ECONOMICS 244 INTERNATIONAL TRADE 2016

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1 STELLENBOSCH UNIVERSITY DEPARTMENT OF ECONOMICS One of the things that make economics graduates so employable is that the subject teaches you to think in a careful and precise way. The fundamental economic issue is how society decides to allocate its resources: how the costs and benefits of a course of action can be evaluated and compared, and how appropriate choices can be made. A degree in economics gives training in decision making principles, providing a skill applicable to a very wide range of careers. The Royal Economic Society ECONOMICS 244 INTERNATIONAL TRADE 2016

2 MODULE FRAMEWORK LECTURERS Trade: Dr. S F W du Plessis & Prof. R C C Jafta Finance: Mrs. L Nieuwoudt & Mrs. O Ezeobi INTERNAL MODERATOR: Prof R P Burger MODULE CONVENOR: Prof R C C Jafta Introduction The contribution of international trade to GDP declined by approximately 29 percent during the Great Recession of 2008 and The decline in trade between countries in the recession period can be attributed in large part to weak demand, particularly in developed countries that were at the epicentre of the financial crisis before the recession (IMF, 2015). The contraction of demand in high-income countries, who are directly involved in approximately two-thirds of international trade flows, as well as a slowdown in economic growth in China, have had some repercussions for growth in developing countries, with the impact being profoundly felt in some African countries, where China has become the continent s fastest-growing trade and financial partner (World Bank, 2015). The global uncertainty about economic growth and employment prevailing seven years after the recession and recently, Brexit, present some interesting questions about Africa s ability to negotiate more favourable terms-of-trade with its partners outside of the continent and its collective ability and willingness to foster and implement coherent intra-continental trade agreements in order to advance economic growth in African countries. The Economics 244 (International Economics) course is geared to find solutions to the major challenges the international economy, Africa and South Africa face today. As the course is aimed to introduce students to practical aspects of international trade, students are required to engage critically with the readings provided and work in groups to generate innovative solutions to current policy debates. Outcomes After completion of this module students should have a good understanding of the following three broad themes and have the necessary competencies to critically debate the related issues: Problem 1: How can sustainable global economic growth be achieved and what role could International Trade play? Problem 2: Africa: Global or Continental? Should Africa focus on growth and development prospects through intra-africa trade or adopt a more global outlook? What role should multilateral institutions play? Problem 3: What role could trade and industrial policy play to accelerate economic growth and development? 2 P a g e

3 Literature A reader for the module is made available, but all literature will be available on SUNLearn. Approach The module follows a student-centred, continuous learning approach. This means that we make it possible for students to learn by doing, whether on their own or in groups. Students are required to organize themselves into groups of three and register their group. Students remain in these groups for all contact sessions tutorials included. The module is structured around crucial issues that an intermediate International Economics student should have a well-reasoned opinion about. 100% class attendance is required and a significant portion of the class mark is obtained through class exercises and tests. (In the event of legitimate absence, lecturers will deal with each case on merit details of these to follow in class.) The module is structured to enable a systematic learning process. Each of the problems in International Economics that we have identified can be addressed with the aid of the knowledge you already have and the new knowledge that you will gain. 3 P a g e

4 PROBLEM 1 Session Main Issues Theory Prior Knowledge Literature Example questions 1 What do economic growth projections look like and where does South Africa fit into the big picture? What role does international trade play in economic growth? 2 What determines a country s comparative advantage? - Availability of resources [Mercantilism, Adam Smith, David Ricardo] [Hecksher- Ohlin, Stolper- Samuelson theory, Leontief Paradox] Economic growth What is it? How is it measured? What are the sources of economic growth? Source: Arnold, ch.17 International trade Why do nations trade? o Absolute advantage o Comparative advantage Production possibility curves Indifference curves Opportunity cost The laws of demand and supply 1. World Economics ch 4 2. Ingham ch 2 Carbaugh ch 3 Which theory of international trade best illustrated the benefits of trade? Illustrate with the aid of the production possibilities curve and indifference curves. Is international trade a substitute for migration? Does trade make the poor poorer? 3 and 4 What determines a country s comparative advantage? - New Trade theory 5 Why are there restrictions on trade? [Economies of scale, Overlapping demands, Intra-industry trade, Product life cycle theory, Industrial policy, Transport costs] Restrictions on free trade Tariffs and the impact of tariffs Consumer and producer surplus Quotas and the influence of quotas Other non-tariff restrictions Source: Arnold, ch 21 Carbaugh ch 3 OECD, Protectionism? Tariffs and Other Barriers to trade. WTO, Trade and tariffs, 2015 WTO, Technical Barriers to Trade, 2015 Distinguish between inter-industry trade and intra-industry trade. Discuss some of the determinants of intra-industry trade. Name and describe briefly five non-tariff restrictions Are resource-rich countries forever doomed to the same trade patterns based on their comparative (relative) advantage? Explain. 4 P a g e

5 PROBLEM 2 Session Main Issues Theory Prior Knowledge Literature Example questions 1 How could Africa benefit from participation in the World Trade Organisation? Multilateral trading system What is it? What is the WTO, its purpose and functions? What is globalisation? Source: Arnold, ch. 21 & (10 benefits of the WTO) 2. WTO, Trade facilitation Agreement, World Trade Report App (download) What is the current status of the WTO s Trade Facilitation Agreement and how can African economies benefit from it? 2 How does trade amongst African countries compare to African countries trade with the rest of the world? Trade in Africa Balance of payments Merchandise trade Current account Trade in services Source: Arnold, ch. 21 & WTO website: what does your country trade? 2. World Bank, Deepening African integration: intra- Africa trade for development and poverty reduction, Why is increased trade amongst African countries such an important objective? Explain. 3 & 4 Is Africa ready for the Fourth Industrial Revolution? What and when were the other three Industrial revolutions? 1. Preparing for the Fourth Industrial Revolution, Irving Wladawsky-Berger, The Fourth Industrial Revolution; What it means and how to respond, Klaus Schwab in Foreign Affairs, Video: RuV1R E You are invited by the WEF in Davos to give a presentation on the prospects of sustained African economic growth through increased international trade made possible by the Fourth Industrial Revolution. Write down your main arguments, including factors that will lead to increased trade and factors limiting trade. 5 African regional integration which trade blocks currently exist? What are the benefits and costs of African regional integration? Box.1 in Chapter 6 in Ingham 1. African Economic Outlook (AEO) Report 2016, Chapter 3. Contrary to Britain s vote to leave the EU, what progress has Africa made towards regional integration on the Continent? Elaborate. 5 P a g e

6 PROBLEM 3 Session Main Issues Theory Prior Knowledge Literature Example questions 1 Krugman, et al, Chapter 11 What is trade and industrial policy and what are they meant to achieve? 2 1.South Africa s Trade Policy (Jafta, R in Ingham, What role can trade and Chapter 6) industrial policy play to 2.IPAP 2016 electronically available accelerate economic growth 3. Rob Davis summary and development in South 3 WTO SACU Trade Policy Review Appendix: Africa? South Africa [Relevant sections] How has trade and industrial policy in South Africa changed over time? Evaluate South Africa s current trade and industrial policy in the light of the 21 st Century context, such as the Fourth Industrial revolution and the increasing importance of services. 6 P a g e