Economics 1535: International Trade and Investment

Fall 2005

 

Lecture

Mondays, Wednesdays 1PM-2:30PM in Holden Chapel

 

Section

Thursdays 1PM in Grays Hall 5 and Fridays 1pm in Sever 206. Section begins Thursday 29th September.

 

Web page

http://www.courses.fas.harvard.edu/~ec1535/

 

Required Text

Paul Krugman and Maurice Obstfeld: International Economics, 6th or 7th edition, Addison-Wesley (available at the COOP).

 

IMPORTANT NOTE: cheaper copies are available on the internet. For example, new copies of the 6th edition for international markets are available at www.amazon.co.uk for the equivalent (at current exchange rates) of roughly $60. Also check www.amazon.com for “used and new” copies.

 

Instructor

Prof. Doireann Fitzgerald

Office: Littauer 323

Office hours: Mondays, 12PM to 1PM

Email: dfitzger at ucsc dot edu

NOTE: Please add “Ec1535” to the email subject line

 

Teaching fellow

Thomas Baranga

Email: baranga at fas dot harvard dot edu

Office hours: Wednesdays, 10AM to 11AM, Quincy dining hall

 

Course Description and Pre-requisites

This course will analyze the causes and consequences of international trade and investment. We will investigate why nations trade, what they trade, and who gains from this trade. We will then analyze the motives for countries or organizations to restrict or regulate international trade and study the effects of such policies on economic welfare.

Topics covered will include the effects of trade on economic growth and wage inequality,

multinationals, foreign direct investment and international trade. We will also spend some time discussing aspects of the current debate on “globalization” such as the use of international labor standards, interactions between trade and environmental concerns, and the role of non-government organizations (NGOs). Although the course will emphasize the understanding of past and current events in the world economy, we will rely on formal economic modeling to help us understand these events. We will therefore extensively use micro-economic tools that you have learned in Economics 1010a or 1011a (a pre-requisite for this class). It is extremely important that you not only be familiar with these tools and models, but that you also feel comfortable using and manipulating them. If you are taking this class, I will assume this to be the case. If you do not feel absolutely comfortable with these models, I strongly urge you to review your Economics 1010a or 1011a text and notes early on in the semester.

 

Assessment

1. There will be 2 in-class midterm exams on Monday October 24 and Monday November 21 (each counting for 25% of the course grade), and one final exam (40% of the course grade). Please let me know as soon as possible if you anticipate any conflicts with these midterm dates. The exams will cover all the lecture material (including any extensions covered in section), all of the assigned textbook reading, and some of the additional readings. The specific readings that will be required for each exam will be announced well ahead of each exam date.

2. Several problem sets will be distributed during the semester. These problem sets will be collected and evaluated, and answers will be subsequently posted on the course web page. You are encouraged to discuss these problems with your classmates; however, you must write up your own answers.

3. I expect that you will have read the assigned textbook material before coming to lecture. You are strongly encouraged to participate in class discussions, both during lectures and section. Class participation, along with your problem set evaluations, will account for the remaining 10% of your course grade.

 

A final note…

I strongly urge you to carefully go over the assigned reading and to make sure you understand all the material in the problem sets. Doing this, along with class and section attendance, will be the best way to do well in the class. If you are experiencing any problems with this class, please come talk to me as early as possible so that these problems may be addressed.

Course Outline and Reading List

Readings in the textbook are abbreviated as “K-O”. Almost all the other readings are available online (see course web page for links). Several readings are contained in the following books: International Trade, Theory and Evidence by James Markusen et al, Pop Internationalism by Paul Krugman, Free Trade Under Fire by Douglas Irwin, and Has Globalization Gone Too Far? by Dani Rodrik. These books are all on reserve at Lamont (and sometimes Littauer). The Pop Internationalism and Free Trade Under Fire books are also available for purchase at the COOP (several of its chapters are on the reading list, and you may also be interested in reading through the rest of the books). The Free Trade Under Fire book provides an excellent non-technical discussion of most of the topics covered in this course. You may also want to use the book by James Markusen et al as a secondary textbook. In particular, you may find this a useful reference for the more technical parts of the course.

 

Week 1

Lecture 1: Monday 19th September

Introduction: Facts about trade. Big questions in trade.

Reading:

K-O 7th edition Chapters 1 and 2 or K-O 6th edition Chapter 1.

Paul Krugman: “What do Undergrads Need to Know about Trade?,” American Economic Review Papers and Proceedings, May 1993, p. 23-26

(in Pop Internationalism)

Douglas Irwin: “The United States in A New Global Economy? A Century’s

Perspective,” American Economic Review Papers and Proceedings, May 1996

Douglas Irwin: Free Trade Under Fire, Chapter 1.

Keith Head: “Gravity for Beginners.”

 

Lecture 2: Wednesday 21st September

Review of utility maximization and demand; Aggregation issues.

Reading:

James Markusen et al: International Trade, Chapter 3. (A review of properties of

indifference curves and utility maximization.)

Hal Varian: Intermediate Microeconomics, Chapters 2 – 6.

 

Week 2

Lecture 3: Monday 26th September

Endowment economies I.

Reading:

Hal Varian: Intermediate Microeconomics, Chapter 28.

 

Lecture 4: Wednesday 28th September

Endowment economies II.

Reading:

Hal Varian: Intermediate Microeconomics, Chapter 28.

Week 3

Lecture 5: Monday 3rd October First problem set due

The standard trade model I.

Reading

K-O (6th and 7th editions), Chapter 5.

Alan Deardorff: “Benefits and Costs of Following Comparative Advantage,” 1998.

Douglas Irwin: Free Trade Under Fire, Chapter 2.

 

Lecture 6: Wednesday 5th October

The standard trade model II.

Reading

K-O (6th and 7th editions), Chapter 5

Alan Deardorff: “Benefits and Costs of Following Comparative Advantage,” 1998.

Douglas Irwin: Free Trade Under Fire, Chapter 2.

 

Week 4

Holiday: Monday 10th October

 

Lecture 7: Wednesday 12th October Second problem set due

Ricardo I.

Reading

K-O Chapter 3 (7th edition), or K-O Chapter 2 (6th edition)

Paul Krugman: “Ricardo’s Difficult Idea,” in The Economics and Politics of

International Trade.

 

Week 5

Lecture 8: Monday 17th October

Ricardo II.

Reading

K-O Chapter 3 (7th edition), or K-O Chapter 2 (6th edition)

Paul Krugman: “Ricardo’s Difficult Idea,” in The Economics and Politics of

International Trade.

 

Lecture 9: Wednesday 19th October Third problem set due

Ricardo III.

Reading

K-O Chapter 3 (7th edition), or K-O Chapter 2 (6th edition)

Paul Krugman: “Ricardo’s Difficult Idea,” in The Economics and Politics of

International Trade.

 

Week 6

First midterm exam:  Monday 24th October

 

Lecture 10: Wednesday 26th October No problem set this week

Heckscher-Ohlin I.

Reading

K-O Chapter 4 (7th edition) or K-O Chapters 3 and 4 (6th edition)

Paul Krugman: “In Praise of Cheap Labor,” Slate, March 1997.

Frédéric Bastiat: “Petition of the Candle Makers,” Economic Sophisms, 1845.

 

Week 7

Lecture 11: Monday 31st October

Heckscher-Ohlin II.

Reading

K-O Chapter 4 (7th edition) or K-O Chapters 3 and 4 (6th edition)

Paul Krugman: “In Praise of Cheap Labor,” Slate, March 1997.

Frédéric Bastiat: “Petition of the Candle Makers,” Economic Sophisms, 1845.

 

Lecture 12: Wednesday 2nd November Fourth problem set due

Heckscher-Ohlin III.

Reading

K-O Chapter 4 (7th edition) or K-O Chapters 3 and 4 (6th edition)

Paul Krugman: “In Praise of Cheap Labor,” Slate, March 1997.

Frédéric Bastiat: “Petition of the Candle Makers,” Economic Sophisms, 1845.

 

Week 8

Lecture 13: Monday 7th November

Trade and wages debate I.

Reading

Paul Krugman and Robert Lawrence: “Trade, Jobs, and Wages,” Scientific American,

April 1994. (in Pop Internationalism)

Richard Freeman: “Are Your Wages Set in Beijing?,” Journal of Economic

Perspectives, Summer 1995.

Paul Krugman: “Does Third World Growth Hurt First World Prosperity?,” Harvard

Business Review, July-August 1994 (in Pop Internationalism)

Douglas Irwin: Free Trade Under Fire, Chapter 3.

Dani Rodrik: Has Globalization Gone Too Far?, Chapter 2.

 

Lecture 14: Wednesday 9th November No problem set this week

Increasing returns I.

Reading

K-O Chapter 6 (6th and 7th editions)

 

Week 9

Lecture 15: Monday 14th November

Increasing returns II.

Reading

K-O Chapter 6 (6th and 7th editions)

 

Lecture 16: Wednesday 16th November Fifth problem set due

Increasing returns III.

Reading

K-O Chapter 6 (6th and 7th editions)

 

Week 10

Second midterm exam: Monday 21st November

 

Lecture 17: Wednesday 23rd November No problem set this week

Trade policy I.

Reading

K-O, Chapter 8-9

Robert Feenstra: “How Costly is Protectionism?,” Journal of Economic Perspectives,

Summer 1992.

Robert Baldwin: “The Political Economy of Trade Policy,” Journal of Economic

Perspectives, Fall 1989.

Paul Krugman: “Is Free Trade Passe?,” Journal of Economic Perspectives, Fall 1987.

 

Week 11

Lecture 18: Monday 28th November

Trade policy II.

Reading

K-O, Chapter 8-9

Robert Feenstra: “How Costly is Protectionism?,” Journal of Economic Perspectives,

Summer 1992.

Robert Baldwin: “The Political Economy of Trade Policy,” Journal of Economic

Perspectives, Fall 1989.

Paul Krugman: “Is Free Trade Passe?,” Journal of Economic Perspectives, Fall 1987.

 

Lecture 19: Wednesday 30th November

Trade agreements

Reading

Douglas Irwin: Free Trade Under Fire, Chapter 5 and 6.

Alan Deardorff and Robert Stern: “What the Public Should Know about

Globalization and the World Trade Organization,” July 2000, Part III.

Paul Krugman: “The Uncomfortable Truth About NAFTA,” Foreign Affairs,

November 1993. (in Pop Internationalism)

 

Week 12

Lecture 20: Monday 5th December Sixth problem set due

Factor Mobility I: Labor

Reading

K-O, Chapter 7, pp.148-154 and Appendix I

George Borjas, Richard Freeman and Lawrence Katz, “Searching for the Effect of Immigration on the Labor Market,” American Economic Review, May1996, pp. 246-251.

 

Lecture 21: Wednesday 7th December

Factor Mobility II: Capital

Reading

K-O, Chapter 7

James Markusen: “The Boundaries of Multinational Enterprises and the Theory of

International Trade”, Journal of Economic Perspectives, Spring 1995.

Robert Feenstra: “Integration of Trade and Disintegration of Production in the Global

Economy,” Journal of Economic Perspectives, Fall 1998.

 

Week 13

Lecture 22: Monday 12th December

Trade and development I.

Reading

K-O, Chapter 10

Jeffrey A. Frankel and David Romer, “Does Trade Cause Growth?” American Economic Review, June 1999, pp. 379-399.

Romain Wacziarg and Karen Horn Welch, “Trade Liberalization and Growth: New Evidence,” November 2003

 

Lecture 23: Wednesday 14th December Seventh problem set due

Trade and development II.

Reading

Douglas Irwin: Free Trade Under Fire, Chapter 6.

Phillip McCalman, “Reaping What You Sow: An Empirical Analysis of International Patent Harmonization,” Journal of International Economics 55 (2001), pp. 161-186.

Lee Branstetter, Ray Fisman, Fritz Foley and Kamal Saggi, “Intellectual Property Rights, Imitation and Foreign Direct Investment: Evidence and Theory,” October 2005

Penny Goldberg and Nina Pavcnik, “Trade, Inequality and Poverty: What Do We Know?” Brookings Trade Forum 2004, 223-269.           

 

Week 14

Lecture 24: Monday 19th December

Review