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Georgetown University Department of Economics

Fall 2000 Professor Mitch Kaneda

ECON-651 INTERNATIONAL TRADE

Lectures: Mondays and Wednesdays 10:15-11:30 am at ICC 119 Office Hours: Mondays 4:45-6:15 pm Tuesdays 4:45-6:15 pm or by appointment Office: ICC 554, 687-5894

Requirements: Presentation:

20% of grade

Midterm Exam: date:

30% of grade to be announced

Final Exam: date:

50% of grade Thursday, Dec. 14, 4:00pm

Prerequisites: - 1st Year graduate economics sequence, or equivalent - undergraduate level knowledge of international trade theory - math (Dixit-Norman's appendix) Required Texts: Markusen, Melvin, Kaempfer and Maskus (MMKM) International Trade: Theory and Evidence McGraw-Hill, 1995 Helpman and Krugman (HK II) Trade Policy and Market Structure MIT Press, 1989

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Recommended Books: Wong, Kar-yiu (W) International Trade in Goods and Factor Mobility MIT Press, 1995 Helpman and Krugman (HK I) Market Structure and Foreign Trade MIT Press, 1985 Dixit and Norman (DN) Theory of International Trade Cambridge University Press, 1980 Grossman, ed. Imperfect Competition and International Trade MIT Press, 1992 Jones and Kenen, eds. Handbook of International Economics, Volume 1: International Trade North-Holland, 1984 Grossman and Rogoff, eds. Handbook of International Economics, Volume 3: International Trade Theory and Policy, and Open Economy Macroeconomics and International Finance North-Holland, 1995

Undergraduate Level Texts: Paul Krugman and Maurice Obstfeld International Economics: Theory and Policy HarperCollins Publishers, 1994 Wilfred Ethier Modern International Economics Norton, 1988, 1995

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PRESENTATION This requirement is to give a 30-minute presentation of a paper chosen from a list which is to be distributed at a later date. The presentation should include a general summary, the paper’s motivations, the model and results, and your critique of the paper. COURSE OBJECTIVE 1. 2. 3. 4.

To attain the understanding the most sophisticated arguments in the positive and normative theories of international trade. To become capable of reading and understanding papers. To become a good presenter. To become capable of writing and publishing papers.

COURSE OUTLINE A.

Trade Theory and Policy: Perfect Competition (Neoclassical Models) 1. Basics MMKM, Chapters 1 to 5 DN, Chapter 3 2. Causes and Effects of Trade MMKM, Chapters 6 to 9 DN, Chapter 1 W, Chapters 2, 3 3. Trade Policy Under Perfect Competition MMKM, Chapters 15, 16 HK II, Chapter 2 4. External Economies of Scale MMKM, Chapter 12 HK I, Chapter 3 W, Chapter 5 Keywords: comparative advantage, gains from trade, pattern of trade, Ricardian model, Heckscher-Ohlin model, specific factors model, comparative statics, factor price equalization, optimum tariff, quotas, NTBs

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B.

Trade Theory and Policy: Imperfect Competition 1. Non-Differentiated (Homogeneous) Goods HK II, Chapters 3 to 6 MMKM, Chapters 11, 12, 17 HK I, Chapter 5 W, Chapter 7, 12 Keywords: monopoly, oligopoly, market segmentation, intraindustry trade, strategic trade policy 2. Differentiated Goods MMKM, Chapter 12.6 HK I, Chapters 6, 7 HK II, Chapter 7 W, Chapter 6 Keywords: product differentiation, intraindustry trade

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Topics (depending on time available) 1. Direct Foreign Investment and Multinational Corporations HK I, Chapters 12, 13 MMKM, Chapter 22 W, Chapter 13 2. International Economic Integration MMKM, Chapter 18 Greenaway and Winters, Chapter 9 3. Political Economy of Trade Policy MMKM, Chapter 19 Greenaway and Winters, Chapter 6 4. Trade and Growth Grossman and Helpman 5. Empirical Studies of Trade Models MMKM, Chapter 14 Greenaway and Winters, Chapter 4

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LITERATURE LIST Books/Volumes: Bhagwati, ed. International Trade: Selected Readings, 2nd Edition MIT Press, 1987 Chacholiades International Trade Theory and Policy, Revised Ed McGraw-Hill, 1978 (neo-classical theory only) Greenaway and Winters, eds. Surveys in International Trade Blackwell, 1994 Krugman, ed. Strategic Trade Policy and the New International Economics MIT Press, 1986 Grossman and Helpman Innovation and Growth in the Global Economy MIT Press, 1991 Helpman and Razin A Theory of International Trade Under Uncertainty Academic Press, 1978 Vousden The Economics of Trade Protection Cambridge University Press, 1990 Leamer Sources of International Comparative Advantage MIT Press, 1984 Papers:

(* = in Grossman, ed., Imperfect Competition and International Trade, 1992)

1. Milestone Papers in the Neo-Classical Trade Theory Samuelson, P.A., 1939, "The Gains from International Trade," Canadian Journal of Economics and Political Science 5: 195-205. Stolper, W. and P.A. Samuelson, 1941, "Protection and Real Wages," Review of Economic Studies 9: 58-73.

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Samuelson, P.A., 1948, "International Trade and the Equalization of Factor Prices," Economic Journal 58: 163-184. Samuelson, P.A., 1949, "International Factor Price Equalization Once Again," Economic Journal 59: 181-196. MacDougall, G.D.A., 1951 and 1952, "British and American Exports: A Study Suggested by the Theory of Comparative Costs," Economic Journal 61: 697-724 and 62: 487-521. Leontief, W., 1953, "Domestic Production and Foreign Trade: The American Capital Position Re-examined," Proceedings of the American Philosophical Society 97: 331-349. Samuelson, P.A., 1953, "Prices of Factors and Goods in General Equilibrium," Review of Economic Studies 21: 1-20. Rybczynski, T.M., 1955, "Factor Endowments and Relative Commodity Prices," Economica 22: 336-341. Mundell R., 1957, "International Trade and Factor Mobility," American Economic Review 47: 321-335. Bhagwati, J., 1965, "Immiserizing Growth: A Geometrical Note," Review of Economic Studies 25: 201-205. Jones, R.W., 1965, "The Structure of Simple General Equilibrium Models," Journal of Political Economy 73: 557-572. Chipman, J.S., 1965, "A Survey of the Theory of International Trade: Part 1, The Classical Theory," Econometrica 33: 477-519. Chipman, J.S., 1965, "A Survey of the Theory of International Trade: Part 2, The Neo-Classical Theory," Econometrica 33: 685-760. Chipman, J.S., 1966, "A Survey of the Theory of International Trade: Part 3, The Modern Theory," Econometrica 34: 18-76. Bhagwati, J., 1971, "The Generalized Theory of Distortions and Welfare," in Bhagwati, Jones, Mundell, and Vanek, eds., Trade, Balance of Payments, and Growth: Papers in International Economics in Honor of Charles P. Kindleberger, North-Holland. Brecher, R.A., 1974, "Optimal Commercial Policy for a Minimum-Wage Economy," Journal of International Economics 4: 139-149. Mussa, M., 1974, "Tariffs and the Distribution of Income: The Importance of Factor Specificity, Substitutability and Intensity in the Short and Long Run," Journal of Political Economy 82: 1191-1204. Dornbusch, R., S. Fischer and P.A. Samuelson, 1977, "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review 67: 823-839.

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Neary, J.P., 1978, "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal 88: 488-510. Mussa, M., 1979, "The Two-Sector Model in Terms of Its Dual: A Geometric Exposition," Journal of International Economics 9: 513-526. 2. Scale Economies and Imperfect Competition Brander, J., 1981, "Intraindustry Trade in Identical Commodities," Journal of International Economics 11: 1-14. *

Brander, J.A. and P. Krugman, 1983, "A 'Reciprocal Dumping' Model of International Trade," Journal of International Economics 15: 313-323. Dixit, A.K. and J. Stiglitz, 1977, "Monopolistic Competition and Optimum Product Diversity," American Economic Review 67: 297-308. Ethier, W., 1982, "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica 50: 1243-1268. *

Ethier, W., 1982, "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review 72: 389-405. *

Helpman, E., 1981, "International Trade in the Presence of Product Differentiation, Economies of Scale and Monopolistic Competition: A Chamberlin-Heckscher-Ohlin Approach," Journal of International Economics 11: 305-340. Krugman, P., 1979, "Increasing Returns, Monopolistic Competition, and International Trade," Journal of International Economics 9: 469-479. *

Krugman, P., 1980, "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review 70: 950-959. Lancaster, K., 1980, "Intra-Industry Trade Under Perfect Monopolistic Competition," Journal of International Economics 10: 151-175. *

Markusen, J.R., 1981, "Trade and the Gains from Trade with Imperfect Competition," Journal of International Economics 11: 531-551. Tybout, J.R., 1993, "Internal Returns to Scale as a Source of Comparative Advantage: The Evidence," American Economic Review: Papers and Proceedings 83: 440-444. 3. Strategic Trade Policy *

Baldwin, R.E. and P. Krugman, 1988, "Market Access and International Competition: A Simulation Study of 16K Random Access Memories," in R. Feenstra, ed., Empirical Methods for International Trade, MIT Press.

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Brander, J.A. and B. Spencer, 1983, "International R&D Rivalry and Industrial Strategy," Review of Economic Studies 50: 707-722. Brander, J.A. and B. Spencer, 1984, "Trade Warfare: Tariffs and Cartels," Journal of International Economics 16: 227-242. *

Brander, J.A. and B. Spencer, 1984, "Tariff Protection and Imperfect Competition," in H. Kierzkowski, ed., Monopolistic Competition and International Trade, Oxford Univ Press. Brander, J.A. and B. Spencer, 1985, "Export Subsidies and International Market Share Rivalry," Journal of International Economics 18: 83-100. *

Dixit, A.K., 1988, "Optimal Trade and Industrial Policies for the U.S. Automobile Industry," in R. Feenstra, ed., Empirical Methods for International Trade, MIT Press. Dixit, A.K. and G.M. Grossman, 1986, "Targeted Export Promotion with Several Oligopolistic Industries," Journal of International Economics 21: 233-250. *

Eaton, J. and G.M. Grossman, 1986, "Optimal Trade and Industrial Policy Under Oligopoly," Quarterly Journal of Economics 101: 383-406. Goldberg, P.K., 1995, "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica 63: 891-951. *

Krishna, K., 1989, "Trade Restrictions as Facilitating Practices," Journal of International Economics 26: 251-270. Rodrik, D., 1988, "Imperfect Competition, Scale Economies, and Trade Policy in Developing Countries," in Robert E. Baldwin, ed., Trade Policy Issues and Empirical Analysis, University of Chicago Press, 109-137. 4. Trade and Uncertainty Bagwell, K. and R. Staiger, 1994, "The Sensitivity of Strategic and Corrective R&D Policy in Oligopolistic Industries," Journal of International Economics 36: 133-150. Dixit, A., 1989, "Intersectoral Capital Reallocation Under Price Uncertainty," Journal of International Economics 26: 309-325. Grossman G.M. and A. Razin, 1985, "The Pattern of Trade in a Ricardian Model With Country Specific Uncertainty," International Economic Review 26: 193-202. Helpman, E., 1988, "Trade Patterns Under Uncertainty With Country Specific Shocks," Econometrica 56: 645-659. 5. Direct Foreign Investment and Multinational Firms *

Ethier, W.J., 1986, "The Multinational Firm," Quarterly Journal of Economics 101: 805-833.

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Graham, E.M. and P. Krugman, 1989, Foreign Direct Investment in the United States, Institute for International Economics, Washington, DC. *

Helpman, E., 1985, "Multinational Corporations and Trade Structure," Review of Economic Studies 52: 443-458. Markusen, J.R., 1984, "Multinationals, Multi-Plant Economies, and the Gains from Trade," Journal of International Economics 16: 205-226. 6. Trade, Technology and Growth Brezis, E.S., P. Krugman and D. Tsiddon, 1993, "Leapfrogging in International Competition: A Theory of Cycles in National Technological Leadership," American Economic Review 83: 1211-1219. *

Grossman, G.M. and E. Helpman, 1989, "Product Development and International Trade," Journal of Political Economy 97: 1261-1283. Grossman, G.M. and E. Helpman, 1991, "Quality Ladders in the Theory of Growth," Review of Economic Studies 58: 43-61. Grossman, G.M. and E. Helpman, 1991, "Quality Ladders and Product Cycles," Quarterly Journal of Economics 106: 557-586. Kaneda, M., 1995, "Industrialization Under Perfect Foresight: World General Equilibrium with a Continuum of Countries," Journal of Economic Theory 66: 437-462. Krugman, P., 1979, "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy 87: 253-265. Lucas, R.E., 1988, "On the Mechanics of Economic Development," Journal of Monetary Economics 22: 3-42. Mazumdar, J., 1996, "Do Static Gains from Trade Lead to Medium-Run Growth?" Journal of Political Economy 104: 1328-1337. *

Rivera-Batiz, L.A., and P. Romer, 1991, "Economic Integration and Endogenous Growth," Quarterly Journal of Economics 106: 531-556. Young, A., 1991, "Learning by Doing and the Dynamic Effects of International Trade," Quarterly Journal of Economics 106: 369-406. 7. Geography and Trade Krugman, P., 1991, 1993, Geography and Trade, MIT Press. Krugman, P., 1991, "Increasing Returns and Economic Geography," Journal of Political Economy 99: 483-499.

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Ludema, R. and I. Wooton, 1999, "Economic Geography and the Fiscal Effects of Regional Integration," forthcoming, Journal of International Economics. 8. Strategic Trade Policy, Regionalism, and International Trade Agreements Bagwell, K. and R. Staiger, 1990, "A Theory of Managed Trade," American Economic Review 80: 779-795. Bagwell, K. and R. Staiger, 1999, "An Economic Theory of GATT," American Economic Review 89: 215-248. Kemp M. and H. Wan, 1976, "An Elementary Proposition Concerning the Formation of Customs Unions," Journal of International Economics 6: 95-97. Richardson, M., 1993, "Endogenous Protection and Trade Diversion," Journal of International Economics 34: 309-324. 9. Political Economy of Trade Policy Brock, W. and S. Magee, 1978, "The Economics of Special Interest Politics: The Case of a Tariff," American Economic Review 68: 246-250. Grossman, G. and E. Helpman, 1994, "Protection for Sale," American Economic Review 84: 833-850. Mayer, W., 1984, "Endogenous Tariff Formation," American Economic Review 74: 970-985. Mayer, W., 2000, "Incentive-Compatibility Issues in the Formation of Tariff-Seeking Interest Groups," mimeo, University of Cincinnati. Ozden, Cagler, 2000, "Coordination of Trade and Competition Policies," Emory University Department of Economics Working Paper #00-03. Rosendorff, B. P., 1996, "Voluntary Export Restraints, Antidumping Procedure, and Domestic Politics," American Economic Review 86: 544-561. 10. Trade and the Environment: Global Public Goods Brander, J. and M. S. Taylor, 1998, "Open Access Renewable Resources: Trade and Trade Policy in a Two-Country Model," Journal of International Economics 44: 181-209. Chichilnisky, G., 1994, "North-South Trade and the Global Environment," American Economic Review 84: 851-874. Ludema, R, and I. Wooton, 1994, "Cross-Border Externalities and Trade Liberalization: the Strategic Control of Pollution," Canadian Journal of Economics 27: 950-966.