RYERSON UNIVERSITY FACULTY OF ARTS

DEPARTMENT OF ECONOMICS WINTER 2018

International Trade Theory and Policy EF 8931

Lecture: Tuesdays 6-9, VIC 101

Instructor: Dr. Paul Missios
Office: JOR 227 (Jorgenson Hall)
E-mail: pmissios@ryerson.ca
TA: Dorianne Intugane
Tutorials/Office Hours: Fridays 1-2

1. Background of the Theory and Objectives

This course covers the economic theory of international trade. A good deal of our time will be spent
examining the reasons countries trade with one another and the welfare consequences of such trade.
International trade theory is built around three fundamental ideas: comparative advantage, economies of
scale, and imperfect competition. Each of these ideas will be developed in detail in order to shed light on
the actual global patterns of trade.

2. Requirements

Textbook and Readings: There are no required textbooks. The recommended textbooks are as follows:

Recommended Textbooks:

-Advanced International Trade, Robert Feenstra, Princenton University Press, 2004

-Imperfect Competition and International Trade, edited by Gene M. Grossman, MIT Press, 1992
-Market Structure and Foreign Trade, Elhanan Helpman, Paul R. Krugman, MIT Press, 1985
-The Economics of Trade Protection, Neil Vousden, Cambridge University Press, 1990.
-Modern International Economics by Wilfred J. Ethier, W. W. Norton & Company, 1995
-Trade Policy and Market Structure, Helpman, Elhanan and Paul Krugman, MIT Press, 1985
-The Handbook of International Economics, vol 3, edited by Gene M. Grossman and Ken Rogoff, Elsevier
Science Publishers, 1995

I will also assign readings (see below) from economics journals that supplement these textbooks.

Exams and Grade: Your grade will be based on a midterm test (30%), a final exam (40%), 3 assignments
(15%) and a written referee report (15%). Make up exams will be given only in the case of emergencies for
which you must provide supporting documentation.

Midterm: March 13, 2018

3 Assignments: February 6, March 6, April 3, 2018
Referee Report: due at final exam, 2018
Final Exam: during final exam period (date and time TBA)
Class Participation: All students are expected to participate in class discussions. Feel free to meet with me
outside class if you want to further discuss the material covered during class lectures. In case you are unable to
make my office hours, please make an appointment with me for an alternative time.

3. Reading List
1. Introduction

2. Classical Trade Theory: Trade under Perfect Competition

 The Ricardian Model of Trade

o The Basic 2x2x1 Model
o Extension of the Basic Model
 Dornbusch, R., S. Fischer, and P. Samuelson, "Comparative Advantage, Trade and
Payments in Ricardian Model with Continuum of Goods", American Economic Review
67, 1977: 823-39.
o Empirical Test of the Ricardian Model
 Belassa, B., "An empirical Demonstration of Classical Comparative Cost Theory,
Review of Economics and Statistics 45(3), 1963: 231-38.
 The Heckscher-Ohlin Model of Trade
o The Basic 2x2x2 Model
o Extension of the Basic Model
 Vanek, J., "Factor Proportions Theory: The N-Factor Cases", Kyklos 21(4), 1968: 749-56.
Deardorff, A.V., "Weak Links in the Chain of Comparative Advantage", Journal of
International Economics 9(2), 1979: 197-209.
 Deardorff, A.V., "The General Validity of the Heckscher Ohlin Theorem", American
Economic Review 72(4), 1982: 683-694.

o Empirical Tests
 Leontief, W., "Domestic Production and Foreign Trade: The American Capital Position
Reexamined", Econ. Internazionale 7, 1954: 3-32, reprinted in "Readings in
International Trade", edited by R.E. Caves and H.G. Johnson, Irwin, 1968.
 Leamer, E.E., "The Leontief Paradox, Reconsidered" Journal of Political Economy,
88(3), 1980: 495-503.

3. Scale Economies and Product Differentiation

Ethier, Wilfred J. 1982. “Decreasing Costs in International Trade and Frank Graham’s Argument for
Protection.” Econometrica 50: 1243-1268.
Krugman, Paul R. 1979. “Increasing Returns, Monopolistic Competition and International Trade.” Journal of
International Economics 9: 469-480.
Krugman, Paul R. 1980. “Scale Economies, Product Differentiation and the Pattern of Trade.” American
Economic Review 70: 950-959.
Krugman. Paul R. 1981. “Intraindustry Specialization and the Gains from Trade.” Journal of Political
Economy 89: 959-973.
Lancaster, Kelvin 1980. “Intra-Industry Trade under Perfect Monopolistic Competition.” Journal of
 International Economics 10: 151-175.

4. Heterogeneous Firms

Eaton, J., and S. Kortum 2002: “Technology, Geography and Trade,” Econometrica, 70(5), 1741–1779.
Bernard, A.B., J. B. Jensen, J. Eaton, and S. Kortum 2003: “Plants and Productivity in International Trade,”
American Economic Review, 93(4), 1268–1290.
Melitz, M.J. 2003: “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry
Productivity,” Econometrica, 71(6), 1695–1725.

5. Imperfect Competition and Strategic Trade Policy

Brander, James A. and Paul R. Krugman, 1983. “A ‘Reciprocal Dumping’ Model of International Trade,”
Journal of International Economics 15: 315-323.
Brander, James A. and Barbara J. Spencer, 1985. “Export Subsidies and International Market Share Rivalry,”
Journal of International Economics 18: 83-100.
Grossman, Gene M. and Jonathan Eaton, 1986. “Optimal Trade and Industrial Policy under Oligopoly,”
Quarterly Journal of Economics 101: 383-406.

6. Multilateralism (GATT, WTO), Regionalism and Selected Topics in Trade Policy

Bagwell, Kyle and Robert W. Staiger, 1999. “An Economic Theory of GATT.” American Economic Review
89(1): 215-248.
Grossman, Gene M. and Elhanan Helpman, 1994. “Protection for Sale,” American Economic Review 84: 833-
850.
Krishna, Pravin, 1998. “Regionalism and Multilateralism: A Political Economy Approach.” Quarterly Journal
of Economics: 227-251.

Maggi Giovanni and Andres Rodriguez- Clare "The value of trade agreements in the presence of political
pressures," Journal of Political Economy, vol. 106, pp.574-601, June 1998.

Maggi, Giovanni and Andres Rodriguez-Clare “A Political-Economy Theory of Trade Agreements,” The
American Economic Review, September 2007.

Ornelas, Emanuel, 2005. “Endogenous Free Trade Agreements and the Multilateral Trading System.” Journal
of International Economics 67: 471-497.