Course: IMS 5200595 – Global Economy

Instructor: Raj (Rajendra) Sharma

Semester: Fall 2005 – Second Half - Course Start/End Date: 10/17 to 12/05 Mondays
Room #: SOM 2.106
Office Hours: By Appointment

Course Objectives:
This course aims at preparing students to appreciate the dynamics of global economy in general and
the global business environmental factors in particular. Ever changing environmental factors shape the
very existence of business organizations; in terms of, strategic management, decision-making, strategic
management, marketing, human resource management and operational management issues. This
course will cover the main macro-environmental forces, namely; Political, Economic, Social-cultural and
Technological within the context of a global ec onomy. Students will be exposed to the opportunities and
challenges of globalization with a business objective in mind. This course also serves as a base for
understanding of other related international management courses; namely, international marketing
management, international human resource management, multinational firm, management of
international organization behavior and multinational strategic management.

At the end of the term participants are expected to be able to understand:

• Globalization-gradual integration of world economies and the underlying factors contributing
globalization.
• How and why the world’s countries differ-in terms of politics, economics, social/cultural and
technologically.
• The economics and politics of international trade, investment and trading blocks.
• The functions and form of the global monetary system.
• The strategies and structures of international business.
• The special roles of international business functions.
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Required text: International Economics by Robert Carbaugh 10 Special Edition (custom) for UTD.

Course Outline:
Chapter 1: The International Economy and Globalization

This chapter introduces students to the international economy globalization. The first part of the chapter
emphasizes the high degree of economic interdependence that characterizes today’s economies.
Economic interdependence includes international trade and international finance.

The chapter also focuses on the United States as an open economy. The chapter concludes by
discussing the nature of international competitiveness--for firms, industries, and nations. It is noted that
exposure to global competition tends to improve the efficiency of firms. Finally, the chapter introduces
the potential effects that international trade has on workers.

Chapter 2: Foundation of Modern Trade Theory: Comparative Advantage

This chapter introduces students to the foundations of modern trade theory that seeks to answer three
questions: (1) What constitutes the basis for trade? (2) At what terms of trade are products exchanged
in international markets? (3) What are the gains from trade in terms of production and consumption?

Chapter 3: Sources of Comparative Advantage

This chapter examines the sources of a nation’s comparative advantage. Attention is then turned to the
role of transportation costs and their effect on trade flows.

The chapter begins with a discussion of the factor endowment theory of trade as developed by Eli
Heckscher and Bertil Ohlin. The discussion considers the process of factor-price equalization and the
impact of trade on the distribution of income. Next examined is empirical evidence regarding the factor
endowment theory. The chapter also considers the role of economies of scale, overlapping demands,
intra-industry trade, and product cycles. The principle of comparative advantage is then examined in a
dynamic framework. Trade in business services is also discussed in this chapter.

Finally, the chapter considers the effects of transportation costs on international trade patterns.

Chapter 4: Tariffs

This chapter discusses the operation and effects of tariffs. The chapter examines the welfare effects of
an import tariff for a small importing country and a large importing county. The chapter then examines
the merits of trade restrictions. Among the arguments for trade barriers are job creation, protection
against cheap foreign labor, fairness in trade, maintenance of the domestic standard of living,
equalization of production costs, infant-industry argument, and various noneconomic arguments. The
chapter concludes by examining the political economy of protectionism

MIDTERM EXAMINATION: Multiple-Choice, True/False - Tentatively Chapters 1, 2,3, 4

Chapter 6: Trade Regulation and Industrial Policies

This chapter discusses the trade regulations of the United States. It also considers the various
industrial policies implemented by nations to enhance the competitiveness of their producers.

The chapter first examines the tariff history of the United States. Of particular importance is the Smoot-
Hawley Act of 1930 and the Reciprocal Trade Agreement Act of 1934, which set the stage for a wave of
trade liberalization.

The operation of industrial policy is another important topic. The chapter considers the industrial
policies of the United States and Japan and also empirical evidence concerning their merits. The
effects of strategic trade policy are also analyzed. The chapter concludes by analyzing the nature and
operation of economic sanctions.

Chapter 7: Trade Policies for the Developing Nations

This chapter discusses the economic characteristics of the developing countries and the trade policies
that have been implemented to improve the well being of their people. The chapter begins by
identifying the major trade problems of developing countries: (1) lack of economic diversification, (2)
unstable export markets, and (3) worsening terms of trade.

Attention then turns to policies to stabilize the prices of primary products: (1) production and export
controls, (2) buffer stocks, and (3) multinational contracts. .

Chapter 8: Regional Trading Arrangements

This chapter investigates the theoretical and empirical aspects of regional trading arrangements. The
chapter begins by discussing the nature and stages of economic integration: (1) free trade area, (2)
customs union, (3) common market, (4) economic union, and (5) monetary union.

Of particular importance are the economic effects of a regional trading arrangement. The chapter
analyzes the short-run and long run effects of trade creation and trade diversion. The European Union
(EU) and the North American Free Trade Agreement (NAFTA) will also be discussed.

Chapter 9: International Factor Movements and Multinational Enterprises

This chapter examines the role of international capital flows as a substitute for trade in capital-intensive
products. Special attention is given to the multinational enterprise that carries on the international
reallocation of capital. The chapter also analyzes the international mobility of labor as a substitute for
trade in labor-intensive goods.
The international mobility of labor is another important topic. The chapter examines the economic
effects of immigration and why it is a controversial issue.

Chapter 10: The Balance of Payments

In this chapter, we examine the monetary aspects of international trade by considering the nature and
significance of a nation’s balance of payments. The chapter begins by discussing the concept of the
balance of payments. An overview of double-entry accounting is provided.

Next we analyze the structure of the balance of payments by considering its current account and capital
account. The chapter emphasizes the U.S. balance of payments and the U.S. balance of international
indebtedness.

FINAL EXAMINATION: Multiple Choice, True/False questions, Tentatively Chapter 6, 7, 8, 9, 10

PARTICIPATION: Regular attendance for classes is essential. Try not to miss any of them. Only
exceptional circumstances, which are documented, are acceptable for missing an examination. Missing
an exam without an acceptable reason will result in student not getting any credit for that test.
POLICY:
Regents’ Rules and Regulations apply for student behavior and activities.
Scholastic Dishonesty

The University has policies and discipline procedures regarding scholastic dishonesty. Detailed
information is available on the Scholastic Dishonesty web page. All students are expected to maintain a
high level of responsibility with respect to academic honesty. Students who violate University rules on
scholastic dishonesty are subject to disciplinary penalties, including the possibility of failure in the
course and/or dismissal from the University. Since such dishonesty harms the individual, all students
and the integrity of the University, policies on scholastic dishonesty will be strictly enforced.

Course Evaluation

As required by UTD academic regulations, every student must complete an evaluation for each enrolled
course at the end of the semester.

Emailing: Besides using the WebCT course internal email, if there is any need, students may contact
me via external regular emails. UTD provides each student with a free email account that is to be used
in all communication with university personnel. This allows the university to maintain a high degree of
confidence in the identity of all individuals corresponding and the security of the transmitted
information. Beginning September 1, 2004, the Administration has informed faculty to require any email
communications to be through UTD email accounts.

To access your UTD email, please go to: http://pipeline.utdallas.edu and login with your UTD NetID and
password (same as WebCT login). The Department of Information Resources at UTD provides a
method for students to forward email from other accounts to their UTD address and have their UTD mail
sent to other accounts. Students may go to the following URL to establish the email forwarding if
necessary: http://netid.utdallas.edu. For any assistance with UTD email account, call 972-883-2911 or
email assist@utdallas.edu.

Student Assessment
Grading Criteria

Mid Term Examination 35

Final Examination 40
Assignments 15
Participation 10
 Scoring

90 -100 A
80 - 89 B
70 – 79 C
Less than 70 F

You may check your grades by accessing the “My Grade” icon on the Student Tools page after the
grade for each assessment task is released.

Assignments
Please don’t repeat questions. Write the question number and the answer below it. I expect 2 pages,
double spaced, minimum.

Assignment 1:
Answers to the study questions 2,4,6,9, after Chapter 1.

Assignment 2:
Answers to study questions 3, 6 & 13 after Chapter 4.

Tentative Course Schedule

DATE READING/LECTURE ASSIGNMENT/ACTIVITY

Module1 /Oct. Introductions

17
Chapter 1: The International Economy &
Globalization

Module 2-3/ Chapter 2: Foundations of Modern

Oct. 24 Trade Theory

Chapter 3: Sources of Comparative

Advantage

Module 4/ Chapter 4: Tarrifs Assignment 1 due

Oct. 31

Mid Term/ Covers Chapters 1 to 4 only Mid Term

Nov. 7

Module 6-7/ Chapter 6: Trade Regulations and

Nov. 14 Industrial Policies

Chapter 7: Trade Policies for the

Developing Nations

Module 8-9/ Chapter 8: Regional Trade Assignment 2 due

Nov. 21 Arrangements

Module 9/ Chapter 9: International Factor

Nov. 28 Movements & Multinational Enterprises

Chapter 10: The Balance Of Payments

Final/ Dec. 5 Covers Chapters 6 to 10 only Final Exam