INTERNATIONAL TRADING RELATIONS
Fall Semester, 2022
Professor: Douglas Nelson
Office: 108 Tilton Hall
Office Hours: TR 3:30-5:00, and by appointment
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 textbook (which can be purchased online from the publisher):
Paul Krugman, Maurice Obstfeld & Marc Melitz (2018). International Trade: Theory & Policy (11th ed.). New York: Pearson. (Text)
You can purchase the e-text and MyEconLab from Pearson. There is a document (“Student_Registration_Handout_nelson52182”) in the Canvas Files folder for this course that describes how to purchase these.
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.
Evaluation. Your performance in this course will be evaluated on the basis of weekly homework assignments, weekly chapter quizzes and two examinations. Each examination will be worth 30% of your total score, your homeworks will be worth 30% of your total score, homeworks and quizzes will be worth 20 % each. 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 and Quizzes The Krugman/Obstfeld/Melitz text is linked to MyEconLab. Thus, homework and quizzes will be completed and graded online. You may miss 1 homework and 1 quiz without penalty. Any further missed homework will enter as a zero in your overall average. Homeworks are due no later than 11:59pm on the night before we begin a topic (usually a Monday) and quizzes are due 11:59pm on the day following completion of a topic. MyEconLab will not accept any work submitted later than this.
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 exam will be given in class on 4 March 2021. The final examination will only be given on the scheduled date: 6 May 7:30pm-10:30pm. Unless you have a standard university accepted excuse for missing the exam (e.g. health with standard university form), 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.
Additional Exam and Homework Information: Exams will be returned in class, you can follow your homework performance on the LaunchPad website. Exam answer keys will be available from my webpage.
Tulane Honor Code: All students are responsible for knowing and adhering to Tulane University’s Honor Code, available at http://tulane.edu/college/code.cfm.
Title IX Syllabus language: Tulane University recognizes the inherent dignity of all individuals and promotes respect for all people. As such, Tulane is committed to providing an environment free of all forms of discrimination including sexual and gender-based discrimination, harassment, and violence like sexual assault, intimate partner violence, and stalking. If you (or someone you know) has experienced or is experiencing these types of behaviors, know that you are not alone. Resources and support are available: you can learn more at titleix.tulane.edu. Any and all of your communications on these matters will be treated as either “Confidential” or “Private” as explained in the chart below. Please know that if you choose to confide in me I am mandated by the university to report to the Title IX Coordinator, as Tulane and I want to be sure you are connected with all the support the university can offer. You do not need to respond to outreach from the university if you do not want. You can also make a report yourself, including an anonymous report, through the form at tulane.edu/concerns.
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 and the quizzes. 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, MyEconLab has additional supplementary material.
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. The TA for the course is Sean Larkin and he will answer questions related to homework and quizz assignments.
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 co-hosted by Soumaya Keynes (US economics editor for the Economist magazine) and Chad Bown (Economist, PIIE).
Tulane University recognizes the inherent dignity of all individuals and promotes respect for all people.
As such, Tulane is committed to providing an environment free of all forms of discrimination including sexual and gender-based discrimination, harassment, and violence like sexual assault, intimate partner violence, and stalking. If you (or someone you know) has experienced or is experiencing these types of behaviors, know that you are not alone. Resources and support are available: you can learn more at allin.tulane.edu. Any and all of your communications on these matters will be treated as either “Confidential” or “Private” as explained in the chart below. Please know that if you choose to confide in me I am mandated by the university to report to the Title IX Coordinator, as Tulane and I want to be sure you are connected with all the support the university can offer. You do not need to respond to outreach from the university if you do not want. You can also make a report yourself, including an anonymous report, through the form at tulane.edu/concerns.
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Tulane University strives to make all learning experiences as accessible as possible. If you anticipate or experience academic barriers based on your disability, please let me know immediately so that we can privately discuss options. I will never ask for medical documentation from you to support potential accommodation needs. Instead, to establish reasonable accommodations, I may request that you register with the Goldman Center for Student Accessibility. After registration, make arrangements with me as soon as possible to discuss your accommodations so that they may be implemented in a timely fashion. Goldman Center contact information: firstname.lastname@example.org; (504) 862-8433; accessibility.tulane.edu.
Code of Academic Conduct
The Code of Academic Conduct applies to all undergraduate students, full-time and part-time, in Tulane University. Tulane University expects and requires behavior compatible with its high standards of scholarship. By accepting admission to the university, a student accepts its regulations (i.e., Code of Academic Conduct and Code of Student Conduct) and acknowledges the right of the university to take disciplinary action, including suspension or expulsion, for conduct judged unsatisfactory or disruptive.
Religious Accommodation Policy
Per Tulane’s religious accommodation policy (with hyperlink), 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.
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 2021
January 19, 21: Course Introduction–Globalization
-Reading: Text, Chapters 1 & 2
Part I: Canonical Models of International Trade
January 26, 28: Ricardian Model, I
-Reading: Text, Chapter 3, pages 24-36
February 2, 4: Ricardian Model, II
-Reading: Text, Chapter 3, pages 37-50
February 9, 11: Specific Factors and Trade, The Ricardo-Viner Model
-Reading: Text, Chapter 4 (including appendix)
Note: Mardi Gras break is 15-16 February
February 18, 23: Factor-Intensities and Trade, The Heckscher-Ohlin Model, I
-Reading: Text, Chapter 5 (including appendix)
February 25, March 2: Factor-Intensities and Trade, The Heckscher-Ohlin Model, II
-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.
Midterm Exam: 4 March 2018
Part II: Extending the Neoclassical Model
March 9, 11: The Standard Trade Model
-Reading: Text, Chapter 6
March 16, 18: External Economies and International Trade
-Reading: Text, Chapter 7
-Optional: Francois and Nelson (2002). “A Geometry of Specialisation.” Economic Journal, V.112-#481, 649-78.
March 23, 25: Monopolistic Competition & Trade
-Reading: Text, Chapter 8, pp. 170-187
-Reading: Text, Chapter 2, pp. 39-44.
March 30, April 1: Firms, FDI and Offshoring in International Trade
-Reading: Text, Chapter 8, pp. 188-210
-Reading: Bernard, Jensen, Redding and Schott (2007): “Firms in International Trade”. The Journal of Economics Perspectives; V.21-#3.
-Reading: 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.
-Optional: Melitz and Trefler (2012), ‘Gains from Trade when Firms Matter‘, The Journal of Economic Perspectives, 26, 2, 91-118.
Part III: Economics of Trade Policy
April 6, 13, 15: Economics of Protection, I: Instruments of Protection
-Reading: Text, Chapter 9
-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.
Note: Tulane Lagniappe day is 8 April
April 20, 22: Economics of Protection, II: Theory of Economic Policy
-Reading: Text, Chapter 11
April 27, 29: Economics of Protection, III: Adjusting to Trade
-Reading: Text, Chapter 12
-Review from text: Box on trade and unemployment, pp. 68-71.
-Review from text: Box on north-south trade and inequality, pp. 100-102.
-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.
Not Assigned: Post-Industrial Economics, Populism and the Future of Trade Policy
-Reading: Text, Chapter 10
-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.
Final Examination: 6 May, 7:30pm-10:30pm.