Spring 2013 Ag. Econ. 533 International Trade and Policy Instructor: Class Time: Office Hours: Office: Telephone: Email:

Stephen Devadoss TR 11:00-12:15 TR 1:00-2:00 p.m. Ag Sc 28C 885-6806 [email protected]

Website:

Syllabus, course lectures, problem sets, past exams, and class project topics are posted in http://webpages.uidaho.edu/agecon533/ and https://bblearn.uidaho.edu/.

Please print each class lecture notes before coming to the class. Texts: Houck, J. P. Elements of Agricultural Trade Policies, Waveland Press, Inc., Prospect Heights, IL, 1992. Other Texts (Recommended not Required): Enders, W. and H. Lapan. International Economics: Theories and Policy, Englewood Cliffs, NJ: Prentice Hall, 1987. Salvatore, D. International Economics, John Wiley & Sons, Inc., New York, 2001. Markusen, et. al. International Trade: Theory and Evidence, McGraw Hill, New York, 1995. Grading: Grades Homework Class Participation Quiz Class Project Exam 1 Exam 2 Final

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Students can also earn points by answering questions correctly in the class, completing special assignments, and lecturing some classes. Class Attendance: You will be excused for two class absences with permission. Any absences beyond two will lead to reduction in scores. For the first absence, you lose one percent of the score; for the second absence, you lose two percent of the score; for the third absence, you lose three percent of the score. Thus, if you miss five classes, you will lose 15% of the grade scores.

Course Description AgEc 533 International Trade and Policy (3 credits). Basic international trade theories; agricultural trade models; impacts of domestic and trade policies on agricultural markets; regional and global trade liberalizations; macroeconomics issues impacting trade. Prerequisite: Econ. 446 International Economics, AgEc 481, or with instructor's permission. Objectives of the course are for students to be able: 1.

To learn basic trade theories (Heckscher-Ohlin Theory, Ricardian Theory, Linder Hypothesis, and New Trade Theory).

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To understand agricultural trade issues as they relate to U.S. policies and marketing strategies and world economic events.

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To examine problems, conflicts, and interdependency in the global food economy.

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To understand the uses of empirical and theoretical tools as they apply to agricultural trade.

The course will cover trade theories and various trade policies. Subjects to be examined include: Heckscher-Ohlin Theory, Ricardian Theory, Linder Hypothesis, and New Trade Theory; interventions in international markets such as tariff and non-tariff restrictions; international marketing institutions and mechanisms including state trading and marketing boards; domestic agricultural price, resource, and income policies as they interact through international markets; the economics of international commodity stabilization schemes including international buffer stock and export quota schemes, and international cartels; and sector development policies and strategies in developing countries as they relate to agricultural and other primary commodity trade issues. The above topics will be approached from the perspective of their implications for U.S. trade policy and marketing strategies, their global significance for the world's food and resource needs, and goals and needs of developing countries. Empirical research problems and the state of the arts of empirical knowledge and methodologies as they relate to international trade will be examined where appropriate during the course.

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General Notes 1.

Readings will be assigned in advance of class lecture and students are expected to read the assigned materials before coming to the class. Students who read the assigned readings come prepared to the class and grasp the materials easily. Students are well informed of the subject matters to be covered in each and every lecture.

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In almost every class, problems will be assigned. Students are expected to solve the assigned problems and other problems in the text. Problems assigned as homework need to be turned in within one week. Answers should be written neatly.

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The quiz will be given on any day of the class, so students are expected to read the material and be ready for the quiz. Frequency of quizzes will increase if I feel that students coming to the class unprepared. Thus, accumulating the workload will not help you.

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Students can also earn points by answering questions correctly in the class, completing special assignments, and lecturing some classes.

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Exam questions will be similar (but not identical) to old exam questions, homework problems, and examples in the class. Copies of old exams are posted in the website. Refer to the questions in the old exams, homework problems, and examples in the class while you are preparing for the exams. If you solve the questions in the old exams, I would be more than glad to go over your answers and clarify your doubts.

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Heavy emphasis will be placed on using mathematics in this course. Therefore, if students feel that they are not understanding the mathematics used in this class, they should review the materials and/or clarify with me immediately. Do not accumulate your doubts in mathematics; you will find it difficult to follow the lectures and texts.

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Any concerns about the course need to be addressed right away. Do not accumulate the concerns until the end of the semester.

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Students are encouraged to ask questions in the classroom and discuss questions with me during the office hours. Any subject matter questions can be asked without hesitations. No (subject matter) question is a dumb question. This class will not be one-way communication from the instructor to students, but two-way communication between students and the instructor. I will make every effort to help you do well in this course.

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Mathematical economics is not a spectator sport.

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Emphasis is placed on understanding the subject matter. Do not memorize the materials without understanding it. Students who understand the material and work hard do well in my class.

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This course does not cover materials related to Accounting, Business, Forestry and other majors not related to Economics and Agricultural Economics. If you are from any of these majors, glance through the textbook to see whether the materials in the book are the ones you intend to learn. If you find the materials are not suited to your requirements, you 3

are in the wrong class. 12.

I do not allow reading newspapers and talking among students in the class for these activities disturb my lecture and also other students. Cell phones must be turned off during lectures.

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I give points for answering relatively difficult questions in the class. This will encourage student participation and discussion in the class and also test your understanding of the materials in this course and other economics courses.

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The materials learned in this course will be useful for other graduate courses such as Microeconomics, Macroeconomics, Econometrics, Trade, Production Economics, and Natural Resources. The tools learned in this course can be used to solve applied and theoretical economic problems. This course will also help to tackle economic problems in an organized and systematic way, which will come very handy in your future jobs.

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Make-up tests will be different and more difficult from the regular tests to ensure fairness to the students who take the regular tests.

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Some of the math used in this course are very basic and are covered in the high schools in the United States. In particular, Ph. D. students may find some of the materials too easy. Some students may have been exposed to these materials, but some may not have learned these materials. If you know these materials you need to be patient and bear with my lectures as I have to bring other students up to date on the subject matter.

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If you plan to get a Ph. D. degree in Economics or Agricultural Economics and pursue a career in academics (particularly doing teaching and research), you need to know the materials in College Algebra, Analytic Trigonometry, Calculus I, Calculus II, Calculus III, Ordinary Differential Equations, Linear Algebra, Real Analysis, Probability Theory, and Statistical Analysis. These are not an exclusive set by any means. However, knowing the materials in these courses will make your job much easier.

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Overall teaching approach: Good organization of daily lectures and overall course; well prepared for class lectures; advance notice of the materials to be covered in each lecture; step-by-step explanation; ample of examples; graphical analyses to supplement the math; lot of opportunities to ask questions in the class; student participation in the class; and emphasis on understanding the materials.

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Disability Support Services Reasonable Accommodations Statement: Reasonable accommodations are available for students who have documented temporary or permanent disabilities. All accommodations must be approved through Disability Support Services located in the Idaho Commons Building, Room 306 in order to notify your instructor(s) as soon as possible regarding accommodation(s) needed for the course. •

885-6307

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email at

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website at

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Topic Outline and Readings I. Introduction, Trade Analysis, and Trade Models 1.

Introduction and Importance of Trade Houck, AIntroduction and Scope,@ Chapter 1. Walter, E., and H. Lapan. Chapter 1. Salvatore, Dominick. Chapter 2 Markusen, et. al. Chapter 1.

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Microeconomic Foundation, Autarky, Free Trade, and Gains From Free Trade Autarky Equilibrium Production Possibility Frontier and Supply Preference, Demand, and Welfare Import Demand and Export Supply Schedules Large and Small Country Assumptions Price and International Trade Free Trade and World Price Determination Partial and General Equilibrium in Closed and Open Economy Surplus Measures Gains from Trade: Partial and General Equilibrium Approaches Devadoss, S. Basic Analysis of Autarky and Free Trade Models Houck, APartial Equilibrium Setting for Trade Policy Analysis,@ Chapter 4. Walter, E., and H. Lapan. Chapter 2 and 5. Salvatore, Dominick. Chapters 3 and 4. Markusen, et. al. Chapters 2-5.

3. Trade Models Non-spatial equilibrium trade model Devadoss S., et.al., AThe World Wheat trade Model: Specification, Estimation, and Validation.@ Technical Report 90-TR14. CARD, Iowa State University, Ames. 1990. Spatial equilibrium trade model Takayama T. and Judge G. G., Spatial and Temporal Price and Allocation Models, North-Holland, 1971.

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Devadoss. S., AIs there an End to U.S.-Canadian Lumber Disputes?@ Journal of Agricultural and Applied Economics, 38(1) April 2006:137-153. Armington trade model Armington Paul S., A Theory of Demand for Products Distinguished by Place of Production, IMF working paper, pp. 159-176. II. Trade Theories 4. Comparative Advantage Houck, ABasic Concepts: Comparative Advantage, Specialization, and Gains from Trade,@ Chapter 2 Walter, E., and H. Lapan. Chapter 3 and 4. Salvatore, Dominick. Chapter 2. Markusen, et. al. Chapters 7. Jabara, Cathy L. and Robert L. Thompson. "Agricultural Comparative Advantageunder International Price Uncertainty: The Case of Senegal." American Journal of Agricultural Economics, May, 1980, pp. 188-198. Pearson, Scott R. and Ronald K. Meyer. "Comparative Advantage Among AfricanCoffee Producers." American Journal of Agricultural Economics, May, 1974, pp.310-313. Tweeten, Luther. Agricultural Trade, Chapter 2. 5. Heckscher-Ohlin Theory Walter, E., and H. Lapan. Chapter 6. Salvatore, Dominick. Chapter 5. Markusen, et. al. Chapters 8. 6. Imperfect Competition and Trade Salvatore, Dominick. Chapter 6. Markusen, et. al. Chapters 11 and 12. 7. Linder Hypothesis Markusen, et. al. Chapter 13. III. Trade Policies 7

8. Policy, Protection, and Agriculture Houck, APolicy, Protection, and Agriculture,@ Chapter 3. 9. Import Tariffs and Quotas Houck, ATariffs and Quota,@ Chapter 5. Tweeten, Luther. Agricultural Trade, Chapters 4 and 5. Walter, E., and H. Lapan. Chapter 8 and 9. Salvatore, Dominick. Chapter 8 and 9. Markusen, et. al. Chapters 15 and 16. Devadoss, S., and T. Wahl, AWelfare Impacts of Indian Apple Trade Policies,@ Applied Economics, 36, 2004:1289-1294. Anderson, Kym. AThe Peculiar Rationality of Beef Import Quotas in Japan.@ American Journal of Agricultural Economics (February, 1983), pp. 108-112. Stoddart, Harry. AThe North American Hog and Pork Industry: Implications of a Countervailing Duty on Pork.@ American Journal of Agricultural Economics (December 1991), pp. 1562-69. Williams, A. T. "Estimating the Cost to Consumers of the U.S. Sugar Quota: An Exercise for Introductory Economics Classes," Journal of Economic Education, Spring 1997. 10. Importer=s Domestic and Other Trade Policies. Houck, "Price Guarantees with Variable Levies or Deficiency Payments," Chapter 6.. Houck, " Propotional Import Quotas and Production Subsidies," Chapter 7. Leu, Gwo-Jiun M., Andrew Schmitz, and Ronald D. Knutson. "Gains and Losses of Sugar Program Policy Options," American Journal of Agricultural Economics. (August, 1987), pp.591-602. Houck, "Voluntary Import Quotas and other Administrative Trade Distortions," Chapter 8. Allen Roy, Claudia Dodge, and Andrew Schmitz, "Voluntary Export Restraints as Protection Policy: the U.S. Beef Case," American Journal of Agricultural Economics, 65 (1983) 291-97. Tweeten, Luther. Agricultural Trade, Chapters 4 and 5.

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Markusen, et. al. Chapter 10. 11. Import and consumption subsidies Houck, AImport and Consumption Subsidies,@ Chapter 9. Markusen, et. al. Chapter 10. 12.

Export Expansion with Subsidies and Price Guarantee Policies. Houck, AExport Expansion with Price Guarantees, Subsidies, and Promotion,@ Chapter 10. Schmitz, A., and R. Chambers. AWelfare and Trade Effects of Deficiency Payments.@ Journal of Agricultural Economics, 37(1), 1986, pp. 37-43. Houck, J. P, "The Basic Economics of an Export Bonus Scheme," North Central Journal of Agricultural Economics, 8(2), 1986, pp. 227-35. Tweeten, Luther. Agricultural Trade, Chapters 4 and 5. Leu, Gwo-Jiun M., Andrew Schmitz, and Ronald D. Knutson. "Gains and Losses of Sugar Program Policy Options," American Journal of Agricultural Economics. (August, 1987), pp.591-602.

13. State Trading and Market Boards Houck, AMarket and Price Discrimination,@ Chapter 11. 14. Export Taxes, Controls, and Embargoes Houck, "Export Taxes, Controls, and Embargoes," Chapter 12. 15. Traded Intermediate Goods Houck, AIntermediate versus Final Goods: Trade and Effective Protection,@ Chapter 13. 16. Trade Preferences and Free Trade Areas. Houck, J.P. "Trade Preferences," Chapter 14. Rosson, C. P. et al. "Preferential Trading Arrangements: Gainers and Losers from Regional Trading Blocs," No. 8 in Southern Agriculture in a World Economy, June 1996. Devadoss, S. et al. "Trade Creation and Diversion Effects of North American Free Trade Agreement of U.S. Sugar Imports from Mexico," Journal of Agricultural and Resource Economics, 20(2), December 1995: 215-230.

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17. Exchange Rates and Trade Policies Houck, ACurrency Exchange Rates and Trade Policy,@ Chapter 15. Schuh, G.E. "The Exchange Rate and U.S. Agriculture," American Journal of Agricultural Economics 1974, 56, pp. 1-13. Tweeten, Luther. Agricultural Trade, Chapter 6. 18. Protectionism and International Price Stability Houck, James P. "Production Protection, World Prices, Trade Stability," Chapter 16. Bigman, "Stabilization and International Trade", Ch 6, pp. 249-275. Coping With Hunger, Ballinger, 1982. *Bigman, Chapter 2: "The Theory of Commodity Price Stabilization and Buffer Stocks Operation." pp. 45-82. Chapter 4: "Th\e Role and Effects of Buffer Stocks." pp. 115-184. Coping With Hunger, Ballinger, 1982. Devadoss, S. "Market Interventions, International Price Stabilization, and Welfare Implications," American Journal of Agricultural Economics, 74(2), 1992, pp. 281-290. *Just, Richard E., Ernst Lutz, Andrew Schmitz, and Stephen Turnovsky. "The Distribution of Welfare Gains from International Price Stabilization under Distortions." American Journal of Agricultural Economics, November, 1977, pp.652-661. Shei, Shun-Yi and Robert L. Thompson. "The Impact of Trade Restrictions on Price Stability in the World Wheat Market," American Journal of Agricultural Economics, November, 1977, pp. 628-638.

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Class project description for Ag. Econ. 533 International Trade and Policy Outline of Paper Due: October 16 (Conferences will be scheduled on October 17 to discuss the progress of your paper) Final Paper Due Date: Second Week of December Outline for the Class Project Introduction Nature of the Problem and its Significance Objectives Methodology Proposed Theoretical Analysis Proposed Empirical Analysis Data Source and Collection Results Interpretation Discussion Policy Implications Conclusions Summary Selected Topics for Research Projects !

Political Economy of Agricultural and Free Trade Policies The administration wants to pursue free trade policies but congress want to provide more subsidies to support its constituents.

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A model of production subsidies and countervailing duties

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Specific factor and political economy

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Exchange rates and trade policies

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Identical factor intensities across the countries may not realistic. For example the U.S. agriculture in capital intensive, but developing countries= agriculture is labor intensive

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Specific factor, factor immobility, and unemployment in the H-O model. 11

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Implications of WTO agreements for Idaho commodity markets

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Export potential for Idaho commodities

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Economics surrounding US – Canadian lumber disputes

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Idaho – Mexican trade since the implementation of NAFTA

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Overview of globalization

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Economic reforms, trade analysis, and growth of a selected country

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Trade analysis for a selected commodity

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Brazilian Country Study

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Effects of NAFTA on US Agriculture

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Multilateralism Vs regionalism

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The EU-US Banana Dispute

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The World Trade Organization

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Canadian-Softwood Lumber Dispute

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Doha Round and U.S. Farm Bill

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Country of Origin Labeling

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An Economic Overview of Japan

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NAFTA, Mexico, and The United States

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