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Econ 4330/6330: Intenational Trading Relations

 

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ECONOMICS 4330-01

INTERNATIONAL TRADING RELATIONS

Fall Semester, 2022

Professor: Douglas Nelson

Office: 108 Tilton Hall

Office Hours: TR 3:30-5:00, and by appointment

Phone: 865-5317

email: dnelson@tulane.edu

Webpage: http://nelson.wp.tulane.edu/

 

From the end of the Second World war until sometime in the 2010s, international trade was considered, when it was considered at all, a matter of technical interest to specialists (policymakers, lawyers and academics), but virtually never became an issue of public political importance.  The 2016 election saw an end to that in the US. In most other countries, at least of the global north, the timeline was the same.  Now, trade and migration are major public political issues.

The purpose of this course is to introduce the theoretical and econometric tools necessary to understand issues like: the labor market effects of trade; the effects of global value chains; the effects of trade wars; appropriate policies to deal with national security issues (e.g. trade with potential geopolitical competitors, response to epidemic disease; response to global environmental issues).  There are very few first-rate political-economic issues that are not, one way or another, linked to trade.  Whether to increase our effectiveness in our directly economic pursuits or to meet the burdens of good citizenship, an understanding of these such is clearly important.

In addition to the emergence of trade as a public political issue, the last couple of decades have been a time of rapid development in empirical and theoretical knowledge.  Much of this new knowledge has revolved around the role of firms in international trade.  On the one hand, even within well-defined sectors, firms are far more heterogeneous than was previously thought.  Other firm level data allow a more nuanced understanding of global sourcing and sales strategies—embodied in currently active work on global value chains. Similarly, increasing access to detailed worker data, at the firm and occupation level, have allowed us to understand adjustment to trade (and other, especially technology) shocks. One major area of work here is the empirical evaluation of the effects of the “China shock” (i.e. the rapid emergence of China as a major trading power. All of these have led to new models and new results that extend and condition traditional models of international trade.

The study of international trade inherently involves the study of interdependent markets. Thus, one of the goals of this course is to develop tools and intuition from general equilibrium analysis.  Specifically, we will extend the ideas and tools developed in intermediate microeconomics to the study of international economic relations. We begin by studying a number of simple models of trade between nations that attempt to explain that trade in terms of a small number of basic facts about the economic conditions characterizing nations: technology, tastes, and endowments of factors of production. While the neoclassical model provides a solid basis for beginning an analysis of the international economy, recent advances in theory and research permit us to go well beyond that model in our analysis. Thus, we extend these basic models to incorporate such important phenomena as migration, foreign direct investment, imperfect competition, and firm detail. Using the theoretical and empirical tools we have developed, we finish the course by studying the systematic evaluation of trade policies.

The primary reading material for this course will be found in the following texts (which can be purchased online or at the Tulane University bookstore):

Charles van Marrewikj (2017). International Trade. Oxford: Oxford University Press. (Text)

Online resources at: https://oup-arc.com/

Kimberly Clausing (2019). Open: The Progressive Case for Free Trade, Immigration & Global Capital. Cambridge: Harvard University Press. (Clausing)

Additional reading material can be found as links from the syllabus. 

Course Prerequisites. International economics is a branch of economics and, as such, it builds on existing ideas and tools from other branches of economics, especially microeconomics and macroeconomics. The material presented in both lecture and text assume that you have had an intermediate microeconomics course (ECN 3010 or 3030) and the prerequisites to that course. We will be making substantial use of algebraic and geometric argument in this class and it is assumed that you have a level of mathematical knowledge consistent with high school algebra and geometry.  We will also use some basic calculus in lecture, but you will not be required to reproduce that material on an exam (though you are, of course, allowed to do so if it makes your exposition easier).

Evaluation. Your performance in this course will be evaluated on the basis of three examinations. Each examination will be worth 33.3% of your total score.  All students that earn 90% or more of the available points will earn a grade in the A range.  You must earn 60 percent of the available credit to pass the course. The grades between these two limits will be determined by the distribution of points in the class as a whole.

Homework. Every chapter has a number of questions (usually 3) at the end of the chapter, and the online material has a number of computational or data-based exercies that can be done in a standard spreadheet program (e.g. Excel).  You must complete these exercises.  Homework is due in class on the day we begin the topic covered by the chapter in question. Late homework (i.e. later than the beginning of class) will not be accepted and will earn a grade of zero. I will, however, drop your lowest homework score.

Examinations. Both exams will have the following format: about 40% short answer questions and about 60% problems/essays. In general there will be more questions of both types than must be answered, so you will have some choice (though there is often one mandatory question which everyone must answer). Exams must be written in blue books, which you must supply. Sample exams will be available at on blackboard.

The midterm exams will be given in class on 27 September 2022 and 1 November 2022. The final examination will only be given on the scheduled date: Saturday, 17 December, 4-7 pm. Unless you have a standard university accepted excuse for missing the exam, you must take the exams at their scheduled time. In particular, holiday/travel plans are not an acceptable excuse. Failure to take the exam on the scheduled date will result in a score of 0.

ADA/Accessibility Statement

Tulane University is committed to offering classes that are accessible. If you anticipate or encounter disability-related barriers in a course, please contact the Goldman Center for Student Accessibility to establish reasonable accommodations. If approved by Goldman, make arrangements with me as soon as possible to discuss your accommodations so that they may be implemented in a timely fashion. I will never ask for medical documentation from you to support potential accommodation needs. Goldman Center contact information: Email: goldman@tulane.edu; Phone (504) 862-8433; Website: accessibility.tulane.edu

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Unless I indicate differently on instructions, all assignments and exams are to be completed individually and without any study aid, including textbooks, class notes, or online sites. If you have any question about whether a resource is acceptable, you must ask the instructor rather than assume. 

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Religious accommodation policy

Per Tulane’s religious accommodation policy as stated at the bottom Tulane’s academic calendar, I will make every reasonable effort to ensure that students are able to observe religious holidays without jeopardizing their ability to fulfill their academic obligations. Excused absences do not relieve the student from the responsibility for any course work required during the period of absence. Students should notify me within the first two weeks of the semester about their intent to observe any holidays that fall on a class day or on the day of the final exam.

Some Good Advice (At No Extra Charge):

First, keep current with the reading. Not only will that maximize your homework grades, but it will allow you to make the most of lecture.

Second, do the homework. This is virtually free credit, and it will improve your performance on exams as well. If you feel like you need a bit more work on a given topic, the website associated with the van Marrewijk text has additional problems.

Third, ask questions in class. If you read something and it is unclear and then it is unclear during lecture, ask about it. Your classmates will probably thank you. This is one of the few ways, before an exam, that I can gauge how the material is getting across.

Fourth, come see me during my office hours. This is another opportunity to get clarification and help on material about which you are unclear. But don’t wait until the last minute, by then it is usually too late.

Fifth, trade is an important topic.  The Trade Talks podcast (https://piie.com/trade-talks) provides excellent insights on current trade topics.  This podcast, produced by the Peterson Institute for International Economics (PIIE), is hosted by Chad Bown (Economist, PIIE).

SACS-Related Material

I am aware that Tulane students are able to read a standard university syllabus and determine the content of the course and its relation to the major and the individual student’s course of study. However, the administration of Tulane University, along with the Southern Association of Colleges and Schools (SACS–which “accredits” primary and secondary schools as well as all varieties of 2 and 4 year undergraduate programs [with very little in the way of adjustment in rubrics, metrics, etc.]), has determined that you require additional information. I collect this material in a separate section so that you can refer to it, or discard it, as you consider appropriate.

Relevant Program Outcomes Addressed in this Course:

 I. Apply the basic (general equilibrium) market model to explain and predict price changes in individual as a function of changes in the international trade environment.

II. Identify and assess the opportunity costs involved in any economic activity, whether the decision-maker is a private individual, business firm, or social organization. Individual, firm and governmental decisions relating to international trade, investment, etc. will be analyzed in detail. 

III. Identify economic issues and problems, gather data needed to evaluate them, and analyze that data to gain insights into economic behavior and formulate possible solutions. As the course objectives state at the beginning of this syllabus, we will be doing all of this with particular reference to international trade.

IV. Apply the tools of economic analysis to specific policy issues at a level appropriate to majors in Economics. This is an upper level class, so the tools applied to the analysis of the world economy are those consistent with such a level.

V. Gain an in-depth understanding of several specialized areas in economics, thereby learning how to apply microeconomic theory to specific policy issues. Same as (4).

“Learning Objectives”: Upon completion of this course you should have developed a practical knowledge of:

Comparative advantage (i.e. opportunity cost as applied between countries);

The role of technology, endowments, and market structure in the determination of comparative advantage;

The relationship between globalization (especially trade) and labor market outcomes;

The relationship of trade policy to national welfare and general economic performance; and 

The nature and implications of international labor and (real) capital mobility.

 

ECON 4330-01                                            SYLLABUS                                              Spring 2022

 

Course Introduction

 

August 23, 25: Course Introduction–Globalization

-Reading: Text, Chapters 1, 2 & 3

-Supplementary reading: Clausing, Chapters 1 & 2

-Supplementary reading: WTO 2021 World Trade Statistical Review, 2021

-Homework: None requried, but if you want to get a feel for homework in this text, you could try text questions 2.1-2.3 & data question 2.1.  These will be not be marked and, thus, will not affect your final homework score.

 

Part I: Canonical Models of International Trade

 

August 30, September 1: Classical Technology & Trade

-Reading: Text, Chapter 4

-Reading: Clausing, Chapter 3 

-Homework:  Text question 4.1-4.3 & Simulation question 4.4.

 

September 6, 8: Neoclassical Technology & Trade

-Reading:Text, Chapter 5

-Reading: Clausing, Chapter 4

-Supplementary reading: Clausing, Chapter 5 

-Homework: Text question 5.1-5.3 & Simulation question 5.6

 

September 13, 15: Factor Abundance & Trade

-Reading: Text, Chapter 6

-Homework: Text question 6.1-6.3 & Simulation question 6.6

 

Optional Topic: Adjusting to Migration

-Reading: Text, Chapter 9, pp. 223-232.

-Reading: Clausing, Chapter 8

-Reading: Borjas (1995). “The Economic Benefits from Immigration.” Journal of Economic Perspectives, V.9-#2, 3-22.

-Reading: Gaston and Nelson (2000). “Immigration and Labour Market Outcomes in the United States: A Political-Economy Puzzle.” Oxford Review of Economic Policy, V.16-#3, 104-14.

-Homework: To be distributed in class 

 

September 20, 22: Trade in the Short-Run, Adjusting to Trade

-Reading: Text, Chapter 2, pp. 42-49 and Chapter 6 Box 6.4.

Reading: Autor (2018). “Trade and Labor Markets: Lessons from China’s Rise“. IZA World of Labor; 2018: 431.

-Reading: Fort; Pierce and Schott (2018). “New Perspectives on the Decline of US Manufacturing Employment.” Journal of Economic Perspectives, V.32-#2, 47-72.

-Supplementary Reading: Clausing, Part IV

-Supplementary Reading: WTO (2017) Trade, Technology & Jobs (World Trade Report 2017)

 

Midterm Exam: 27 September 2022

 

Part II: Extending the Competitive Model

 

September 29, October 4: Monopoly & Oligopoly in International Trade

-Reading: Text, Chapter 7

-Homework: 7.1-7.3 & Simulation question 7.6

 

Note: Fall break is 6-9 October

 

October 11, 13: Monopolistic Competition, Intra-Industry Trade & Gravity

-Reading: Text, Chapter 8; Chapter 16. 2 (pp. 410-413) and 16.8 (431-435)

-Homework: Text questions 8.1-8.3 & Data question 8.6

 

October 18, 20: Heterogeneous Firms

-Reading: Text, Chapter 13

-Reading: Bernard, Jensen, Redding and Schott (2007): “Firms in International Trade”. The Journal of Economics Perspectives; V.21-#3.

-Supplementary reading: Melitz and Trefler (2012), ‘Gains from Trade when Firms Matter‘, The Journal of Economic Perspectives, 26, 2, 91-118.

-Homework: Text questions 13.1-13.3 & Simulation question 13.7 

 

Optional Topic: Multinational Firms and Foreign Direct Investment

-Reading: Text, Chapter 14

-Homework: Text questions 14.1-14.3 & Simulation question 14.6

 

October 25, 27: Offshoring & Global Value Chains

-Reading: Text, Chapter 15

-Reading: Timmer, et al. (2014). “Slicing up Global Value Chains”. The Journal of Economic Perspectives, V.28-#2, pp. 99-118.

-Reading: Hale, Hobijn, Nechio, and Wilson (2019). “How Much Do We Spend on Imports?“. Federal Reserve Bank of San Francisco Economic Letter, 2019-01.

-Reading: Baldwin and Freeman (2022). “Risks and Global Supply Chains: What We Know and What We Need to Know”. Annual Review of Economics, V.14-#1, forthcoming.

-Reading: Antràs, Pol (2021). “De-Globalisation? Global Value Chains in the Post-Covid-19 Age,” in E.C.B. ed Central Banks in a Shifting World. Frankfurt: European Central Bank, 28-80.

-Optional: Baldwin (2014). “Trade and Industrialisation after Globalisation’s Second Unbundling: How Building and Joining a Supply Chain Are Different and Why It Matters,” in R. C. Feenstra and A. M. Taylor eds, Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century. Chicago: University of Chicago Press/NBER, 165-212.

-Homework: Text questions 15.1-15.3 & Data question 15.4

 

Midterm Exam: 1 November 2022

 

Part III: Trade Policy & Trade Governance

 

November 3, 8: Basic Analysis of Protection

-Reading: Text, Chapter 10, pp. 237-256

-Reading: Feenstra (1992). “How Costly Is Protectionism?Journal of Economic Perspectives, V.6-#3, 159-78.

-Reading: Costinot and Rodríguez-Clare. (2018). “The US Gains from Trade: Valuation Using the Demand for Foreign Factor Services.” Journal of Economic Perspectives, V.32-#2, 3-24.

-Reading: Feenstra (2018). “Alternative Sources of the Gains from International Trade: Variety, Creative Destruction, and Markups.” Journal of Economic Perspectives, V.32-#2, 25-46.

-Homework: Text questions 10.1-10.3 & Simulation question 10.8

 

November 10, 15, 17: Trade Wars, Infant Industries & The Theory of Economic Policy

-Reading: Text, Chapter 10, pp. 256-262

-Reading: Johnson (1965). “Optimal Trade Intervention in the Presence of Domestic Distortions”. Baldwin, et alTrade, Growth & The Balance of Payments. Chicago: Rand-McNally, pp. 3-34. [Canvas]

-Reading: Amiti, Redding and Weinstein (2019). “The Impact of the 2018 Tariffs on Prices and Welfare“. The Journal of Economic Perspectives, V.33-#4, pp. 187-210.

-Supplementary Reading: Evenett & Fritz (2018). Brazen Unilateralism: The US-China Tariff War in Perspective (23rd Annual Trade Alert Report).

-Homework: To be distributed in class

 

Note: Thanksgiving break is 21-27 November

 

November 29, December 1: Subsidies, State Trading and Strategic Trade Policy

-Reading: Text, Chapter 11

-Reading: Pavcnik (2002). “Trade Disputes in the Commercial Aircraft Industry”World Economy, V.25-#5, pp. 733-751. [Canvas]

-Reading: Olienyk & Carbaugh (2011). “Boeing and Airbus: Duopoly in Jeopardy“. Global Economy Journal, V.11-#1, article 4.

-Supplementary reading: Wu (2016). “The ‘China, Inc’ Challenge to Global Trade Governance”Harvard International Law Journal, V.57-#2, pp. 261-324.

-Homework: Text questions 11.1-11.3 & Simulation questions 11.6 & 7

 

December 6, 8: National Security & Trade in a Very Uncertain World

Srinivasan. “The National Defense Argument for Government Intervention in Foreign Trade,” in R. Stern ed U.S. Trade Policies in a Changing World Economy. Cambridge, MA: MIT Press, 337-63. [Canvas]

Solingen (2021). “Introduction: Geopolitical Shocks and Global Supply Chains,” in E. Solingen ed Geopolitics, Supply Chains, and International Relations. Cambridge, UK: Cambridge University Press, 2-14. [Canvas]

 

Optional Topic: Regional Trade Agreements

-Reading: Text, Chapter 12

-Reading: Hoekman, Mavroidis & Sapir (2010). “Beyond the WTO? An Anatomy of EU and US Preferential Trade Agreements.” The World Economy, V.33-#11, 1565-88.

-Reading: Baldwin (2011). “21st Century Regionalism: Filling the Gap between 21st Century Trade and 20th Century Trade Rules,” Centre for Trade and Economic Integration Working Paper, #2010-13.

-Supplementary reading: WTO (2011). The WTO and Preferential Trade Agreements: From Co-existence to Coherence (World Trade Report 2011).

-Homework: Text questions 12.1-12.3 & Data question 12.6

 

Optional Topic: Post-Industrial Economics, Populism and the Future of Trade Policy

-Reading: Baldwin (2016). “The World Trade Organization and the Future of Multilateralism.” Journal of Economic Perspectives, V.30-#1, 95-116.

-Reading: Hoekman and Nelson (2018). “21st Century Trade Agreements and the Owl of Minerva“. Annual Review of Resource Economics.

-Supplementary Reading: Evenett & Fritz (2019). Jaw Jaw not War War: Prioritising WTO Reform Options (24th Global Trade Alert Report).

 

 Final Examination: Saturday, 17 December, 4-7 pm.