ECN 374-01: International Trade

Jack Mutti
Carnegie 204
Office Hours: MWF 11-12, TTH 2-3

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Syllabus

Course Mechanics

Microeconomic Tools of Analysis

Pattern of Trade and Income Distribution and Welfare

Free Trade and Fair Trade

Strategic Trade Policy

International Movements of People

Multinational Corporations

Bilateral Trade Agreements and Trade Preferences

WTO Negotiations and the Doha Round

Trade Policy and Economic Development

The WTO and New Issues: Labor Standards & Environmental Agreements

The WTO, the EU and New Members

Appendix A

Sources of Readings

Appendix B

Sources of Data

Review Presentations

(click here for a printable version)

Seminar Objectives

The goals of this seminar are that we: (1) use intermediate microeconomic tools to assess how international trade patterns are determined and what their implications are for economic efficiency and income distribution; and (2) apply these analytical tools in evaluating potential changes in world economic conditions and trade policy. In particular, we want to be able to assess what governments, international organizations, and think tanks say on these issues.

 Main Topics: (If viewing this on the web, clicking on a topic will move you to that topic. Clicking on "Return to Main Topics Table" at the bottom of each section will bring you back here.)
Course Mechanics Multinational Corporations
Microeconomic Tools of Analysis Bilateral Trade Agreements and Trade Preferences

Pattern of Trade and Income Distribution and Welfare		 WTO Negotiations and the Doha Round
Free Trade and Fair Trade Trade Policy and Economic Development
Strategic Trade Policy

The WTO and New Issues: Labor Standards & Environmental Agreements
International Movements of People  

Course Mechanics

Your grade in this seminar will depend upon three elements:

  1. (35 percent) Presentation of class readings, homework, debates, and participation in class discussion. (All groups making a presentation should meet with me before the day of the presentation and should prepare an outline to distribute to the rest of the class);
  2. (35 percent) A written paper of 10-15 pages addressing an international trade issue that you and I agree upon. An outline is due by October 26th at the latest. A first draft should be submitted by November 22nd and the final paper is due by December 7th. Each day you choose to delay beyond a deadline reduces your grade by one third of a grade, eg. from B to B-. You are good economists at determining marginal costs and marginal benefits.
  3. (30 percent) an in-class open book mid-term exam.

There is no assigned text for this course. A traditional text, however, is on reserve in Burling Library to provide background material for the various topics we consider, and I will provide you with chapters from a text that I write.

J. Markusen, J. Melvin, W. Kaempfer and K. Maskus, International Trade: Theory and Evidence, McGraw-Hill, 1995

R. Dunn and J. Mutti; International Economics, Routledge, 2004

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Course Outline

1. A Review of Microeconomic Tools of Analysis
MMKM: 2, 3, 4, 5

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2. Traditional Explanations of the Pattern of Trade, and Implications for Income Distribution and Welfare
MMKM: 6, 7, 8, 9
DM: 2, 3

These chapters cover three basic models often used in analyzing international trade issues: (1) the Ricardian model; (2) a neoclassical, specific-factors model; and (3) the Heckscher-Ohlin-Samuelson factor endowments model. I will present an overview of these models in class. Particular points to note are the way each model predicts the effects of an increase in the supply of a factor input, an improvement in technology, and a decline in the price of the imported good. Our four groups will use their understanding of these models to interpret the following readings:

    A-

    Paul Krugman, "Does Third World Growth Hurt First World Prosperity?" Chapter 4 in Pop Internationalism (Cambridge, MA: MIT Press, 1997) This may be accessed at: http://www.netlibrary.com/. (See Sources of Readings for instructions.)
    B-  Stephen Magee, et. al., "Three Simple Tests of the Stolper-Samuelson Theorem," Ch. 7 in Black Hole Tariffs and Endogenous Policy Theory (New York: Cambridge University Press, 1989). And also Gavin Wright and Jesse Czelusta, "The Myth of the Resource Curse," Challenge, March-April, 2004. These are found in Burling Library.
    C- Adrian Wood, "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," The World Bank Economic Review, January 1997, pp. 33-57. This is also in The Political Economy of Inequality, Frank Ackerman, ed., Island Press, 2000. This may be accessed at: http://www.worldbank.org/research/journals/wber/revjan97/pdf/artcle~3.pdf
    D- Stephen Magee, et. al., "Increasing Returns to Politics and Factor Endowments," Ch. 12 in Black Hole Tariffs and Endogenous Policy Theory (New York: Cambridge University Press, 1989)
     Debate #1 -- Has greater U.S. trade hurt low-skilled workers?
      Symposium on Income Inequality and Trade, Journal of Economic Perspectives, Summer 1995
     

     R. Freeman, "Are Your Wages Set in Beijing?" This may be accessed at:
    jstor
     

    A. Wood, "How Trade Hurts Unskilled Workers" This may be accessed at:
    jstor
       P. Krugman and R. Lawrence, "Trade, Jobs and Wages," Scientific American, April 1994, pp. 44-49.This may be accessed in Pop Internationalism at: http://www.netlibrary.com/. (See Sources of Readings for instructions.)



HOMEWORK ASSIGNMENT # 1


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3. Free Trade and Fair Trade

Why do economics textbooks generally show a gain in economic efficiency if countries pursue free trade?

What is the economic basis for antidumping measures that importing countries may take, and why has this procedure become the major form of protection in many countries?
MMKM: 15, 16
DM: 5, 6

G. Hufbauer and K. Elliott, Measuring the costs of Protection in the United States (Washington, D.C.: Institute for International economics, 1994), Chapters 1 and 2 (available in Burling Library); or Patrick Messerlin, Measuring the Costs of Protection in Europe: European Commercial Policy in the 2000s (Washington, D.C.: Institute for International Economics, 2001), Chapter 3 (this may be accessed at:
http://www.iie.com/publications/chapters_preview/102/3iie2733.pdf)
and Appendix C (this may be accessed at:
http://www.iie.com/publications/chapters_preview/102/appciie2733.pdf )

USITC, The Economic Effects of Significant US Import Restraints: Fourth Update 2004, Investigation 332-225, Publication 3701, June 2004
(http://hotdocs.usitc.gov/docs/pubs/332/pub3701.pdf)
(This is a good source for industry-specific analysis, intended to help those who choose a term paper topic that looks at US import restriction.)

D. Irwin, "The Optimal Tax on Antebellum US Cotton Exports," Journal of International Economics, August, 2003, pp. 275-292. This may be found in Burling library.

M. Zanardi, "Anti-dumping: What are the Numbers to Discuss at Doha?," The World Economy, March 2004, pp. 403-432. This can be accessed at http://www.blackwell-synergy.com/doi/pdf/10.1111/j.1467-9701.2004.00605.x

HOMEWORK ASSIGNMENT # 2

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     Debate #2 - Unfair Trade Cases at the National Level
      Are catfish from Vietnam being dumped in the US market?
    Do these imports materially injure the US idnustry?
    See Investigation No. 731-TA-1012 (Final), August 2003, US International Trade Commission Publication 3617, at: http://hotdocs.usitc.gov/docs/pubs/701_731/pub3617.pdf, which also includes the US Department of Commerce final determination of dumping margins. The USDOC Decision Memorandum (June 2003) and Preliminary Report (January 2003) can be accessed from http://ia.ita.doc.gov/frn/.

     

     Debate #3 - Dispute Resolution at the World Trade Organization
     

    Does US support of domestic cotton growers conflict with its WTO commitments and have a prejudicial effect on Brazilian competitors?

    See the WTO summary of this case given at http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds267_e.htm. The report of the original panel on United States Subsidies on Upland Cotton (WT/D52671R, September 8, 2004) and the appellate body ruling (WT/D267/AB/R, March 3, 2005) can be downloaded by those researching this case.

    MIDTERM EXAM OCTOBER 10TH

4. Strategic Trade Policy

Is free trade an outdated strategy meant for a simpler world? Does a country gain from a tougher trade policy in response to closed markets and foreign targeting of particular industries?
MMKM: 11, 12, 17
DM: 4,6

An Overview of the Issue

     

    A- P. Krugman, "Is Free Trade Passé?" Journal of Economic Perspectives, Fall 1987. This may be accessed at: jstor

    B- A. Dixit, "How Should the United States Respond to Other Countries' Trade Policies?" in Robert Stern (ed.), U.S. Trade Policies in a Changing World Economy (Cambridge, MA: MIT Press, 1989) pp. 265-279. This is found in Burling Library.

    C- B. Spencer, "What Should Trade Policy Target?" #4 in Paul Krugman (ed.), Strategic Trade Policy and the New International Economics (Cambridge, MA: MIT Press, 1986). This is found in Burling Library.

    D - G. Grossman, "Strategic Export Promotion: A Critique," #3 in Strategic Trade Policy and the New International Economics. This is found in Burling Library.


HOMEWORK ASSIGNMENT #3

     Specific Industry Examples
     

    A - R. Baldwin and P. Krugman, "Industrial Policy and International Competition in Wide-Bodied Jet Aircraft," #3 in R. Baldwin (ed.), Trade Policy Issues and Empirical Analysis (Chicago: University of Chicago Press, 1988). This is found in Burling Library.

    B - D. Irwin and P. Klenow, "Learning by Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, December 1994, pp. 1200-1227. This may be accessed at: jstor

    C - L. Tyson, "Managing Trade and Competition in the Semiconductor Industry," #4 in Who's Bashing Whom (Washington, D.C.: Institute for International Economics, 1992). This is found in Burling Library.

    D - L. Tyson, "Industrial Policy and Trade Management in the Commercial Aircraft Industry," #5 in Who's Bashing Whom



Topics to be Selected by the Class from the Following Set

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5. International Movements of People

Does emigration of unskilled labor from developing countries represent a beneficial safety valve or a loss to those economies? Are U.S. fines on employers of undocumented workers an efficient national policy, or is immigration desirable as an impetus to U.S. growth? Has immigration had a bigger effect on the US distribution of income than trade?
MMKM: 21
DM: 7


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6. Multinational Corporations

Do multinational corporations represent a source of technology and provide a marketing network that warrants special incentives to attract them into a country? Are beyond the control of governments in individual countries and a threat to national welfare?
MMKM: 22
DM: 7

     

    *J. Markusen, "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, Spring 1995. This may be accessed at: jstor
    E. Graham and P. Krugman, Foreign Direct Investment in the United States (Washington, D.C.: Institute for International Economics, 1995), Ch. 3. This is found in Burling Library.

    *J. Mendez, "Immiserisation and the Emergence of Multinational Firms in a Less Developed Country," Journal of Development Studies, 1983. This may be accessed at: http://search.epnet.com/direct.asp?an=7147324&db=aph

    J. Mutti and Raicho Bojolov, "US Investment Abroad in Manufacturing"


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7. Bilateral Trade Agreements and Trade Preferences

What are the potential economic gains from groupings such as the European Community or the North American Free Trade Agreement? In what sense do those groups merely gain at the expense of those who are excluded? Is an expanded European Union a trade threat to the U.S. and Japan or to India and Pakistan?
MMKM: 18
CFJ: 14

A. Panagariya, "The Regionalism Debate: An Overview," The World Economy, June 1999, pp. 477-511. This may be accessed at: http://www.blackwell-synergy.com/doi/pdf/10.1111/1467-9701.00214

A Yeats, "Does Mercosur's Trade Performance Raise Concerns about the Effects of Regional Trade Agreements?" The World Bank Economic Review, January 1998, pp. 1-27. This may be accessed at: http://www.worldbank.org/research/journals/wber/revjan98/pdf/article1.pdf

USITC, "US-Central America-Dominican Republic Free Trade Agreement: Potential Economy wide and Selected Sectoral Effects" This may be accessed at http://hotdocs.usitc.gov/docs/pubs/2104f/pub3717.pdf

Jeffrey Frankel, Regional Trading Blocs (Washington D.C.: Institute for International Economics, 1997), Ch. 4 and 5. This is found in Burling Library.

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8. WTO Negotiations and the Doha Round

J. Schott, The Uruguay Round: An Assessment, Washington, D.C.: Institute for International Economics, 1994. This is found in Burling Library.

J.M. Finger and Julio Nogués, "The Unbalanced Uruguay Round Outcome: The New Areas in Future WTO Negotiations," The World Economy, March 2002, pp. 321-340. This may be accessed at: blackwellsynergy

WTO, Trade Policy Review Body, Overview of Developments in the International Trading Environment, Annual Report by the Director General, Feb. 6, 2006 (WT/TPR/OV/11). Click here to access this document

*WTO, The Doha Declaration explained
http://www.wto.org/english/tratop_e/dda_e/dohaexplained_e.htm

Oxfam, "A Recipe for Disaster," Briefing Paper 87. this can be accessed at http://www.oxfam.org/en/files/bp87_recipefordisaster_060427/download


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9. Trade Policy and Economic Development

S. Tokaric, "Does Import Protection Discourage Exports?" IMF Working Paper WP/06/20. This may be accessed at http://www.imf.org/external/pubs/ft/wp/2006/wp0620.pdf

R. Freeman, "Trade Wars: The Exaggerated Impact of Trade in Economic Debate" The world Economy. This paper can be accessed at http://nottingham.ac.uk/economics/leverhulme/research_papers/03_42.pdf

r
Sebastian Edwards, Ch. 5, pp. 115-137 in Crisis and Reform in Latin America (Washington, D.C.: The World Bank, 1995). This is found in Burling Library.

*Ha-Joon Chang, "Kicking Away the Ladder - Tariffs and Economic Development," Challenge, Sept./Oct. 2002, pp. 63-97. This may be accessed at:
http://search.epnet.com/direct.asp?an=7315077&db=bsh
Also, see a review of Chang's book by Irwin at: http://eh.net/bookreviews/library/0777.shtml

Robert Baldwin, "The Case Against Infant Industry Protection," Journal of Political Economy, Ma/June 1969, pp. 295-305. This may be accessed at: jstor

*Douglas Irwin, "Tariffs and Growth in Late Nineteenth Century America," The World Economy, January 2001, pp. 15-30. This can be accessed at: http://www.blackwell-synergy.com/doi/pdf/10.1111/1467-9701.00341.

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10. The World Trade Organization to New Issues: Labor Standards & Agreements

G. Grossman and A. Krueger, "Environmental Impacts of a North American Free Trade Agreement," in P. Garber (ed.) The Mexico-U.S. Free Trade Agreement (Cambridge: MIT Press, 1993) pp. 13-56. This may be found in Burling Library.

WTO Panel report on the U.S. import prohibition of certain shrimp (wto)

*D. Brown, "Labor Standards: Where Do They Belong on the International Trade Agenda," Journal of Economic Perspectives, Summer 2001, pp. 89-112. This may be found in Burling Library.

*D. Esty, "Bridging the Trade-Environment Divide," Journal of Economic Perspectives, summer 2001, pp. 113-130. This may be found in Burling Library.

K. Elliott, "The ILO and Enforcement of Core Labor Standards,"
(http://www.iie.com/publications/pb/pb00-6.pdf)

Department of Economics| Grinnell College
Last Updated: August 23, 2006