ECON/ABIZ 7630 - Theory of International Trade September, 2014 ECON/ABIZ 7630 OBJECTIVES Barry T. Coyle 359 Agriculture Bldg. Office: 474-9734 Home: Refer to Hard Copy E-mail: Barry.Coyle@umanitoba.ca The main purpose of this course is to equip you with the basic principles and tools of international trade. In class lectures, most of the analysis will be presented in terms of economic intuition and diagrams. This will occasionally be supplemented by use of calculus and elementary duality theory. TEXTBOOKS There is no required text for the course, but the following books are highly recommended: Jagdish N. Bhagwati, Arvind Panagariya and T.N. Srinivasan, Lectures on International Trade, MIT Press 1998 (second edition) (B-P-S). Robert Feenstra, Advanced International Trade: Theory and Evidence, Princeton Univ. Press, 2003 (Feen). These books provide a concise discussion of conventional topics (e.g., Heckscher-Ohlin model) and a good discussion of recent extensions and developments (e.g., imperfect competition and trade policy). The following books are also highly recommended: Kar-yiu Wong, International Trade in Goods and Factor Mobility, MIT Press 1995 (WONG); Miltiades Chacoliades, International Trade Theory and Policy, McGraw-Hill 1978 (second edition) (CHAC); Avinash K. Dixit and Victor Norman, Theory of International Trade: A Dual, General Equilibrium Approach, Cambridge University Press 1980 (D-N). Chacoliades develops the analysis of conventional topics in detail and is particularly appropriate for students taking their first course in trade. Both B-P-S and Chacolaides primarily employ 1
September, 2014 ECON/ABIZ 7630 diagrammatical techniques. In contrast, Dixit and Norman employ duality theory in analyzing international trade. Wong provides a technical discussion of conventional topics and especially the new trade theory under imperfect competition. Other discussions of trade theory under imperfect competition are: Elhanan Helpman and Paul R. Krugman, Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition and the International Economy, MIT Press 1985, (H-K I);, Trade Policy and Market Structure, MIT Press 1989 (H-K II). A good undergraduate text on international trade (and finance) is: Paul R. Krugman and Maurice Obstfeld, International Economics: Theory and Policy, Addison-Wesley 2003. The following books are recommended for supplementary readings: Ronald W. Jones and Peter B. Kenan (ed.) Handbook of International Economics, Volume I, North-Holland 1983 (Surveys of topics in trade theory) (HIE 83); Gene M. Grossman and Kenneth Rogoff (ed.) Handbook of International Economics, Volume III, North-Holland 1995 (Surveys of topics in trade theory and international macroeconomics) (HIE 95); Jagdish N. Bhagwati and T.N. Srinivason, International Trade: Selected Readings, MIT Press 1987; Alan D. Woodland, International Trade and Resource Allocation, North-Holland 1982. GRADING The course grade will be based on one midterm exam, a final exam, and a term paper. In determining your grade for the course, the highest of these three grades will receive a weighting of 60 percent, the second highest will receive a weighting of 30 percent, and the lowest of these three grades will receive a weighting of 10 percent. The term paper is due on the day of the last lecture for the course. NOTE Please see the 2014/2015 University of Manitoba Graduate Calendar for policies regarding plagiarism and cheating. 2
OUTLINE 1. Introduction B-P-S (Chapters 2-4) Feen (Chapter 1) Chac (Chapter 2-6) D-N (Chapters 2-1 - 2.2, 2.4) 2. Heckscher-Ohlin Model (Stolper-Samuelson, and Rybczynski theorems, factor price equalization, Leontief paradox) B-P-S (Chapters 5-6,8) Feen (Chapter 2-4) Chac (Chapters 8A & D, 9-11, 19B) D-N (Chapters 2.3, 2.4) Wong (Chapter 2) Jones and Neary, The Positive Theory of International Trade (HIE 83). Ethier, Higher Dimensional Issues in Trade Theory (HIE 83). Davis, Intra-industry Trade: A Heckscher-Ohlin-Ricardo Approach, Journal of International Economics 1995, 201-226. Leamer and Levinsohn, International Trade Theory: The Evidence (HIE 95). Deardorff, Testing Trade Theories and Predicting Trade Flows (HIE 83). Mussa, The Two-Sector Model in Terms of Its Dual. Journal of International Economics 1979, 513-526. Deardorff, The General Validity of the Heckscher-Ohlin Theorem, American Economic Review 1982, 683-694. Schluter and Lee, Is Leontief's Paradox Applicable to US Agricultural Trade? Western Journal of Agricultural Economics 1978, 165-172. Trefler, The Case of the Missing Trade and Other Mysteries, American Economic Review 1995, 1029-1046 Davis, Weinstein, Bradford and Shimpo, Using International and Japanese Regional Data to Determine When the Factor Abundance Theory of Trade Works, American Economic Review, 1997 421-46. Davis and Weinstein, An Account of Global Factor Trade, American Economic Review 2001, 1423-1453. Falvey, Trade Liberalization and Factor Price Convergence, Journal of International Economics 1999, 195-210. Harrigan, Technology, Factor Supplies, and International Specialization: Estimating the Neoclassical Model, American Economic Review, 1997, 475-494. Brecher & choudhri, ASome Empirical Support for the Heckscher-Ohlin Model of Production@, 3
Canadian Journal of Economics 1993, 272-285. Bernstein & Weinstein, ADo Endowments Predict the Location of Production? Evidence from National and International Data@, Journal of International Economics 2002, 55-76. Schott, AOne Size Fits All? Heckscher-Ohlin Specialization in Global Production@, American Economic Review 2003, 686-708. Venables & Limao, AGeographic Disadvantage: A Heckscher-Ohlin - von Thunen Model of International Specialization@, Journal of International Economics 2002, 239-263. Grossman & Maggi, ADiversity and Trade@, American Economic Review 2000, 1255-1275. 3. Specific Factors Model B-P-S (Chapter7) D-N (pp.102-106, 122-125) Neary, Short-run Capital Specificity and the Pure Theory of International Trade, Economic Journal 1978, 488-510. 4. Comparative Advantage and Gains From Trade B-P-S (Chapters 17-19) Feen (Chapter 6) Chac (Chapters 15-16) D-N (Chapter 3) Wong (Chapter 3, 8) Corden, The Normative Theory of International Trade (HIE 83). Deardorff, The General Validity of the Law of Comparative Advantage, Journal of Political Economy 1980, 941-957. Eaton and Panagariya, Gains From Trade Under Variable Returns to Scale, Commodity Taxation, Tariffs and Factor Market Distortions, Journal of International Economics 1979, 481-501. E.E. Leamer, Sources of International Comparative Advantage: Theory and Evidence, MIT Press 1984. Krugman, ATrade and Wages@, pp. 1-18 in D. M. Kreps and K.F. Wallis (ed.), Advances in Economics and Econometrics: Theory and Practice, Vol. 1, Cambridge University Press, 1997. Coyle, Chambers and Schmitz, Economic Gains from Agricultural Trade: A Review and Bibliography, USDA 1986. 4
5. Commercial Policy (tariffs, quotas, effective protection, transfers) B-P-S (Chapters 12-16) Feen (Chapters 7-8) Chac (Chapters 17-22) D-N (Chapters 5.5-5.7, 6) Wong (Chapters 10, 11) Corden, The Normative Theory of International Trade (HIE 83). Feenstra, Estimating the Effects of Trade Policy (HIE 95). Rodrik, Political Economy of Trade Policy (HIE 95). Helpman, APolitics and Trade Policy@, pp. 19-45 in D.M. Kreps and K.F. Wallis (ed.), Advances in Economics and Econometrics: Theory and Practice, Vol. 1, Cambridge University Press, 1997. Whalley, John, Colleen Hamilton and Roderick Hill, Canadian Trade Policies and the World Economy, University of Toronto 1985. Krishna and Panagariya, A Unification of Second Best Results in International Trade, Journal of International Economics 2000, 235-257. 6. Customs Unions and Preferential Trade Agreements B-P-S (Chapter 31) Feen (Chapter 6) Chac (Chapters 22-23) D-N (Chapter 6.4) Panagariya, Preferential Trade Liberalization: The Traditional Theory and New Developments, Journal of Economic Literature 2000, 287-331. Bhagwati, Jagdish and Arvind Panagariya (ed.) The Economics of Preferential Trade Agreements, AI Press, 1966. Baldwin and Venables, Regional Economic Integration (HIE 95). Panagariya and Krishna, On Necessarily Welfare-enhancing Free Trade Areas, Journal of International Economics 2002, 353-367. Bagwell and Staiger, An Economic Theory of GATT, American Economic Review 1999, 215-248. 7. Agricultural Trade Policies 11). Gardner, Bruce L., The Economics of Agricultural Policies, MacMillan 1988 (chapter Speaking of Trade: Its Effects on Agriculture. University of Minnesota, 1978. Houck, James P. Elements of Agricultural Trade Policies, Waveland Press, 1986. Peterson, Hertel, Stout, AA Critical Assessment of Supply-Demand Models of Agricultural Trade@, AJAE 1994, 709-721. Anania, Bohman, Carter, AU.S. Export Subsidies in Wheat: Strategic Trade Policy or an Expensive Beggar-Thy-Neighbor Tactic?@ AJAE 1992, 534-545. 5
Josling, AMultilateralism: A Constraint on Unilateralism and Regionalism in International Trade@, AJAE 1993, 803-809. Kennedy, von Witke, Roe, AMultilateral Agricultural Trade Negotiations: A Non-cooperative and Cooperative@ Game Approach@, European Review of Agricultural Economics, 1996, 381-399. National Policies and Agricultural Trade: Canada, OECD 1987. Sadoulet and de Janvry, AAgricultural Trade Liberalization and Low Income Countries: A General Equilibrium - Multimarket Approach@, AJAE 1992, 268-280. Burfisher, M. (ed.), AAgricultural Policy Reform in the WTO - The Road Ahead@, U.S.D.A., Agricultural Economic Report No. 802, 2001. 8. Returns To Scale and Noncompetitive Behaviour. B-P-S (Chapters11,30) Feen (Chapter 5) Wong (Chapters 6-7, 9, 12) H-KI H-KII Chac (Chapter 7) D-N (Chapter 9) Krugman, Increasing Returns, Imperfect Competition and the Positive Theory of International Trade (HIE 95). Brander, Strategic Trade Policy (HIE 95). Helpman, Increasing Returns, Imperfect Competition and Trade Theory, (HIE 83). Krugman, AIs Free Trade Passé?@ Economic Perspectives 1987, 131-144. Carter, Colin A., A.F. McCalla, J.A. Sharples (eds), Imperfect Competition and Political Economy: The New Trade Theory in Agricultural Trade Research, Westview Press 1990. Stiglitz, Joseph E., Globalization and its Discontents, Norton 2002. 9. Technology, Growth and Trade B-P-S (Chapters 36-37) Feen (Chapter 10) Grossman and Helpman, Technology and Trade (HIE 95). Findlay, Growth and Development in Trade Models (HIE 83). Smith, Capital Theory and Trade theory (HIE 83). Grossman, Gene M. and Elhanan Helpman, Innovation and Growth in the Global Economy, MIT Press 1991. Albuquerque and Rebelo, On the Dynamics of Trade Reform, Journal of International Economics 2000, 21-47. 6