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ECON 4413-001 International Trade

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ECON 4413-001 International Trade
UNIVERSITY OF COLORADO
BOULDER, COLORADO
Economics 4413
International Trade
James R. Markusen
Phone: 492-0748
Office: 216, e-mail: [email protected]
Office Hours: Monday, Wednesday, 1:30-3:00
August 2004
Course Outline and Reading List
The Course Outline given below lists the major topics we will deal with in this course.
Markusen et.al. is the textbook.
Markusen, Melvin, Kaempfer, and Maskus, International Trade: Theory and Applications,
McGraw Hill, 1995.
The Economist, Globalization, Profile Books, 2001.
Assessment in the course will consist of:
1st mid-term exam
2nd mid-term exam (date subject to change)
Take home on Globalization
Final Exam
20%
20%
30%
30%
Monday, September 27
Wednesday, October 27
Monday, November 22
Late penalty on take home: 5% of total essay marks per day
The exams will be analytical-essay type exams in which you will be asked, for example, to
analyzed the relationship between two variables or assess the likely effects of some policy.
The book Globalization is a series of stand alone essays about topics pertaining to globalization.
The take-home exam will give you a set of essay questions which you will answer. The final
exam and/or mid-terms will include some fill-in-the-blanks questions about the book to help
insure that you actually read it!
In the lectures, I will try to present theory in the first half of the class period, and applications in
the second half.
PART I: TECHNICAL TOOLS AND THE GAINS FROM TRADE
In this part of the course, we develop and review basic tools of microeconomic theory that we
will use throughout the course.
1.
Supply and Production Possibilities
MMKM, Chapters 1 and 2.
2.
Preferences, Demand, and Welfare
MMKM, Chapter 3.
3.
General Equilibrium in Open and Closed Economics
MMKM, Chapter 4.
4.
The Gains from Trade
MMKM, Chapter 5.
PART II: DETERMINANTS OF TRADE
This section analyzes the different underlying causes of international trade and the gains from
trade.
1.
Differences in Technology between Countries.
MMKM, Chapters 6 and 7.
Skip section 5, chapter 7.
2.
Differences in Factor Endowments between Countries.
MMKM, Chapters 8 and 9.
Skip section 6, chapter 8.
3.
Government Policies as Determinants of Trade.
MMKM, Chapter 10.
Skip sections 4 and 5.
4.
Imperfect Competition as a Determinant of Trade.
MMKM, Chapter 11.
Skip section 4.
5.
Increasing Returns to Scale.
MMKM, Chapter 12.
Skip sections 5 and 6.
6.
Preferences and Income as Determinants of Trade.
MMKM, Chapter 13.
PART III: TRADE POLICY
This part of the course analyzes the principal tools that governments use to influence trade. We
analyzed the effects of the policies and try to understand the reasons that governments choose
the policies they do.
1.
Tariffs
MMKM, Chapter 15.
Skip section 7.
2.
Quotas
MMKM, Chapter 16.
Skip section 5.
3.
Imperfect Competition, Increasing Returns, and Strategic Trade Policy.
MMKM, Chapter 17.
Skip section 4.
4.
Preferential Trade Areas
MMKM, Chapter 18.
Sections 1 and 2 only.
5.
The Political Economy of Trade Policy
MMKM, Chapter 19.
PART IV: FACTOR TRADE AND DIRECT FOREIGN INVESTMENT
The final section of the course looks at trade in factors of production and direct foreign
investment be multinational firms.
1.
Trade in Factors of Production
MMKM, Chapter 21.
Skip sections 2 and 5.
2.
Direct Foreign Investment
MMKM, Chapter 22.
Skip section 4.
3.
Intertemporal Trade
MMKM, Chapter 23.
Section 1 only.
International Trade - Economics 4413
International Trade - Review/Sample Questions
1.
Suppose that there are two goods, X and Y, and only one factor of production L. Assume
that Y is produced with constant returns and X is produced with increasing returns.
Explain the shape of the production possibilities frontier. What the significance of this
shape for trade?
2.
The balance-of-trade condition is equivalent to the condition that the value of a country's
production equals the value of its consumption. True/false, explain.
3.
Two countries can gain from trade even if one country has an absolute advantage in the
production of all goods. True/false, explain.
4.
Construct one careful example to show how one individual can lose from trade even if
the country as a whole gains from trade relative to autarky. Does this help us understand
controversies over trade liberalization?
5.
The free-trade price ratio must lie between the autarky price ratios of the two countries.
True/False, explain.
6.
State the factor-price equalization theorem. What is its implications for the wage of
unskilled labor in the US following trade liberalization?
1.
Government policies can induce trade or reverse the direction of trade, but such trade is
not necessarily beneficial. True, False, explain.
2.
Production and consumption taxes tend to have opposite effects on the direction of trade.
True, False, explain.
3.
Define the concept of pro-competitive gains from trade and give an example of when
they might arise.
4.
"Gains from trade in the presence of scale economies can be taken either in the form of
the same number of products at lower prices, or more products at the same prices."
Explain this statement.
5.
State the "Linder Hypothesis". What empirical facts are this theory suppose to explain?
Why can't the Heckscher-Ohlin model explain these facts?
1.
Under what circumstance is the effect of an import quota the same as the effects of an
import tariff?
2.
What is "quota rent" and how is it distributed in a quota that is auctioned off versus a
voluntary export restraint?
3.
Analyze the effect of an export subsidy (assume perfect competition, no distortions).
4.
Discuss briefly the intuition behind the argument that a country's welfare may be
improved by a production or export subsidy for an industry producing with increasing
returns and imperfect competition.
5.
Present alternative assumptions to those in question 3 such that we arrive at the
conclusion that a subsidy is welfare worsening.
6.
What is the argument underlying "import protection as export promotion"? What is
assumed about production?
7.
State the "theory of the second best". In what way does it underlay the concept of
strategic trade policy?
8.
Explain "trade creation" and "trade diversion". How was this relevant to Mexico in
evaluating NAFTA?
9.
Discuss in what sense trading goods and trading factors are equivalent.
10.
Present a situation in which trading goods and factors are in some sense complements.
11.
Outline the OLI view of multinational firms. What are the principal sources of
ownership advantages for multinational firms?
12.
Discuss the reasons why multinational firms are closely associated with knowledge
capital or knowledge based assets.
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