ECONOMICS 825 INTERNATIONAL TRADE THEORY FALL 2003 Instructor Beverly Lapham Office: Dunning Hall, Room 232 Phone: 533-2297 Email: laphamb@qed.econ.queensu.ca Office Hours: Mondays: 2:30-3:30, Wednesdays: 1:30-2:30 and by appointment (send me an email message). Class Times and Location Mondays: 10:00-11:20 and Wednesdays: 8:30-9:50 Macintosh-Corry Hall, Room D326 Course Objectives The primary objectives of this course are to rigorously examine the modern theory of international trade and examine the following general areas: Classical and Neoclassical Theories of Trade with Perfect Competition. Theories of Trade with Imperfect Competition. Empirical Issues in Trade. Trade Policy. Factor Accumulation and Intertemporal Trade. Course Requirements There is no assigned text for the course, but references for the topics covered are given in the course outline and most references are on reserve in Stauffer library. For some sections of the course, notes will also be available from the course web-page. Students performance is evaluated through assignments, a brief presentation in class, a midterm exam, and a final exam. Grades will be determined according to the following criteria: Assignments: 20 % Presentation: 5 % Midterm: 30 % Final: 45 % No late assignments will be accepted. 1
Course Outline: (Reference codes refer to the Related Readings below.) I. General Introduction Some Data International Economics as a Separate Field Comparative Advantage and a Simple Model of Trade DN: 2; MMKM: 1 II. Supply and Demand (Microfoundations of Trade Theory) A. Supply: Producer Theory Production Functions Production Possibilities Cost Functions; Conditional Demand Functions National Product Functions Notes; MMKM: 2; DN: 2, Appendix; W: 2,3,4 J:4-5, 8 B. Demand: Consumer Theory Utility Function Marshallian Demand Functions General Equilibrium and Aggregation Community Indifference Curves Notes; MMKM: 3, Appendix 1; DN: 2, Appendix; W: 2, 6 III. Equilibria (Supply equals Demand) A. Closed Economy (Autarkic) Equilibria Notes; MMKM: 4; DN: 3; W: 7 B. Open Economy Equilibria Small Country Case Large Country Case: Net Export Functions; Offer Curves Gains from Trade Theorem Notes; MMKM: 4,5, Appendix 2; DN: 3; W: 7, 9 BS: 14-15; B1: 10; JK 2.1-2.3 IV. Ricardian Theory (Classical Theory of Trade) Comparative Cost Theorem Notes; MMKM 7; Dornbusch, Fischer, & Samuelson (1977) 2
V. Factor Proportions Theory (Neoclassical Theory of Trade) Assumptions Heckscher-Ohlin-Samuelson Theorem Factor Price Equalization Theorem Notes; MMKM 8, Appendix 3; DN: 4; W: 7 BS: 5-7; B2:1; J:1 VI. Empirical Tests of Classical and Neoclassical Trade Theories JK: 10; MMKM: 14; W: 12 B2: 8; GR: 26 Trefler (1995,1993) VII. Scale Economies, Imperfect Competition, & Trade External Increasing Returns Internal Increasing Returns Homogeneous Products (Oligopoly) Differentiated Products (Monopolistic Competition) DN: 9; MMKM: 11,12; HK1: 2, 6-9; HK2: 7 B2:9-12; G: 1-4, 11-13; JK: 7 VIII. Trade Policy A. Under Perfect Competition Tariffs, Quotas, & Other Non-Tariff Barriers Terms of Trade Effects Welfare Effects Notes; MMKM 15,16; DN: 6; W: 10, 11 BS:9-10 B. Under Imperfect Competition Strategic Trade Policy MMKM: 17; HK2; GR: 27 G:6-10 IX. Factor Accumulation and Intertemporal Trade MMKM: 23 3
RELATED READINGS: (An indicates that the item is on reserve in Stauffer Library.) Undergraduate Texts: Caves, R., Frankel, J. and Jones, R. (1993), World Trade and Payments, Sixth Edition, New York: Harper-Collins. Krugman, P. and M. Obstfeld (2003), International Economics: Theory and Policy, 6th Edition, New York: Addison-Wesley. Markusen, J; J. Melvin; W. Kaempfer; and K. Maskus (1995), International Trade: Theory and Evidence, New York: McGraw-Hill. (MMKM) Markusen, J. and J. Melvin (1988), The Theory of International Trade, New York: Harper & Row. Salvatore, D. (2001), International Economics, 7th Edition, New York: John Wiley and Sons. Graduate Texts: Bhagwati, J. and T.N. Srinivasan (1983), Lectures on International Trade, Cambridge, MIT Press (BS) Dixit, A.K. and V. Norman (1980), Theory of International Trade, London: Cambridge University Press (DN) Helpman, E. and P. Krugman (1985): Market Structure and Foreign Trade, Cambridge: MIT Press (HK1) Helpman, E. and P. Krugman (1989): Trade Policy and Market Structure, Cambridge: MIT Press (HK2) Leamer, E. (1984), Sources of International Comparative Advantage: Theory and Evidence, MIT Press. Woodland, A.D. (1982), International Trade and Resource Allocation, Amsterdam: North Holland (W) Collected Works: Bhagwati, J. (ed.) (1987), International Trade: Selected Readings, Second Edition, Cambridge: MIT Press (B2) Bhagwati, J. (ed.) (1981), International Trade: Selected Readings, First Edition, Cambridge: MIT Press (B1) Bhagwati, J. (ed.) (1969), International Trade: Selected Readings, Penguin Books Caves, R and H. Johnson (eds.) (1968): Readings in International Economics, Homewood: American Economic Association Dornbusch, R. and J. Frankel (eds.) (1979), International Economic Policy: Theory and Evidence, Baltimore: Johns Hopkins University Press 4
Feenstra, R. (ed.) (1988) Empirical Methods for International Trade, Cambridge, Mass. : MIT Press Grossman, G. (ed.) (1992), Imperfect Competition and International Trade, Cambridge: MIT Press (G) Grossman, G. and K. Rogoff (eds.) (1995), Handbook of International Economics, vol. 3, Amsterdam: North-Holland (GR) Krugman, P. (1990), Rethinking International Trade, Cambridge, Mass: MIT Press. Krugman, P. (ed.) (1986), Strategic Trade Policy and the New International Economics, Cambridge, Mass: MIT Press. Krugman, P. and A. Smith (eds.) (1994), Empirical Studies of Strategic Trade Policy, Chicago: University of Chicago Press Jones, R.W. (1979), International Trade: Essays in Theory, Amsterdam: North-Holland (J) Jones, R.W. and P.B. Kenen (eds.) (1984), Handbook in International Economics: Volume 1, Amsterdam: North-Holland (JK) Kierzkowski, Henryk, (ed.), Monopolistic Competition and International Trade, Basil Blackwell, 1984. Whalley, J. (ed.), Canada-United States Free Trade, Toronto: University of Toronto Press, 1985. Journal Articles: Barrett, S., Strategic Environmental Policy and International Trade, Journal of Public Economics, 54, 1994, 325-38. Bowen, Leamer, and Sveikauskas, Multicountry, Multifactor Tests of the Factor Abundance Theory, American Economic Review, Dec. 1987. Chipman, John S., A Survey of the Theory of International Trade: Part 1, The Classical Theory, Econometrica, 33, July 1965, 477-519., A Survey of the Theory of International Trade: Part 2, The Neo-Classical Theory, Econometrica, 33, October 1965, 685-760., A Survey of the Theory of International Trade: Part 3, The Modern Theory, Econometrica, 34, January 1966, 18-76., Factor Price Equalization and the Stolper-Samuelson Theorem, International Economic Review, 10, October 1969, 399-406. Copeland, B.R., International Trade and the Environment: Policy Reform in a Polluted Small Open Economy, Journal of Environmental Economics and Management, 26, 1994, 44-65. and M.S. Taylor, Trade, Spatial Separation and the Environment, NBER Working Paper No. 5242, 1995a. and, Trade and Transboundary Pollution, American Economic Review, 85, 1995b, 716-737. 5
and, North-South Trade and the Environment, Quarterly Journal of Economics, 109, 1994, 755-87. Deardorff, Alan, The General Validity of the Heckscher-Ohlin Theorem, American Economic Review, 1982., The General Validity of the Law of Comparative Advantage, Journal of Political Economy, 1980. Dixit A. and A. Woodland, The Relationship Between Factor Endowments and Commodity Trade, Journal of International Economics, 1983. Dornbusch, R., S. Fischer, and P.A. Samuelson, Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods, The American Economic Review, December 1977, 823-839. Grossman, G. and A.B. Krueger, Environmental Impacts of a North American Free Trade Agreement, in Peter Garber, ed., The Mexico-U.S. Free Trade Agreement, Cambridge, MA: MIT Press, 1993. Helpman, E., International Trade in the Presence of Product Differentiation, Economies of Scale and Monopolistic Competition, A Chamberlin-Heckscher-Ohlin Approach, Journal of International Economics, 1981, 305-340. Jones, Ronald W., Stability Conditions in International Trade: A General Equilibrium Analysis, International Economic Review, 2, May 1961, 199-209. Kemp, Murray C., The Gains from International Trade, Economic Journal, 72, December 1962, 802-819. Krugman, P.R., Is Free Trade Passé?, Journal of Economic Perspectives,, Fall 1987, 131-44., Increasing Returns, Monopolistic Competition, and International Trade, Journal of International Economics, 9, 1979: 469-79. Leamer, E. Factor-Supply Differences as a Source of Comparative Advantage, American Economic Review Papers and Proceedings, 83, May 1993: 436-39., The Leontief Paradox Reconsidered, Journal of Political Economy, 88, 1980: 495-503. McKenzie, Lionel W., Equality of Factor Prices in World Trade, Econometrica, 23, July 1955, 239-257. Mundell, R., The Pure Theory of International Trade, American Economic Review, 50, March 1960, 67-110. Rybczybnski, R. M., Factor Endowment and Relative Commodity Prices, Economica, 22, November 1955, 336-341. Metzler, Lloyd A., Tariffs, the Terms of Trade, and the Distribution of the National Income, Journal of Political Economy, 57, February 1949, 1-29., Tariffs, International Demand and Domestic Prices, Journal of Political Economy, 57, August 1949, 345-351. Samuelson, P., International Trade and the Equalisation of Factor Prices, Economic Journal, June 1948, 163-184. 6
Stolper, Wolfgang F., and Paul A. Samuelson, Protection and Real Wages, Review of Economic Studies, 9 November 1941, 58-73. Trefler, Daniel, The Case of the Missing Trade and Other Mysteries, American Economic Review, 85, 1995, 1029-46., International Factor Price Differences: Leontief was Right, Journal of Political Economy, December 1993, 961-87. 7