization. This will lead us into a discussion of the balance of payments and
shift our focus to capital flows and capital account liberalization. Exchange rate
determination and contagion will be covered. We will then link back to the topic of
globalization and the implications for policy, sovereignty, convergence, etc.
Grading: Mid-terms (2 @26% each =52%) (no make ups will be given!!!) If you miss
an exam for any reason you will automatically be expected to take a comprehensive
final at the end of the term in place of the missed exam. However to access this
option you must have my approval at the time of the first midterm.
Research paper (10p max, double spaced) - 26%. The research paper is due
Thursday April 29 by 5pm (hard copies only)
2 Discussion Papers- 11% ea. (4pg max, double spaced, min 11pt. font)topics are outlined below. All papers require substantiation of positions with
facts and references. Part of the assignment requires learning to write
succinctly. Remember that a paragraph as well as sentence has a beginning,
middle and end. Each sentence has a subject and a verb. Each thought flows
logically to the next. Check yourselves for these things before you turn in your
papers. You will get 2 grades, one for writing style and one for content. The
average will be your grade on that paper.
#1- Based on Where Does the Money Really Go? by Bittle and Johnson
DUE Tuesday Feb. 9

Using the book as the foundation and drawing from additional
academic sources discuss the implications of our current budget
and deficit situation (including the TARP and other stimulas funds)
and demographic situation on the US balance of payments, value
of the dollar, long term economic strength and independence.
#2- Discuss the implications of the multinationalization of the firm,
outsourcing and intra industry trade on factor price equalization.
DUE Tuesday, April 6
You must have a minimum of 4 academic sources which are NOT web
sites (and not the original in book in #1). You can include web sources in
addition to the 4 primary sources.
All written assignments will be evaluated for both content and form. Feedback on both
dimensions will be provided from both the instructor and teaching assistant. Any
student(s) evidencing serious writing issues will be required to meet with Azeen to
discuss strategies for improvement. I will meet with each student individually at least one
time during the semester to discuss their written work (therefore it is probably most
strategic to arrange to discuss with me the paper and topic which you plan to use as a
starting point for your final research paper topic). The course TA will also be meeting
with students to discuss their writing and the department has a writing consultant, Paul
Dudenhefer (pauldude@econ.duke.edu) for student who wish to take advantage of his
services.
The student will be expected to build on the lessons learned from each paper to produce a
more coherent, succinct and polished paper as we move toward the end of the class.
These lessons will culminate in a 10 page research paper drawing from a minimum of 10
academic (not the web!) sources. Grading will be based on logistical organization,
content, writing style, completeness. Due Thursday, April 29 by 5pm!
Generally, papers in economics start with an introduction and review of the relevant
literature in order to capture the reader’s interest and place the topic. Next, the research
will outline the key points, theoretical issues, mechanism, etc. surrounding the debate.
The model, methodology and/or data sections follow. The theoretical solutions will then
be derived or the empirical results presented. This will be followed by a discussion of the
findings. The conclusion will summarize the work and point out directions for further
work, related issues, etc.
Course Outline
1.) Introduction
Chapter 1 – issues in international
Globalization
Readings:
Measuring globalization, Foreign Policy, Jan./Feb 2001
*The Case for Globalization- Globalization and Its Critics (a survey)
the Economist 9/29/2001.
*Trade Costs, 1870-2000, Jacks, Meissner, Novy, AER Papers and Proceedings,
May 2008, 529-43.
“Stung by Soaring Transport Costs, Factories Bring Jobs Home Again,” Aeppel,
WSJ 6/13/08
*The Role of the United States in the Global Economy and its Evolution Over
Time, Dees & Saint-Guilhem, ECB WP# 1034 2009
Do Trade and Financial Linkages Foster Business Cycle Synchronization in a
Small Open Economy? Garcia-Herrero & Ruiz, Bank of Spain WP #0810
Absolute advantage and comparative advantage; Chapters 2,3
History of trade
Range of terms of trade
Role of exchange rates/money
Readings:
*Have US Import Prices Become Less Responsive to Changes in the Dollar?
Hellerstein, Daley and March, FRBNY Current Issues, Sept ‘06
Does a Fall in the Dollar Mean Higher U.S. Consumer Prices? FRBSF Economic
Letter, Aug 13, 2004, Valderrama.
2.) More on Comparative Advantage; Chapters 4,5,6 and appendix
The MRTS
Indifference Curves
The MRS
Gains from Trade
Different tastes
Small country
Expansion Path
Edgeworth box and PPC
*The Pro-trade Effects of Immigration on American Exports…Dunlevy &
Hutchinson
Does Culture Affect Economic Outcomes? Guiso, Sapienza and Zingales,
JEP ,Spring ‘06
*Is God Good for Trade? Helble, Kyklos 2007, 385-413
Terrorism and Trade, P. Van Bergeik, Aelementair Dec 2006
The Price of Terror: the effects of terror on stock Market Returns and Volatility,
Arin, Cifern & Spagnolo, Economic Letters 2008
Gravity, Trade and Currency Union, Economic Intuition, Fall 2000.
The Foreign Service and Foreign Trade: Embassies as Export Promotion,
Rose, The World Economy, 2007.
Has the Internet Increased Trade? Developed and Developing Country
Evidence,” Clark and Wallsten, Economic Inquiry, July 2006.
An Empirical Assessment of the Comparative Advantage Gains from Trade:
Evidence from Japan, AER 2005, Bernhofen and Brown.
*Are We Underestimating the Gains form Globalization for the United States?
Broda and Weinstein
3.) Offer Curves and Terms of Trade; Chapter 7
Partial Equilibrium
Offer Curves/ derivation—lecture and Blackboard
General Equilibrium
Terms of Trade
Elasticity and Offer Curves
Readings:
*Trade and the global Environment, Graciela Chichilnisky, AER, 48, 1994.
*Is Free Trade Good for the Environment? W. Antweiler, B. Copeland, M. S.
Taylor, AER, 91 2001
4.) Hechscher- Olin model; Chapters 8,9
Assumptions
Factor Abundance and Intensity
Factor Intensity Reversal
Factor-Price Equalization
Stopler-Samuelson thm.
Leontief’s Paradox
Readings:
*Factor Proportions and the Structure of Commodity Trade, Romalis, AER Mar.
‘04
*Trade and Wage Inequality in Developing Countries, Economic Inquiry 2004,
Marjit, Beladi and Chakrabarti
*A Production Theory Approach to the Imports and Wage Inequality Nexus,
Economic Inquiry 2003, Tamazos
An Empirical Investigation of the Relations among Wage Differentials,
Productivity Growth and Trade, Ghosh, Saunders and Biswas, CEP Jan ‘02
*A Hechscher-Ohlin-Samuelson Model of Immigration and Capital Transfers,
OER 2001, Kohn
The New Global Slave Trade, Kapstein, Foreign Affairs, Nov/Dec ‘06
*People Flows in Globalization, Freeman JEP, Spring ‘06
Trade Social Values and Generalized Trust, Chan, SEJ Jan 2007.
The Structure of Foreign Trade, E. Helpman, Economic Perspectives, 13, 1999.
Migration, Trade, Capital and Development: Substitutes, complements and
Policies, G. Ranis Yale discussion paper.
*International Labor and Capital Flows: complements or Substitutes? M Kuglar
and H Rapoport, Economic Letters, 94,Feb 2007
Technology, Endowments and the factor Content of Bilateral Trade, Lai & Shu, J.
of International Economics, April 2007.
Immigration and the Macroeconomy, Mandelman & Zlate, FRBA WP#2008-25
*Brain Drain and Factor Complementarity, Pieretti & Zou, Economic Modeling,
Mar. 2008
*International Labor and Capital Flows: Complements or Substitutes? Kugler &
Rapoport, Economic Letters 2007
Trade Wages and Productivity, Behrens, Mion, Murata & Sudekum, IZA
DP#3682
Skill-biased Technological Change: Is There Hope for the Unskilled? Weiss,
Economic Letters 2008
5.) Intra- Industry Trade; Chapter 10 and appendix
Product Cycle
Economies of Scale
Imperfect Competition
Linder Hyp
Technology
Patents/standards
Readings:
*The Increasing Returns Revolution In Trade and Geography, Krugman, AER
June 2009
*Manufacturing: The World as a Single Machine (a Survey), The Economist,
June 20, 1998, p1-18.
*The Muddles over Outsourcing, Bhagwati, Panagariya, Srinivasan, JEP Fall’04
Global Production Sharing and Rising Inequality: A Survey of Trade and Wages,
Feenstra & Hanson, NBER
*Integrating International Firms into the International Economy, Markusen,
NBER Reporter, Winter ‘01/’02
A World of Work, survey from the Economist, Nov 13, 2004, p3-20.
Outsourcing by Financial Services Firms…, FRBSF Economic Letter, Nov 26,
2004.
*Trade and Empolyment: Stylized Facts and Research Findings, B. Hoekman &
A. Winters, World Bank working Paper # WPS3676, August 2005
Offshoring in a Knowledge Economy, P. Antras, L. Garcano and E. RossiHansberg, Harvard Institute of Econ. Research WP #2067, April 2005
International Outsourcing and Productivity: Evidence from the Irish Electronics
Industry, H. Gorg & A. Hanley, American Journal of Economics and Finance, 16,
2005
Patterns of International Fragmentation of Production and the Relative Demand
for Labor, R. Helg & L. Tajoli, North American Journal of Economics and
Finance, 16, 2005
*Trade, FDI and the Organization of the Firm, Helpman, JEL Sept ‘06
The Osmosis Model for Studying Offshore Business Process Outsourcing, Kshetri
and Williamson
Globalization and the evolution of the Supply Chain: Who Gains and Loses? M.
Fujita and J. Thisse, International Economic Review Aug 2006
*Distributional Effects of Globalization in Developing Countries, Goldberg &
Pavcnik, JEL March 2007.
Trade Liberalization and Rising Wage Inequality in Latin America…, Atolia, J of
International Economics, April 2007.
International Technology Diffusion, J. of Econ Lit., Sept. 2004
Moving Up or Moving Out? A Unified Theory of R&D, FDI and Trade, Lu, J of
International Economics, Ap. 2007.
*Counterfeit-Product Trade, Grossman and Shapiro, AER, March 1988, 59-75
Midterm 1- Approximate date week Mar. 5 or 15- we can set the dates as a class.
6.) Protectionism; Chapters 13,14,15
Tarrifs
Quotas
Effects on Offer Curves
Arguments for protectionism
International Organizations-e.g. WTO
Readings:
*Why are some People (and Countries) More Protectionistic Than Others?
Mayda & Rodrik
*The Political Economy of Trade Preferences, Contemporary Economic Policy,
April 2005, Devault
*International Protection of Intellectual Property, AER Dec. 2004, Grossman and
Lai.
*Trade Policy and Economic Development: How We Learn, A. Krueger, AER,
87,1997
A Reconsideration of Import Substitution, H. Bruton, JEL, 36, 1998
*Helping Infant Industries Grow…, Greenwood and Stiglitz, AEA Papers and
Proceedings, May ‘06
Trade Liberalization and Compensation, Davidson and Matusz, International
Economic Review, Aug 2006.
*The US is a small Country in World Trade, Magee & Magee, Review of
International Economics 2008.
7.) Economic Integration; Chapter 17
Customs Union
Free Trade Areas
Trade Creation vrs. Trade Diversion
Regionalism
NAFTA, EU, etc.
Readings:
Not all Trade Agreements are Good, The Economist, Nov 20 2004, pp78
Open Regionalism, C. F. Bergsten, IIE working paper 97-3.
*Are Preferential Trading Arrangements Trade-Liberalizing or Protectionist?” A.
Krueger, J. of Economic Perspectives, 13, 1999.
*The Impact of NAFTA on the United States, M. Burfisher, S. Robinson, K.
Theirfelder, J of Economic Perspectives 2001
*Mercosur: Implications for Growth in Member Countries, M. Connolly& J.
Gunther, FRBNY Current Issues, May 1999
New Developments in the EU Internal Market- Harmonization vrs. Mutual
Recognition, Dzubirova
How Deep is the Connection Between Turkish and European Union Economies,
Kabsal June 2008
Bringing Macroeconomics into the EU Budget Debate: How and Why? Dullien &
Schwarzen, JCMS 2008
8. ) Multinational Institutions and an assessment of Globalization- lecture (I may
cover this right after the mid-term as part of the trade and development discussion).
Role of the IMF, World Bank, WTO,etcp
Readings:
*The World Bank, the IMF and the Poor, Economic Intuition, summer 2001.
36
*Is There a Role for International Policy Coordination? FRBSF Economic Letter,
Feb 8 2002, Bergin.
*Do We Really Know that the WTO Increases Trade? Rose, AER, Mar. ‘04
*A Survey of the Theoretical Economic Literature on Foreign Aid, Paul, AsianPacific Economic Literature
Was Development Assistance A Mistake?, Easterly, AER Papers and Proceedings,
May 2007.
Does Aid Affect Governance?, Rojan & Subramanian, AER Papers and
Proceedings, May 2007.
How Far Will International Economic Integration Go? D. Rodrik, J. of Economic
Perspectives, Winter 2000
*The Future of the IMF and World Bank, Rajan, AER Papers and Proceedings
May 2008
*Foreign Aid, domestic Capital Accumulation and Foreign Borrowing, Cai &
Gong, J of Macroeconomics 2007
A New Era in Global Governance, Leal-Arcas, International Security Forum, July
2009.
9.) Economic Growth and International Trade; Chapter 11, lecture and
Blackboard
Developing countries and International Trade as a vehicle; Chapter 18, lecture
and Blackboard
Factors of Production
Technology
Big country/Little country
The Solow Growth Model (not in text)
Readings:
Institutions: Top Down or Bottom Up? Easterly, AER Papers and Proceedings,
May 2008
Second Best Institutions, Rodrik, AER Papers and Proceedings, May 2008
Liberalization, FDI and Growth, Basu, Cghakraborty , Reagle, Economic Inquiry,
July 2003.
*The Poor and the Rich, The Economist, May 25, 1996, p23-26.
*Why Don’t Poor Countries Catch Up?, P. Keefer and S. Knack, Economic
Inquiry, 35, 1997.
*Democracy and Development: the Devil is in the Details, Persson and Tabellini,
AEA Papers and Proceedings, May ‘06
*The sources of Growth at Different Stages of Development, Osborne, CEP, Oct
‘06
*Does Trade Cause Growth? J. Frankel, D. Romer, AER, 89 1999.
*Stock Markets, Banks and Economic Growth, AER June 1998, Levine and
Zervos.
Saving and Investment: Some International Perspectives, Schmidt, SEJ, 2001.
Do Natural Disasters Promote Long-run Growth? Economic Inquiry Oct. 2004,
Skidmore and Toya
The Macroeconomic Consequences of Disasters, Noy, J of Development
Economics 2008
*Religion and Economy, McCleary and Barro, JEP Spring ‘06
Traditional Institutions Meet the Modern World: Caste, Gender and Schooling
Choice in a Globalizing World, AER, Sept ’06.
*The Macroeconomic Impact of Globalization: theory and Evidence, Spange,
FRB Quarterly Bulletin, Q1 2007.
Is Trade Good for your Health? Owen and Wu, Review of International
Economics, 2007, 660-682
What Drives Stock Market Development in Emerging Markets- Institutions,
Remittances or Natural Resources, Billmeier, Emerging Market Review 2008
*Aid Policies and Growth in Developing Countries…, Alvi, Makherjee &
Shikralla, SEJ 2008
What do We Know About Global Income Inequality? Anand & Segal, J od
Economic Lierature, Mar 2008
10.)
Balance of Payments: Chapter 19
Current Account
Capital Account
Components of Capital Flows
Optimal External Balances
Accommodating Disequilibrium
Readings:
Viewing the Current Account Deficit as a Capital Inflow, M. Higgins & T.
Klitgaard, FRBNY Current Issues, Dec 1998.
*Resolving the Global Imbalance: The Dollar and the US Saving Rate, Feldstein,
J of Economic Perspectives, Summer 2008
*Are World Financial Markets More Open? If So, Why and With What Effects? R.
Zevin
*Global Capital: Two financial Booms Compared, B. Pollin
The Unstable Current Account Revisited, NBER WP# 1086, Oct. 2004, Obstfeld
and Rogoff
*How Do Trade and Financial Integration Affect the Relationship between
Growth and Volatility? FRBSF WP 2004-29, Kose, Prasad and Terrones.
Multicointegration Analysis of the Sustainability of Foreign Debt, J of Macro,
Spring 2000, Leachman and Francis
Twin Deficits: Apparition or Reality? Applied Economics 2002, Leachman and
Francis
Possible Economic Consequences of Large Future Federal Government Deficits,
Ray Fair, Cowles Foundation DP#1727
Fiscal Deficits and Current Account Deficits, Kumhof and Laxton,
IMFWP/09/237
11.)
Modern History of Foreign Exchange markets- lecture
Exchange Rates
Exchange Rate Regimes
Bretton Woods/gold standard
Optimum Currency Areas
The Euro
Readings:
*One World, One Currency: Exploring the Issues, Starr, CEP, Oct. ‘06
The Real Effects of European Monetary Union, Lane, JEP Fall ‘06
12.)
Exchange Rate Markets and Determination; Chapters 20,21,22
Exchange Rate Markets
Speculation, Hedging and Arbitrage
Purchasing Power Parity
Interest Rate Parity
Synthesis- Portfolio Balance Theory
Contagion
Elasticity of ER Demand and Supply (if time permits- Chapter 23)
Readings:
Exchange Rates: Fixed, Pegged or Float, C. Zarazaga, FRBD
*Exchequered Past…, WSJ Jan 13, 1998.
*To Float or to Fix: Evidence of the impact of Exchange Rate Regimes on
Growth, AER Sept 2003, Levy-Yeyati and Sturzenegger.
*To Float or not to Float: Exchange Rate Regimes and Shocks, Cavallo, FRBSF
Economic Letter, Jan ‘05
*China’s Exchange Rate Policy Dilemma, Goldstein and Lardy, AEA Papers and
Proceedings, May ’06.
*Export Competition and Contagious Currency Crises, FRBSF Economic Letter,
Jan 16, 1998.
*Double Drain with a Cross Border Twist: more on the Relationship Between
Banking and Currency Crises, Miller, AER May 1998
*Monetary Policy, Market Excesses and Financial Turmoil, Ahrend, Cournede &
Price, OECD Eco/WKP(2008)5
Banking Crises, Financial Dependence and Growth, Kraszner, Laeven &
Klingebiel, J of International Economics, Ap. 2007.
*Building a Framework to Address the failure of Complex Global Financial
Institutions, Arner & Norton, WP2009
Monetary Policy, Market Access and Financial Turmoil. Ahrend, Cournede,
Price. OECD WP597.Mar 2008
Midterm 2/final- day and time set by class meeting time/day.