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International Economics

ECON-UA 238.004 New York University, Fall 2011 by Arhan Ertan

Email: Office Hours: Tuesday & Thursday, 14:00 15:00 (by appointment) Teaching Assistant: Fernando Leibovici (

Course Description:
This course is designed to help students understand the nature and determinants of international good and factor movements and the economic impact of international trade patterns and trade policy around the world. We will develop theories of international trade in order to explain the factors that affect international flow of goods and services and in order to analyze the question whether free trade improves welfare. The implications of various possible restrictions on international trade (import tariffs, quotas, voluntary export restraints, etc.) will be discussed. The incentives for countries and international organizations to free or restrict trade will be analyzed drawing welfare consequences. At the end of the semester, students will be able to evaluate domestic and international economic consequences of trade policies, custom unions and trade agreements.

Prerequisites: Formal economic modeling will be developed and used. Therefore, it is

essential that you feel comfortable with using the micro-economic models and tools developed in an introductory level Microeconomics course.

Textbook and Other Readings:

Main Textbook: Paul Krugman and Maurice Obstfeld, International Economics: Theory and Policy, 8th edition (ISBN: 0-321-48883-0) Lectures will draw heavily from contents of this book. Valuable resources for students can be found at the textbook support site: Other readings will be mostly chosen from Paul Krugmans Pop Internationalism and Douglas Irwins Free Trade under Fire. Additional readings may be referred from time to time in order to cover applications of the theories studied in class. In that case, I will make them available on the course web page or will hand them out in class. Another useful (not required) textbook, which can be used as a reference for the more mathematical or technical parts of the course is: James Markusen et al, International Trade, Theory and Evidence.

HWs and Quizzes Term Paper / Presentations Final Exam 40% 25% 35%

HWs and Exams: You are welcome to work in pairs on the HW problems. HWs
handed in after the due time, but before answers are posted will be marked down by 50%. If you miss a quiz or HW without a legitimate excuse you will get 0 points. Absence from quizzes and final exam will be granted only in the event of medical or family emergencies which must be documented. Any other requests for absence from the scheduled exams must be presented in writing within the first two weeks of the semester and will be evaluated on a case by case basis. If you cannot take a quiz with a legitimate excuse, its weight will be added to the final exam. You will not be allowed to take the quizzes and exams if you cannot show your ID. Any student found cheating will receive an F for the course and will be referred to the Department Chair Person and Class Dean for appropriate action.

Term Paper: You are required to write a term paper in which you will analyze the
international trade patterns and trade strategy of a country of your choice and try to come up with policy recommendations specific to that country. Your analysis should include economic analysis and utilize the methods and concepts covered in lectures and you should support your arguments with data and report your references. You will work on this project in groups (# of students in each group will be determined depending on the class size). You are free to choose your friends to work with but you should choose the country that you will analyze from the list that I will provide. Each group will present their work during the last three weeks of the semester.

Attendance: Although attendance is optional, regular class attendance is strongly

recommended. Repeated absences can significantly (and negatively) impact your final grade for the course. Using laptops, cell phones, MP3 players is not allowed during lectures.

Some Useful Web Sites:

o World Trade Organization: Vast amount of information about the WTO and its dispute settlement processes. o Global Trade Negotiations: Lots of news and opinion on a widenrange of trade negotiation issues. o US Trade Representative: USTR is the negotiation arm of US trade policy making; these are its briefs for disputes. o The Economist: o Alan Deardorffs Glossary of International Economics:

Course Schedule
Note: This schedule is tentative and adjustments can be made as necessary.

Week 1

Introduction and an Overview of World Trade Who Trades with Whom? The Changing Pattern of World Trade Labor Productivity and Comparative Advantage: The Ricardian Model The Concept of Comparative Advantage A One-Factor Economy Trade in a One-Factor World Misconceptions About Comparative Advantage Comparative Advantage with Many Goods Adding Transport Costs and Non-traded Goods Empirical Evidence on the Ricardian Model Resources, Comparative Advantage, and Income Distribution A Model of a Two-Factor Economy Effects of International Trade Between Two-Factor Economies The Political Economy of Trade: A Preliminary View Empirical Evidence on the Heckscher-Ohlin Model The Standard Trade Model A Standard Model of a Trading Economy International Transfers of Income Tariffs and Export Subsidies Economies of Scale, Imperfect Competition, and International Trade Economies of Scale and International Trade Economies of Scale and Market Structure The Theory of Imperfect Competition Monopolistic Competition and Trade Dumping The Theory of External Economies External Economies and International Trade Economic Geography and Interregional Trade International Factor Movements International Labor Mobility International Borrowing and Lending Direct Foreign Investment and Multinational Firms

1, 2

Week 2

Week 3, 4

Week 4, 5

Week 6

Week 7

Week 8

Week 9

The Instruments of Trade Policy Basic Tariff Analysis Costs and Benefits of a Tariff Other Instruments of Trade Policy The Effects of Trade Policy: A Summary The Political Economy of Trade Policy The Case for Free Trade National Welfare Arguments Against Free Trade Income Distribution and Trade Policy International Negotiations and Trade Policy The Doha Disappointment Trade Policy in Developing Countries Import-Substituting Industrialization Results of Favoring Manufacturing: Problems of Import-Substituting Industrialization Trade Liberalization Since 1985 Export-Oriented Industrialization: The East Asian Miracle Controversies in Trade Policy Sophisticated Arguments for Activist Trade Policy Globalization and Low-Wage Labor Globalization and the Environment Student Presentations Review for the Final Exam FINAL EXAM

Week 9, 10


Week 10, 11


Week 11, 12, 13 December