Economics 4413  International Trade                                                                                                           Professor Maskus

Fall, 2003                                                                                                                                     Economics 212;  303-492-7588

                                                                                                                                                                       maskus@colorado.edu

                                                                                                                                                          M 3:00-5:00;  W 10:00-11:00

 

 

 

 

                                                                                          Course Outline

                Welcome to my course, which is an advanced undergraduate treatment of international trade theory and policy.  In this course we will study aspects of international trade at a fairly abstract and rigorous level, though the analysis will be almost entirely graphical in nature, employing a minimum of mathematics.  Issues that will be addressed include the fundamental determinants of the patterns of trade and the gains from trade, justifications for policies that restrict trade, the effects of trade barriers, the rationale for regional free-trade agreements and multilateral trade rules, and the role of international capital and labor movements.  We will also read about real-world areas of international trade, including trade institutions, interactions between trade policy and environmental regulation, and calculations of the welfare impacts of trade barriers.  Thus, there are three goals in the course.  First, we will develop a solid grounding in the analytical work of modern trade theory.  Second, we will master some tools for use in practical trade analysis.  Third, we will understand better the circumstances within which international trade policy is made.  This is an ambitious agenda and will require sustained effort.

                The required text is International Trade: Theory and Evidence (McGraw-Hill, 1995) by James Markusen, James Melvin, William Kaempfer, and Keith Maskus (MMKM).  The book is obviously a bit outdated so we will need to read some more recent and topical material as detailed below.  We will attempt to complete most of the volume, as detailed below, though this will be a challenge.  The textbook takes an abstract, general-equilibrium approach to international trade theory and can be rather rough going in spots.  I wish to emphasize the importance in this connection of the course prerequisite, which is successful completion of intermediate microeconomic theory.  I will consider requests for exemptions from this prerequisite in individual consultations, but please be advised that micro theory is the foundation for this course.  In addition to the text, I list below some additional readings that I will put direct you to a website to find.  Finally, you will find it interesting to read about current international trade issues in The Wall Street Journal, The New York Times, The Financial Times, and The Economist. 

                There are a number of interesting books on globalization and trade that might interest you.  Among the more popular are Thomas Friedman, The Lexus and the Olive Tree (Anchor Books); Joseph Stiglitz, Globalization and Its Discontents (Norton Press); Dani Rodrik, Has Globalization Gone Too Far? (Institute for International Economics); OXFAM, Rigged Rules and Double Standards: Trade, Globalisation, and the Fight Against Poverty (available at http://www.maketradefair.com/); David Dollar and Paul Collier, Globalization, Growth and Poverty: Building an Inclusive World Economy (World Bank Press).  All of these books except that by OXFAM are available at www.amazon.com and www.bn.com.

                There will be two mid-term examinations, each worth 25% of your grade, one final examination worth 40%, and a short term paper (see below for its structure) worth 10%.  I will also provide you with problem sets in preparation for exams but their completion is up to you and they will not be graded.  Answers will be available on the course website.

                Lectures will be held three times a week, except when in-class examinations are scheduled.  While real-world examples will be used often to motivate the analysis, a few class periods will be set aside for discussion of current international trade topics.  Before these discussions I will make available (either electronically or through handouts) relevant policy papers that I have written on each subject.

                Please consult the course webpage frequently for new materials.  You can access it through the Economics department website, which http://www.colorado.edu/Economics (NOTE THE CAPITAL E) and click on courses, then find 4413.  Or you can go directly to my webpage at http://spot.colorado.edu/~maskus.  My webpage can easily be found through the Economics website if you click on people, then faculty.  Be sure your machine can read PDF files and read (or convert) Word files.

PART 1: TECHNICAL MICROECONOMIC CONCEPTS AND THE GAINS FROM TRADE

 

1.  Introduction               

                    MMKM, Chapter 1                                                                                                                                       August 25

 

2.  Supply and Production Possibilities

                    MMKM, Chapter 2                                                                                                                                August 27 - 29

 

                    LABOR DAY; NO CLASSES                                                                                                                   September 1

 

3.  Preferences, Demand, and Welfare

                    MMKM, Chapter 3                                                                                                                                    September 3

 

4.  General Equilibrium     

                    MMKM, Chapter 4                                                                                                                                    September 5

 

5.  Gains from Trade     

                    MMKM, Chapter 5                                                                                                                                    September 8

 

PART 2: CAUSES OF INTERNATIONAL TRADE

 

1.  Basic Differences in Technology and Productivity

                    MMKM, Chapters 6 and 7                                                                                                              September 10 - 17

 

2.  Differences in Factor Endowments

                    MMKM, Chapters 8 and 9                                                                                                 September 19 - October 1

                    Skip Chapter 8, Section 6               

 

                    FALL BREAK; NO CLASSES                                                                                                                October 2 - 3

 

    Policy Discussion A: Trade Liberalization and Poverty                                                                                        October 6

      Readings A:

           Maskus, "How Trade Liberalization Affects Poverty: Concepts" (on course webpage)

           OXFAM, Rigged Rules, Chapters 1 and 2 (on course webpage)

           Dollar and Collier, Globalization, Growth, and Poverty, Chapter 1 (on course webpage)

 

    MIDTERM EXAMINATION ONE                                                                                                                               October 8

              Covers Chapters 1 - 9 and Readings A.

 

3.  Government Policies as Determinants of Trade

                MMKM, Chapter 10                                                                                                                                         October 10               

                Skip Chapter 10, Sections 4 and 5 

 

4.  Imperfect Competition

                MMKM, Chapter 11                                                                                                                                 October 13 - 17

                Skip Chapter 11, Section 4                                     

 

5.  Increasing Returns to Scale

                MMKM, Chapter 12                                                                                                                                 October 20 - 22

                Skip Chapter 12, Sections 5 and 6

 

6.  Preferences, Income, and Dynamics      

                MMKM, Chapter 13                                                                                                                                 October 24 - 27

 

          Policy Discussion B: Trade and the Environment                                                                                           October 29

          Readings B:

          Maskus, "Trade and the Environment: What are the Issues and How Do Trade Economists

          Think About Them?" (on course webpage)

    

 

MIDTERM EXAMINATION TWO                                                                                                                               October 31

                Covers Chapters 10 - 13 and Readings B.

 

PART 3: TRADE POLICY AND THE TRADING SYSTEM

 

1.  Tariffs                                                                                                                                                                   November 3 - 7

                MMKM, Chapter 15

                Skip Chapter 15, Section 7

 

2.  Quotas and Non-Tariff Barriers                                                                                                                  November 10 - 12

                MMKM, Chapter 16

 

            Policy Discussion C: The Costs of Trade Barriers and the Politics of Protection                             November 14

            Readings C:

            Hufbauer and Goodrich, "More Pain, More Gain: Politics and Economics of Eliminating Tariffs," Institute for

            International Economics, International Economics Policy Briefs, June 2003 (on course webpage)

 

3.  Imperfect Competition and Strategic Trade Policy                                                                                  November 17 - 19

                MMKM, Chapter 17

                Skip Chapter 17, Sections 3 and 4

 

4.  Preferential Trade Areas                                                                                                                              November 21 - 24

                MMKM, Chapter 18

                Skip Chapter 18, Sections 3-4

                Additional notes (on course webpage)

 

5.  Trade Rules and the WTO                                                                                                                                   November 26

                MMKM, Chapter 20

 

            THANKSGIVING BREAK; NO CLASSES                                                                                              November 27-28               

 

            Policy Discussion D: Using the WTO for Regulation: A Good Idea?                                                      December 1

            Readings D:

            Maskus, "Standards and the WTO" World Trade Review, July 2002 (on course webpage)

            Hoekman, "The WTO: Functions and Basic Principles" Development, Trade, and the WTO: A

            Handbook (on course webpage)

 

PART 4: TRADE IN FACTORS AND FOREIGN DIRECT INVESTMENT

 

1.  Trade in Labor and Capital                                                                                                                                December 3 - 5

                MMKM, Chapter 21

                Skip Chapter 21, Sections 2 - 5          

 

2.  Multinational Firms                                                                                                                                          December 8 - 10

                MMKM, Chapter 22

                Skip Chapter 22, Section 4

                Reading E:

                Maskus, "Theories of Foreign Direct Investment" (handout)

 

FINAL EXAMINATION                                                     7:30 - 10:00 AM                                                Wednesday, Dec 17

                Covers Chapters 15 - 18; 21- 22 and Readings C, D, and E.

 

 

PAPER ASSIGNMENT

                Your paper is not to exceed eight typed, double-spaced pages, including tables and references.  Your paper can be devoted to any one of the three following topics.

 

                A. Country Trade Analysis.  Choose a country (other than the U.S.) from the list below (these are big enough that there is information available about their trade patterns).  Write your paper to answer the following questions:

  a. What are the major import and export commodities?  Have these changed over the last 10 years, and why?

  b. Which countries are its major trading partners?

  c. What are reasonable explanations for these trade patterns, based on what we have studied (factor endowments, technology, etc)?  Support your conclusions with facts and evidence from other studies.

  d. Has the country attempted recently to lower its barriers to trade and investment, and how?

  e. Is the country a member of any regional Free Trade Areas?  What seem to be the costs and benefits of this membership?

 

List of Countries for Paper topic A:

                North America: Canada, Mexico

                South America: Argentina, Chile, Brazil

                Western Europe: UK, France, Germany, Italy, Spain, Sweden, Austria, Switzerland, Portugal, Greece

                Central Europe: Hungary, Poland, Czech Republic

                Eastern Europe: Russia

                Africa: Egypt, South Africa, Morocco, Kenya

                Middle East: Turkey, Israel

                South Asia: India, Pakistan

                East Asia: Thailand, Malaysia, Indonesia, Singapore, Hong Kong China, China, Republic of Korea, Japan

                Other: Australia, New Zealand

 

                B.  Trade Issue Analysis.  Research recent literature (journal articles, newspapers and magazines, books) and write an essay describing the economic issues surrounding a particular trade-policy area.  Sensible topics could include:

                a.  Extension of NAFTA to other Latin America (the so-called "Free Trade Agreement of the Americas");

                b.  Compare NAFTA with the US-Chile FTA;

                c.  History of trade promotion authority ("fast track") in the United States;

                d. Trade and environmental problems and international approaches to regulation;

                e.  Relationship between labor standards ("sweatshops") and trade policy;

                f.  How are food safety standards handled in international trade agreements?

                g. Implications of intellectual property agreements in WTO;

                h. Role of the Doha Declaration in setting up the next round of trade negotiations.

                i.  Estimates of gains from multilateral trade liberalization;

                j.  Empirical evidence on the determinants and effects of FDI.

Other topics should be discussed with me personally.

 

 

Sources of information: Be creative.  However, some major organizations to check would be World Bank, International Monetary Fund, Organization for Economic Cooperation and Development, European Commission, ASEAN, Asia-Pacific Economic Cooperation Forum (APEC), Asian Development Bank, African Development Bank, Inter-American Development Bank, European Bank for Reconstruction and Development, United Nations (including UNIDO, UNCTAD, FAO, UNESCO, WIPO, WHO, etc), and WTO.  The U.S. government also publishes numerous studies about trading partners; see especially the International Economic Review of the U.S. International Trade Commission and National Trade Estimate Annual Report on Foreign Trade Barriers of the US Trade Representative's Office.

 

Here are some useful websites:

www.worldbank.org                            www.asean.org

www.imf.org                                          www.apecsecretariat.org

www.oecd.org                                      www.adb.org

www.sourceoecd.org                          www.idb.org

www.europa.int                                    www.ebrd.org

www.unido.org                                     www.unctad.org

www.fao.org                                         www.unesco.org

www.wipo.org                                      www.who.org

www.wto.org                                        www.usitc.gov

www.ustr.gov                                       www.bea.gov

 

You will also be able to find websites for individual countries through a websearch.  Also ask the staff in the government documents area of Norlin Library to help you find trade and/or investment data from the IMF, the World Bank, and the UN.

 

                C.  Critical Book Review.   Acquire one of the four additional books (Friedman, Rodrik, OXFAM, or Dollar-Collier) listed on the first page of the syllabus.  Write a critical review about the economics set forward in the book.  What assumptions seem to be made?  What evidence is presented to back up the assertions made?  How extensive is the treatment of the literature and is the author(s) fair-minded in dealing with the literature?  How sophisticated is the analysis and is it consistent with international trade theory?  How would you improve the analysis if you were given the chance?

 

The paper will be due by 5:00 PM on the last day of classes (Wednesday, Dec 10).

 

 

SPECIAL NOTE

                I am willing to accommodate the special needs of students with disabilities and particular needs for religious observations, but please contact me immediately if you have such concerns.  Finally, you should be aware of the new honor code and policy for student classroom behavior.  The campus policies for these and other issues may be found at www.colorado.edu/policies/index.html.