INTERAMERICAN UNIVERSITY OF PUERTO RICO METROPOLITAN CAMPUS FACULTY OF ECONOMICS AND ADMINISTRATIVE SCIENCES SCHOOL OF MANAGEMENT DOCTORAL PROGRAM

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1 INTERAMERICAN UNIVERSITY OF PUERTO RICO METROPOLITAN CAMPUS FACULTY OF ECONOMICS AND ADMINISTRATIVE SCIENCES SCHOOL OF MANAGEMENT DOCTORAL PROGRAM I. TITLE INTERNATIONAL TRADE COURSE INBU 8210 CREDITS 3 PREREQUISITES MICROECONOMIC THEORY: BADM 7223 II. COURSE DESCRIPTION Classical and modern theories of international business in a static and dynamic framework. The implications of business policies derived from the different theories will be analyzed. Aspects such as the importance of international business for developing countries and the development of competitive strategies will be studied. III. OBJECTIVES 1. End Objectives Today we are living in a global society. Virtually all nations are linked to one another by trade flows and financial networks that circle the globe. 1. Evaluate the theory of international trade since David Ricardo and 2. Evaluate the effects of various international economic policies on domestic and world welfare. 2. TERMINAL AND CAPACITATING OBJECTIVES 1.1 To analyze the foundations of international trade and the effects of various international economic policies on domestic and world welfare. Page 1

2 1.2 To compare the different theories of International Trade from Ricardo to present 2.1 To examine sources of comparative advantage, gains and losses from trade, and the impact of trade on economic growth, 2.2 To predict effects of trade policy interventions such as tariffs, quotas, voluntary export restraints, and export subsidies. IV. CONTENT (TOPICS) A. OVERVIEW: MAJOR ISSUES 1. INTRODUCTION AND GAINS FROM TRADE B.THE THEORY OF COMPARATIVE ADVANTAGE 1. THE RICARDIAN MODEL C. THE HECKSCHER-OHLIN MODEL 1. THE LEONTIEF PARADOX D. SCALE ECONOMIES, IMPERFECT COMPETITION, INTERNATIONAL FACTOR MOVEMENTS 1. ECONOMIC OF SCALE AND INTERNATIONAL TRADE 2. ECONOMIC OF SCALE AND MARKET STRUCTURE 3. THE THEORY OF IMPERFECT COMPETITION a. Monopoly b. Monopolistic Competition 4. MONOPOLISTIC COMPETITION AND TRADE E. INTERNATIONAL TRADE POLICY 1. INSTRUMENTS OF TRADE POLICY a. Tariff and Non-Tariff Barriers b. Trade Policy in Developing Countries c. Strategic Trade Policies in Advance Countries Page 2

3 F. ECONOMIC GROWTH AND TRADE V. ACTIVITIES A. Presentation in Power Point of Results of Paper Assigned VI. EVALUATION PROCESS Students taking the course for credit are required to A Take one mid-term and one final exam (20% and 30%) B actively participate in the presentation and discussion of the course material, which will necessitate reading the material in advance; C. problems Set (20%) D. complete a paper on a topic related to the course material. Grading will be 20% on (A) 20% on (B) and (C) together, and 30% on (D). The topic of the paper must broadly be related to this course, and is chosen before mid-term exam in consultation with the instructor. E.This primary means of communication outside the classroom will be by list. Therefore, one requirement will be to obtain an account, in case you don't have one yet. All general announcements will be made via . The course grade will be based on these weights: Mid-term exam 20% Term Paper.. 30% Problem sets. 20% Final Exam (comprehensive) 30% VII. MAIN TEXT Page 3

4 Paul Krugman and Maurice Obstfeld, International Economics. Theory and Policy, 7th ed., Addison-Wesley: 2005 A. OTHER RECOMENDED TEXTS FOR REFERENCE Appleyard, D. R. and A. J. Field, Jr., International Economics, 5th ed., N.Y.: Irwin McGraw-Hill, Thomas Pugel, International Economics, McGraw-Hill, 13 th Edition, 2006 Richard Caves, Jeffrey Frankel, and Ronald Jones, World Trade and Payments An Introduction, 9th ed., Harper Collins: 2002 Robert C. Feenstra, Advanced International Trade: Theory and Evidence, Princeton University Press, 2003 J. R. Markusen,, Multinational Firms and the Theory of International Trade (Paperback), MIT 2004 Salvatore, Dominick, International Economics, 8th edition, Wiley, VIII. DETAILED TOPICS AND READINGS Readings A. OVERVIEW: MAJOR ISSUES 1. INTRODUCTION AND GAINS FROM TRADE * The power of Emerging World, The Economist, September 16 22, 2006 Markusen, Melvin, Kaempfer, and Maskus, International Trade: Theory and Evidence, chapters 2-4, 5 *Paul Krugman and Maurice Obstfeld, International Economics. Theory and Page 4

5 Policy, chapters 1. *Appleyard, D. R. and A. J. Field, Jr., International Economics, chapter 1 and 2 Caves, Frankel and Jones World Trade and Payments An Introduction Ch. 2-3 Angel L. Ruiz Class Notes The pure Theory of International Trade The Importance of International Trade International Trade: An Overview Breve Trasfondo Histórico: mercantilistas, Teoría de ventaja Absoluta y Teoría de Ventaja Comparativa B.THE THEORY OF COMPARATIVE ADVANTAGE Readings 1. THE RICARDIAN MODEL Paul Krugman and Maurice Obstfeld, International Economics. Theory and Policy, chapter 2 Bhagwati, Jagdish and Srinivasan T. N., Lectures on International Trade Foundations of International Economic Analysis, chapters 2-4 R. Dornbusch, S.Fischer, P.Samuelson (1977), "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods", American Economic Review 65: Appleyard, D. R. and A. J. Field, Jr., International Economics,, chapters 3 and 4 Thomas Pugel, International Economics, chapters 2 and 3 C. THE HECKSCHER-OHLIN MODEL Page 5

6 Readings Paul Krugman and Maurice Obstfeld, International Economics. Theory and Policy, chapter 4 Appleyard, D. R. and A. J. Field, Jr., International Economics, chapter 8 Bhagwati, Jagdish and Srinivasan T. N., Lectures on International Trade, chapters 5-7 Caves, Frankel and Jones World Trade and Payments An Introduction, chapters 7-8 Jones, R., and P. Kenen (eds.), 1984, Handbook of International Economics, Vol.1, chapters 1, 3, and 10 Grossman, G., and K. Rogoff (eds.), 1995, Handbook of International Economics, Vol.3, chapter 26 Robert C. Feenstra, Advanced International Trade: Theory and Evidence, chapters 1-3 Ruiz, Angel L., "Factor Proportions and The Pattern of Foreign Trade - The Case of Puerto Rico", Application of Input-Output Techniques to Growth and Trade. Proccedings of 20th Anniversary International Conference, Vol. II. Input-Output Research Association, Shillong, India. D. SCALE ECONOMIES, IMPERFECT COMPETITION, INTERNATIONAL FACTOR MOVEMENTS Readings Paul Krugman and Maurice Obstfeld, International Economics. Theory and Policy, chapters 6-7 Appleyard, D. R. and A. J. Field, Jr., International Economics, chapters 10 and 11 Page 6

7 Grossman, G. (editor), Imperfect Competition and International Trade, part III Krugman, P., "Increasing Returns, Monopolistic Competition and International Trade", Journal of International Economics (JIE)1979. Krugman, P. "Scale Economies, Product Differentiation and the Pattern of Trade", American Economic Review (AER) Ethier, W., "National and International Returns to Scale in the Modern Theory of International Trade", AER, Helpman, E., "International Trade in the Presence of Product Differentiation, Economies of Scale, and Monopolistic Competition: A Chamberlin- Heckscher-Ohlin Approach", JIE, Angel L. Ruiz, Economías de Escala, Competencia Imperfecta y Comercio Internacional: El Modelo de Krugman (handout) E. INTERNATIONAL TRADE POLICY 1. The Instruments of Trade Policy Readings a. Tariff and Non-Tariff Barriers b. Trade Policy in Developing Countries c. Strategic Trade Policies in Advance Countries Krugman and Obsfeld, Part II, chapters 8-11 Caves, Frankel and Jones World Trade and Payments An Introduction, chapters Steven M. Suranovic, Evaluating the Controversy Between Free Trade and protectionism (handout). Angel L. Ruiz, Notas de Clase: Restricciones al Comercio Internacional Page 7

8 F. ECONOMIC GROWTH AND TRADE Readings Robert C. Feenstra, Advanced International Trade: Theory and Evidence, Princeton University Press, 2003, chapter 10. Frankel, Jeffrey and David Romer, Does Trade cause Growth? American Economic Review, vol. 89 June, Grossman, G., and E. Helpman, Innovation and Growth in the Global Economy, MIT Press, 1991, chapters 3, 8-12 Rivera Batiz L. and P. Romer, Endogenous Technological Change and Economic Integration, Quarterly Journal of Economics, 1991 Grossman, G., and E. Helpman, "Comparative Advantage and Long-run Growth", AER Rivera-Batiz, L, and P. Romer, "International Trade with Endogenous Technological Growth", EER S. Edwards (1993), "Openness, Trade Liberalization, and Growth in Developing Countries", Journal of Economic Literature 31: Brown, Wilson and Jan Hogendorn: International Economics: Theory and Context, Reading, Mass.: Addison-Wesley, 1994: pages 70-82: "Why Trade Arises Among Similar Countries". David Greenaway: "New Trade Theories and Developing Countries," in V.N. Paul Krugman: "Increasing Returns and the Theory of International Trade," Chapter 5 in Rethinking International Trade, Cambridge, Mass.: MIT Press, 1990 Page 8

9 IX. BIBLIOGRAPHY Appleyard, D. R. and A. J. Field, Jr., International Economics, 5th ed., N.Y.: Irwin McGraw-Hill, Thomas Pugel, International Economics, McGraw-Hill, 13 th Edition, 2006 Richard Caves, Jeffrey Frankel, and Ronald Jones, World Trade and Payments An Introduction, 9th ed., Harper Collins: 2002 Robert C. Feenstra, Advanced International Trade: Theory and Evidence, Princeton University Press, 2003 J. R. Markusen,, Multinational Firms and the Theory of International Trade (Paperback), MIT 2004 Salvatore, Dominick, International Economics, 8th edition, Wiley, Grossman, G., and E. Helpman, 1991, Innovation and Growth in the Global Economy, MIT Press; 1991, Jones, R., and P. Kenen (eds.), 1984, Handbook of International Economics, Vol.1, North- Holland, Helpman, E., and P. Krugman, 1985, Market Structure and Foreign Trade, MIT Press 1985 Grossman, G. (editor), Imperfect Competition and International Trade, MIT Press P. Krugman, "Increasing Returns, Imperfect Competition, and the Positive Theory of International Trade", Ch. 24. Caves, R., Multinational Enterprise and Economic Analysis, 2nd ed., Cambridge University Press, 1996 Bhagwati, Jagdish, N., (ed.), International Trade: Selected Readings, MIT Press Page 9

10 Bhagwati, Jagdish and Srinivasan T. N., Lectures on International Trade, MIT Press, 1998 Alcorta, L., The Impact of New Technologies on Scale in Manufacturing Industry: Issues and Evidence, World Development, 22 (5), May Arrow, K., The Economic Implications of Learning by Doing, Review of Economic Studies, June Balassa, B. and Bauwens, L., Changing Trade Patterns in Manufactured Goods, Amsterdam, North-Holland, Baldwin, R.E., A Critique of Infant Industry Protection, Journal of Political Economy, 17, Baumol, W.J., Panzar, J.C. and Willig, R. D., Contestable Markets and the Theory of Industrial Structure, New York, Harcourt Brace Jovanovich, Bhagwati, J.N., The World System at Risk London, Harvester Wheatsheaf, Bhagwati, J.N. and Srinivasan, T.N., Foreign Trade Regimes and Economic Development: India, NBER, New York, Columbia University Press, Buckley, P. and Casson, M., The Future of the Multinational Enterprise, London, Macmillan, Cantwell, J.A., Technological Innovations and Multinational Corporations, Oxford, Blackwell, Carliner, G., Industrial Policy for Emerging Industries, in Krugman, Caves, R., International Trade and Industrial Organization: Introduction, Journal of Industrial Economics, 29, Stephen D. Cohen, Robert A. Blecker, and Peter D. Whitney, Fundamentals of U.S. Foreign Trade Policy: Economics, Politics, Laws, and Issues, 2nd edition (Boulder: Westview, 2003). Page 10

11 Colclough, C., Structuralism versus Neo-liberalism: An Introduction, in Colclough and Manor (1991). Colclough, C. and Manor, J. (eds), States or Markets? Neo-liberalism and the Development Policy Debate, Oxford, Clarendon Press, Dixit, A.K and Norman, V., Theory of International Trade Cambridge, Nisbet, Dosi, G., Pavitt, K. and Soete, L., The Economics of Technical Change and International Trade, London, Harvester Wheatsheaf, Ethier, W.J., National and International Returns to Scale in the Modern Theory of International Trade, American Economic Review 72, Evans, D. Comparative Advantage and Growth: Trade and Development in Theory and Practice Hemel Hempstead, Harvester Wheatsheaf, Evans. D., Visible and Invisible Hands in Trade Policy Reforms, in Colclough and Manor, Fagerberg, J., International Competitiveness, Economic Journal, 98 (391) Ronald Findlay, Factor Proportions, Trade, and Growth (Cambridge, MA: MIT Press, 1995). Gene M. Grossman, ed., Imperfect Competition and International Trade (Cambridge, MA: MIT Press, 1992)..Freeman, C. and Hagedoorn, J., Catching up or Falling behind: Patterns in International Inter-Firm Technology Partnering World Development. 22 (5). May 1994, Greenway, D., New Trade Theories and Developing Countries, in Balasubramanyam, V.N. and Lall, S. (eds), Current Issues in Development Economics, London, Macmillan, Page 11

12 Grossman, G.M. and Helpman, E., Product Development and International Trade, Journal of Political Economy, 97, Grossman, G.M. and Helpman, E., Trade Innovation and Growth, American Economic Review, Papers and Proceedings, May 1990a. Grossman, G.M. and Helpman, E., Comparative Advantage and Long-run Growth, American Economic Review, 80, 1990b. Havrylyshyn, O. and Civan, E., Intra-industry Trade among Developing Countries, Journal of Development Economics, Helpman, E., International Trade in the Presence of Product Differentiation, Economies of Scale and Monopolistic Competition, Journal of International Economics, 11, Helpman, E. and Krugman, P., Market Structure and Foreign Trade: Increasing Returns Imperfect Competition and the International Economy, Brighton, Wheatsheaf, Kierzkowski, H. (ed.), Monopolistic Competition and International Trade, Oxford, Clarendon Press, Kierzkowski, H., Recent Advances in Trade Theory: A Selected Survey, Oxford Review of Economic Policy, 3 (1) Krugman, P., Scale Economies, Product Differentiation and the Pattern of Trade, American Economic Review, 70, Krugman, P.R., Import Protection as Export Promotion, in Kierzkowski, Krugman, P.R. (ed.), Strategic Trade Policy and the New International Economics, Cambridge, Mass., MIT Press, Page 12

13 Krugman, P.R., Increasing Returns and the Theory of International Trade. In Bewley, T. (ed.), Advances in Economic Theory, Cambridge, Krugman, P.R., New Trade Theory and the Less Developed Countries, in Calvo, C., Findlay, R., Kowi, P. and Braga de Macedo, J., (eds.), Debt Stabilization and Development: Essays in Memory of Carlos Alejandro, Oxford, Blackwell, Leontief, W.W., Studies in the Structure of the American Economy, New York, Oxford University Press, Mankiw, G., Romer, D. and Weil, D., A Contribution to the Empirics of Economic Growth, Quarterly Journal of Economics, 107, Nurkse, R., Patterns of Trade and Development, Wicksell Lectures, Stockholm, Pasinetti, L.L., Structural Change and Economic Growth, A Theoretical Essay on the Dynamics of the Wealth of Nations Cambridge, Cambridge University Press, Piore. M. and Sabel, C., The Second Industrial Divide: Possibilities for Prosperity, New York, Basic Books, Porter, M., The Competitive Advantage of Nations, London and Basingstoke, Macmillan, Prebisch, R., Five Stages in My Thinking about Development. in Bauer, P., Meier, G. and Seers, D. (eds), Pioneers in Development, New York. Oxford University Press, Ray, E.J., US Protection and Intra-industry Trade: The Message for Developing Countries, Economic Development and Cultural, Change. 40 (1), October Romer, P., Increasing Returns and Long-run Growth, Journal of Political Economy, 94, Page 13

14 Simon, H., Theories of Decision Making in Economics, American Economic Review, 49, Solow, R.A., Contribution to the Theory of Economic Growth, Quarterly Journal of Economics,71, Spencer, M., The Learning Curve and Competition, Bell Journal of Economics, 12, Srinivasan, T.N., Recent Theories of Imperfect Competition and International Trade: Any Implications for Development Strategy?, Indian Economic Review, 24, (1), Stewart, F., Recent Theories of International Trade: Some Implications for the South. In Kierzkowski, Stewart, F., A Note on 'Strategic' Trade Theory and the South, Journal of International Development, 3 (5), Tapscott, D. and Caston. A., Paradigm Shift: The New Promise of Information Technology, New York, McGraw-Hill, UNCTAD, Transfer and Development of Technology in Least Developed Countries: An Assessment of Major Policy Issues, UNCTAD/ITP/TEC/12, 17 August UNCTAD, Transfer and Development of Technology in a Changing World Environment: The Challenges of the 1990s, UNCTAD/TD/B/C.6/ January Yoffie, D.B., (ed.) Beyond Free Trade: Firms, Governments and Global Competition, Boston, Mass., Harvard University School Press, Page 14