INTERNATIONAL ECONOMICS

Syllabus & Reading List

 

This course presents rudiments in trade theory and open macroeconomics.  Reflecting my recent experiences in the IMF, the WTO and Japan’s government, the emphasis will be on the interactions between rigorous economic thinking and concrete policy issues in developing countries.  There will be two closed book examinations and a final short paper on a topic that is familiar to you.  All readings with an asterisk (*) are required.

 

The textbook for this course is:

 

Paul R. Krugman and Maurice Obstfeld, International Economics:  Theory and Policy, 6th edition, Addison-Wesley, 2002. (K-O)

 

As supplementary books:

 

R.E. Caves, J.A. Frenkel and R.W. Jones, World Trade and Payments, Harper Collins. (C-F-J)

 

At a more advanced level, consult:

 

J. N. Bhagwati, A. Panagariya and T. N. Srinivasan, Lectures on International Trade, 2nd edition, MIT Press, 1998. (B-S)

 

M. Obstfeld and K. Rogoff, Foundation of International Macroeconomics, McGraw-Hill, 1996.  (O-R)

 

I.                    Introduction

 

II.                 The Traditional Theory of International Trade

 

(1)   The Basic Trade Model

(2)   Heckscher-Ohlin-Samuelson Model

(3)   Effects of Tariffs & Quotas

(4)   Theory of Factor Movements

 

III.               New Theories of International Trade and Industrial Policies

 

IV.              Political Economy of Trade Disputes, the FTA and the WTO

 

V.                 The Balance of Payments and National Accounts

 

VI.              Determinants of Exchange Rates

 

VII.            The Exchange-Rate Regime Choice and a Common Currency Area

 

VIII.         International Debt and Currency Crises

 

IX.              The Role of the IMF and other International Financial Organizations

PART I           REAL TRADE THEORY

 

 

I.                   Introduction

 

C-F-J, Chapter 1

 

Bhagwati, Jagdish, Arvind Panagariya and T. N. Srinivasan. “The Muddles Over Outsourcing.” Journal of Economic Perspectives, Vol. 18, No. 4, Fall 2004, pp. 93-114.

 

Samuelson, Paul. 1971.  “An Exact Hume-Ricardo-Marshall Model of International

Trade.” Journal of International Economics, 19:1, pp. 1-18.

 

 

 

II.                Traditional Theory of International Trade

 

 

(1)               The Basic Trade Model

 

K-O, Chapter 2 and 3 with appendix and post-script

 

C-F-J, Appendix, Chapters 2-4

 

*Dornbusch, Fischer and Samuelson, “Comparative Advantage, Trade and Payments in a Ricardian Model with a Continuum of Goods,” AER, 1977

 

 

(2)               Structure of 2 factor – 2 sector economy

(Heckscher-Ohlin Model)

 

K-O, Chapter 4

 

C-F-J, Appendix, Chapters 5-7

 

 

(3)               Effects of Tariffs and Quotas

 

K-O, Chapter 9

 

C-F-J, Appendix, Chapters 11-12

 

 

 

 

 

 

 

(4)               Theory of Factor Movements

 

K-O, Chapter 7

 

 

 

                For those students who would like to know the empirical validity of the theory, refer to:

 
Bernhofen, Daniel M. and Brown, John C. (2004), "A Direct Test of the
Theory of Comparative Advantage: The Case of Japan." Journal of
Political Economy 112, 48-67.  (A test of Comparative Advantage using
Japanese data in 1860s.)
 
Trefler, Daniel (1995), "The Case of Missing Trade and Other Mysteries."
American Economic Review 85, 1029-46. (A test of the Heckscher-Ohlin
Model.)
 
Feenstra, Robert C. (1988), "Quality Change under Trade Restraints in
Japanese Autos." Quarterly Journal of Economics 103, 131-46. (An
economic consequence of Voluntary Export Restraint.)
 
Baier, Scott and Bergstrand, Jeffrey H. (2001), "The Growth of World
Trade: Tariffs, Transport Costs, and Income Similarity." Journal of
International Economics 53, 1-27.  (An application of Gravity Model to
estimate what factors boosted trade.)
 
Frankel, Jeffrey A. and Romer, David (1999), "Does Trade Cause Growth?"
American Economic Review 89, 379-99. (An examination of the correlation
between trade and income.)

 

 

           

III.             New Theories of International Trade and Industrial Policies

 

(1)               Increasing Returns, Product Differential and Imperfect Competition

 

*Dixit & Norman, Theory of International Trade, Cambridge, 1980, Chapter 9

 

K-O, Chapter 6

 

B-S, Chapters 8 and 26

 

Helpman and Krugman, Market Structure and Foreign Trade, MIT Press, 1985.

 

 

 

 

 

 

(2)               Political Economy of Protection and Industrial Policy

 

K-O, Chapters 10, 11, 12

 

*Brander and Spencer, “Export Subsidies and International Market Share Rivalry,” JIE 18, 1985.

 

*Eaton and Grossman, “Optimal Trade and Industrial Policy Under Oligopoly,”

QJE­, 1986.

 

 

IV.              The Political Economy of Trade Disputes, the FTA and the WTO

 

K-O, Chapters 8-9

 

Claude Barfield, Free Trade, Sovereignty, Democracy: The Future of the World Trade Organization, Washington, D.C.: AEI Press, 2001, Chapters 1, 2, 4.

 

*Bagwell and Staiger, “The WTO as a Mechanism for Securing Market Access Property Rights,” JEP, Vol. 15, No. 3, 2001.

 

*Daniel C. Esty, “Bridging the Trade-Environment Divide,” JEP, Vol. 15, No. 3, 2001.

 

Robert Feenstra, “Estimating the Effects of Trade Policy,” Chapter 30 in Handbook of International Economics, Vol. 3, edited by Gene Grossman & Kenneth Rogoff, North-Holland, 1995.

 

 

Mid-term exam

 

 

PART II          OPEN MACROECONOMICS

 

 

V.                 The Balance of Payments and National Account

 

K-O, Chapter 13

 

 

VI.              Determinants of Exchange Rates

 

P. Isard, Exchange Rate Economics, Cambridge University Press, 1995.

 

*K. Froot and R. Thaler, “Foreign Exchange,” JEP 4, 1990, 179-92

 

J. Frankel & A. Rose, “Empirical Research on Nominal Exchange Rates,” Chapter 33 in Handbook of International Economics, Vol. 3, edited by Gene Grossman & Kenneth Rogoff, North-Holland, 1995.

 

 

 

(1)               Purchasing Power Parity

 

K-O, Chapter 16

 

*R. Dornbusch, “Purchasing Power Parity,” in The New Palgrave, Vol. 3.

 

(2)               Sluggish Price and Overshooting Exchange Rate Model

 

K-O, Chapter 15 with Appendix

 

*R. Dornbusch, “Expectations and Exchange Rate Dynamics,”  JPE, Vol. 84, No. 6, 1976.

 

(3)               Effect of Interventions in the Foreign Exchange Market

 

K-O, Chapter 18

 

 

VII.           The Exchange-Rate Regime Choice and a Common Currency Area

 

(1)               Policy Assignment Problems

 

K-O, Chapters 17 and 20

 

*Robert Mundell, “Capital Mobility and Stabilization Policy Under Fixed and Flexible Exchange Rates,” Canadian Journal of Economics and Political Science, Vol. XXIX, No. 4, No. 1963.

 

(2)               International Policy Coordination

 

K-O, Chapter 20

 

*R. Cooper, “Economic Interdependence and Coordination of Economic Policies,”  Handbook of International Economics, Vol. II, 1985.

 

*K. Hamada, “A Strategic Analysis of Monetary Interdependence,” JPE, Vol. 84, No. 4, 1976.

 

(3)               Choice of Exchange Rate Regimes

 

K-O, Chapter 19

 

Hamada, Political Economy of International Monetary Interdependence, MIT Press, 1985, Chapters 2 and 3.

 

 

 

VIII.        International Debt and Currency Crises

 

K-O, Chapter 22 and 23

 

*J. Sachs, “Managing the LDC Debt Crisis,” Brooking Papers on Economic Activity 2, 1986.

 

 

IX.              The Role of the IMF and Other International Financial Organizations

 

Joseph Stiglitz, Globalization and Its Discontents, New York: W.W. Norton, 2002, Chapters 1-4.

 

*Frederic S. Mishkin, “Global Financial Instability: Framework, Events, Issues,” JEP, Vol. 13, No. 4, 1999

 

*Kenneth Rogoff, “International Institutions for Reducing Global Financial Instability,” JEP, Vol. 13, No. 4, 1999

 

*Sebastian Edwards, “How Effective are Capital Controls?,” JEP, Vol. 13, No. 4, 1999

 

*Stanley Fischer, “On the Need for an International Lender of Last Resort,” JEP, Vol. 13, No. 4, 1999