INTERNATIONAL TRADING RELATIONS
Professor: Douglas Nelson
Office: 108 Tilton Hall
Office Hours: WR 3:30-5:00, and by appointment
Even the most cursory reading of the news should alert us to the importance of international trading relations. In its more spectacular forms, these relations are front page news, but even in their more mundane forms international trade affects our lives in profound and intimate ways. Whether to increase our effectiveness in our directly economic pursuits or to meet the burdens of good citizenship, an understanding of these forces is clearly important. 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.
In this course we 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 arguments for free trade and protection.
The primary reading material for this course will be found in the following textbook (which can be purchased online or at the Tulane University bookstore):
Paul Krugman, Maurice Obstfeld & Marc Melitz (2018). International Trade: Theory & Policy (11th ed.). New York: Pearson. (Text)
Supplementary material, including the homework problems, can be found in:
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 two examinations and weekly homework assignments. Each examination will be worth 100 possible points and your homework will be worth 100 possible points. To earn a grade in the A range you must earn at least 90 percent of the 300 available points. To pass the course you must receive at least 60 percent of the available points. The grades between these two limits will be determined by the distribution of points in the class as a whole.
Homework The Krugman/Obstfeld/Melitz text is linked to MyEconLab. Thus, homework will be completed and graded online. You may miss 1 homework without penalty. Any further missed homework will enter as a zero in your overall average. At the end of the semester, your homework score will be the percent (i.e. out of 100) of the questions attempted that you answered correctly (treating missed homeworks beyond 1 as attempted but zero score). That score will be 1/3 of your final score. Homework must be completed no later than 5:00pm (Central time) of the day following the last scheduled lecture on the 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 9 October 2015. The final examination will only be given on the scheduled date: Tuesday 14 December 2015, 8:00-12:00. 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.
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. Try to do the starred problems before looking at the answers in the study guide, this is a great way to figure out how you are doing before turning your homework in.
Third, doing problems is a great way to build your skills with the various models we develop. The study guide contains a number of additional problems, with answers. Especially if you are feeling uncertain about your grasp of some material, you should do as many problems as you can.
Fourth, 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.
Fifth, 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.
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
ECON 4330-01 SYLLABUS Spring 2015
August 28, 30: Course Introduction–Globalization
-Reading: Text, Chapters 1 & 2
Part I: Canonical Models of International Trade
September 4, 6: Ricardian Model, I
-Reading: Text, Chapter 3, pages 24-36
September 11, 13: Ricardian Model, II
-Reading: Text, Chapter 2, pages 37-50
September 15, 17: Specific Factors and Trade, The Ricardo-Viner Model
-Reading: Text, Chapter 4 (including appendix)
September 18, 20: Factor-Intensities and Trade, The Heckscher-Ohlin Model, I
-Reading: Text, Chapter 5 (including appendix)
Sept 25, 27: 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.
Oct 2, 4: The Standard Trade Model
-Reading: Text, Chapter 6
Midterm Exam: 9 October 2018
Note: Fall break is 11-14 October
Part II: Extending the Neoclassical Model
October 16,18: External Economies and International Trade
-Reading: Text, Chapter 7
October 23, 25: Monopolistic Competition & Trade
-Reading: Text, Chapter 8, pp. 170-187
October 30, November 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
November 6, 7, 13: 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.
November 15, 20: Economics of Protection, II: Theory of Economic Policy
-Reading: Text, Chapter 11
Note: Thanksgiving break is 22-25 November
November 27, 29: Economics of Protection, III: Adjusting to Trade
-Reading: Text, Chapter 12
-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.
December 4, 6: 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: Tuesday, 14 December, 8:00-12:00.