International Trade

This course will consist of 7 (or 6) tutorials in international trade and International finance. The tutorials will introduce you to the determinants of trade patterns, the gains from trade exchange rate determination and currency crisis. Tutorials will be held at Nuffield College on Fridays from 3pm. Course objectives: The objectives of the course are to: (a) Introduce students to the core concepts and theories of international trade. (b) Equip students with the tools to analyse International trade policy issues. (c) To introduce a range of new trade-related issues. Assessment: You will be given reading and an assignment (essay) to complete each week before the tutorial. Written work is to be submitted on the day prior to the tutorial. Recommended Texts: Krugman, P. R and M. Obstfeld, International Economics; Theory and Policy, 7th edition, Pearson Addison-Wesley (KO) Appleyard, D, A.J. Field and S. Cobb, International Economics, 5th edition, McGraw Hill (AF) Ethier, W. J., Modern International Economics, 3rd edition, Norton (B) There are two very good online textbooks on International Trade and Finance: Suranovic, S. M, International Trade: Theory & Policy The link to the main content list is: http://internationalecon.com/v1.0/toc.html These textbooks offer useful chapters for the topics covered in this course. Further readings per topic are given below.

Tutorial 1: The Ricardian Model

Reading; KO chapter on Ricardian model Online chapter on Ricardian model: http://internationalecon.com/v1.0/ch40/ch40.html Krugman Paul (1994), "Competitiveness: A Dangerous Obsession" in Foreign Affairs, vol. 13, No 2 (available from http://www.pkarchive.org/global/pop.html). Krugman, Paul (1996), Ricardos difficult idea, paper for Manchester conference free trade (available from http://web.mit.edu/krugman/www/ricardo.htm). Essay title: Why do Countries trade? In what goods should they trade? Explain the Ricardian Theory of trade and the Law of Comparative Advantage. What are gains from trade, specialization gains and terms of trade gains? Are there deficiencies to Ricardos theory?

Tutorial 2: The Heckscher-Ohlin Model

The Heckscher-Ohlin Model of Trade based on factor endowment differences across countries. Do observed patterns of world trade conform to theory? The Leontief Paradox, the impact of trade on factor income, the Factor-Price Equalization Theorem. Can globalization explain increasing wage inequality? Reading: KO and online chapters on the Heckscher-Ohlin (factor proportions) model. Helpman, Elhanan (1999), The structure of foreign trade, Journal of Economic Perspectives 13(2): 121-144 (available from JSTOR) Slaughter, Matthew (1999), Globalisation and Wages: A Tale of Two Perspectives, World Economy 22(5): 609-629 (available online from Business Source Premier) Haskel, Jonathan (2000), Trade and Labour Approaches to Wage Inequality, Review of International Economics 8(3): 397-408 (available online from Business Source Premier) Essay: The argument that free trade improves consumer welfare may be valid but low prices resulting from cheap imports destroys jobs and incomes with which to purchase the low priced goods Discuss.

Tutorial 3: Intra-Industry Trade and the Krugman Model

Intra-industry trade and explanations offered by modern trade theories; Imperfect Competition, Economies of Scale and International Trade Reading: KO and online chapters on Intra-industry trade Krugman, Paul (1987), Is free trade pass?, Journal of Economic Perspectives 1(2): 131-144 (available online from JSTOR) Krugman, Paul (1979), Increasing returns, monopolistic competition, and international trade, Journal of International Economics 9(4): 469-479 (reprinted as Chapter 1 in Rethinking International Trade, Krugman (1991)). Krugman, Paul (1987), Increasing Returns and the Theory of International Trade, in Advances in Economic Theory, Fifth World Congress, edited by Truman F. Bewley Essay: Why does so much trade involve exchange of similar products between economically similar countries, contrary to the predictions of the Heckscher-Ohlin model?

Tutorials 4: Trade Protection

Trade Policy; Domestic Policies and International Trade; Strategic Trade Policy; Arguments for Protectionism; Evaluating the Controversy between Free Trade and Protectionism Reading: KO chapters on trade policy. Chapter 90, International Trade Theory & Policy by Steven M. Suranovic http://internationalecon.com/v1.0/ch90/ch90.html Chapter 95, International Trade Theory & Policy by Steven M. Suranovic http://internationalecon.com/v1.0/ch95/ch95.html Chapter 120, International Trade Theory & Policy by Steven M. Suranovic http://internationalecon.com/v1.0/ch120/ch120.html Jagdish Bhagwati (2002), Free Trade Today, Princeton University Press, Chapters 1, 2 Essay: The superiority of free trade is one of the profession's most cherished beliefs, yet in reality trade is rarely free and a policy of selected protectionism is more effective Discuss. 3

Tutorial 5: Exchange rate Regimes Reading

* Obstfeld, M. (1995) "International Currency Experience: New Lessons and Lessons Relearned" Brookings Papers on Economic Activity 1:1995. * Krugman, P. (1989) "The Case for Stabilizing Exchange Rates", Oxford Review of Economic Policy, 5, 3, pp. 61-72. * de Grauwe, P. (1997) The Economics of Monetary Integration Chapters 4, 5 Artis, M. and Lewis, M. (1993) 'Apres le deluge: monetary and exchange-rate policy in Britain and Europe', Oxford Review of Economic Policy, vol. 9, no. 3, reprinted in Jenkinson, T. (1996) Readings in Macroeconomics (OUP: Oxford) chapter 3. Bladon-Hovell, R. (1997) "The EMS" in Artis, M. and Lee, N. (1997) Economics of the European Community 3rd edition or Tsoukalis, L. (1997) The New European Economy Revisited chapter 7. Bordo, M. and Eichengreen, B. eds. (1993) A Retrospective on the Bretton Woods System (Chicago University Press: Chicago). de Grauwe, P. (1989) International Money especially chapters 1-4, 10-12 or Tew, B. (1967) International Monetary Co-operation 1945-88. Dooley, M. et al. (2003) "An Essay on the Revived Bretton Woods System", NBER Working Paper 9997. Eichengreen, B. (1996) Globalising Capital, pp113-135, 160-181. Bank for International Settlements Annual Report 1992/3 pp 191-200 and 1993/4 pp 165-170 Padoa-Schioppa, T. (1988), "The EMS: a long-term view" in Giavazzi, F. et al. (1988) (eds) The European Monetary System, chapter11. Portes, R. (1993) "EMS & EMU after the Fall" World Economy, pp. 1-15 (and reply by Williamson on pp 377-79). Angel, R. (1991) Explaining Economic Policy Failure: Japan in the 1969-71 International Monetary Crisis, Columbia UP, (skim read Intro and Conclusion).

Essay title:
Why did the Bretton Woods system break down? Did the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS) fail for the same reasons?

Tutorial 6: TRANSMISSION OF DISTURBANCES AND INTERNATIONAL POLICY

COORDINATION

Reading: Krugman and Obstfeld chapter 19 (including appendix). *McKibbin, W. (1988) "International Policy Coordination" Economic Record Vol.64 pp 242-253 McKibbin, W., and J. Sachs, Global Linkages, chapters 1, 2, 7. Fischer, S., "International Macroeconomic Policy Coordination," in M. Feldstein and S. Fischer (eds.) International Policy Coordination (Chicago University Press, 1988). Currie, D.A. (1993) "International Cooperation in Monetary Policy: Has it a Future?", Economic Journal, Vol. 103, pp 178-187 Currie, D.A., and P. Levine, "The International Coordination of Monetary Policy: A Survey," chapter 7 in C.J Green and D.T. Llewellyn (eds.) Surveys in Monetary Economics, Volume I, (Blackwell, 1991). Survey paper by Bladen Hovell in Dowd and Lewis "Current issues in financial and monetary economics" McKibbin, W. and J. Sachs "Coordination of Monetary and Fiscal Policies in Open Economies", in J. Frenkel (ed) International Aspects of Fiscal Policies, (Chicago University Press) Corden W. M. (1994) Economic Policy, Exchange Rates and the International Systems, Chapters 10, 11, 13 Feldstein, H. (1988) "Rethinking international economic coordination" Oxford Economic Papers Vol 40(2) June, pp 205-219 Bliss, C. and Joshi, V. (1988) "Exchange Rate Protection and Exchange Rate Conflict" Oxford Economic Papers Vol 40(2) June pp. 365-377 Cooper "Economic Interdependence and coordination" in Handbook of International Economics Vol. 2 chapter 23. Stevenson, Muscatelli and Gregory Macroeconomic Theory and Stabilisation Policy last chapter Essay Title: Why might there be welfare gains from international macroeconomic policy coordination among the major economies? What role should be accorded to fiscal policy in the global coordination of macroeconomic policies? (Basic Reading is the McKibbin and Sachs chapter on the Coordination of Monetary and Fiscal Policies in the Frenkel book above).

Tutorial 7: Current Account Changes of G3 Countries Since 1980

Reading: * Krugman, P. (1992) Currencies and Crises, MIT Press, chapters 1 & 2. * Corden, M. (1994) Economic Policy, Exchange Rates and the International System (especially chapters 2,6,15) * Oxford Review of Economic Policy (1996) Competitiveness chapters by Boltho, Dornbusch, Yoshitomi, Krugman, Walsh. Blanchard O. & Giavazzi, F. (2002) "Current Account Deficits in the Euro Area: The End of the Feldstein-Horioka Puzzle?" Brookings Papers on Economic Activity 2. Blanchard, O. (1987) "Reagonomics", Economic Policy, 5. Carlin, W., Glyn, A. and Van Reenen, J. (2001), "Export Market Performance of OECD Countries," Economic Journal. Destler, I. & Henning, C. (1989) Dollar Politics Part I, Institute for International Economics, Washington. Frenkel, J. (1985) "Six possible meanings of overvaluation", Princeton Essays in International Finance, 159. Krugman, P. (1994) "Competitiveness: A Dangerous Obsession" Foreign Affairs and in Krugman, P. (1997) Pop Internationalism and "Myths and Realities of US Competitiveness" in Pop Internationalism. Lawrence, R. (1990) "US Current Account Adjustment: An Appraisal" Brookings Papers on Economic Activity McKinnon, R. (1981) "The Exchange Rate and Macroeconomic Policy: Changes in Postwar Perceptions" Journal of Economic Literature. Ito, T. (1992) The Japanese Economy, chapters 10 and 12. Essay Title: Changes in the Current Account of the G3 countries since 1980 reflect changes in their fiscal policies, not in their exchange rates (discuss)