International Economic Integration: Trade, Foreign Direct Investment and Migration

Univ.Prof.Dr. Michael Landesmann Sommersemester 2014 International Economic Integration: Trade, Foreign Direct Investment and Migration For the suces...
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Univ.Prof.Dr. Michael Landesmann Sommersemester 2014 International Economic Integration: Trade, Foreign Direct Investment and Migration

For the sucessful completion of this course one has to obtain a positive result for the midterm-exam (after topic 5) and an oral and written presentation (about 12 pages) of one of the remaining topics on the course list. This course covers the most important aspects of international economic integration. Such integration can proceed world-wide (see e.g. the decisions taken in negotiations at the GATT and WTO rounds in the areas of the liberalisation of trade in goods and services) but can also be confined to particular regional blocks (e.g. the European Union, NAFTA etc.). The latter phenomenon and its impact on the world economy have been subject to active research under the heading of 'Regionalism’. The course will cover all the tracks along which international economic integration proceeds: trade (in goods and services), international direct investment flows and the operation of multinational corporations, and migration flows. In other words, international integration can directly refer to the international flows of goods, of capital and of labour. Economic theory has shown that liberalisation on any of the three tracks (i.e. over the goods, capital and labour markets) has implications for allocation processes over the other tracks as well. We shall cover these interactions and discuss issues such as: What are the implications of trade liberalisation for labour markets? How do FDI flows affect trade flows? How does the impact of migration on wage structures (e.g. between skilled and less skilled workers) and employment differ from the impact of trade? What are the impacts of outsourcing and off-shoring on labour markets? We shall also discuss two further topics: international integration and economic growth (i.e. does stronger integration support or discourage convergence of income levels) and the issues of trade, FDI and migration from the point of view of developing and transition economies. The course is basically theoretical, but we shall also present relevant statistics and discuss important empirical research for each of the topics covered. Students in their presentations can choose to present some of the remaining theoretical topics or an application of the theories to issues of European and global economic integration. Detailed course structure and literature: Topics to be covered (and selected literature): Overview 1. Trade patterns and international specialisation 2. Trade theory: implications of Ricardian and Heckscher-Ohlin theories

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3. ‘New trade theory’: imperfect competition, product differentiation and economies of scale 4. Strategic trade policy 5. Technology, growth and trade 6. Foreign direct investment and the theory of the multinational firm 7. International production linkages, fragmentation and technology spillovers 8. International integration and labour markets 9. Economic effects of international migration 10. Economics of geography 11. Regional economic integration and regionalism 12. Heterogeneity of firms, international trade and production location 13. European economic integration and Europe’s position in the global economy: specific issues; there will be a list of additional topics in this area which can be chosen for presentations by students

Selected Bibliography: Main textbooks or handbooks covering a wide range of topics of the course: Rivera-Batiz, L.A. and M.A. Oliva (2003): International trade – theory, strategies and evidence; Oxford University Press. Elhanan Helpman: Understanding Global Trade, Cambridge, Mass; Harvard University Press, 2011 Feenstra, R.C. and A.M. Taylor (2008): International Economics; Freeman and Co.; (introductory textbook) Choi, E.K. and J. Harrigan, eds. (2003): Handbook of International Trade; Blackwell Publ. Handbooks of International Economics; 3 Vols.; North-Holland Publ. Robert C. Feenstra (2004): Advanced International Trade, Theory and Evidence; Princeton University Press (this is an advanced - graduate level - textbook) Krugman, P. and M. Obstfeld (2006): International Economics: Theory and Policy; Pearson Addison Wesley (very introductory textbook)

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Individual Topics: 1. Trade patterns and international specialisation [Documents can be found at KUSSS – www.kusss.jku.at] • • • •

Helpman, E. (1998): Explaining the Structure of Foreign Trade: Where Do We Stand?; Weltwirtschaftliches Archiv, 143:4; pp. 576-589 Helpman, E. (1999): The Structure of Foreign Trade; Journal of Economic Perspectives, 13:2, pp. 121144. Krugman, P. (1995): Growing world trade: causes and consequences; Brookings Papers on Economic Activity, 1, pp.327-362. Elhanan Helpman: Understanding Global Trade, Cambridge, Mass; Harvard University Press, 2011

2. Trade theory: implications of Ricardian and Heckscher-Ohlin theories • • • • • •

Markusen J.R. et al (1995): International trade, theory and evidence; McGraw Hill, Chs. 6-8 Wong, K-Y (1995): International trade in goods and factor mobility, MIT Press, Ch.3 Davis R.D. and D.E. Weinstein (2001): An Account of Global Factor Trade; The American Economic Review, 91:5; pp. 1423-1453. Leamer E. and J. Levinsohn (1995): International trade theory: the evidence; Ch.26 in: Handbook of International Economics, vol.III, ed. By G. Grossman and K. Rogoff, North-Holland. Leamer E. (1994): Testing Trade Theory, Ch. 4 in Surveys in International Trade, ed. By D. Greenaway and L.A. Winters: Surveys in International Trade; Basil Blackwell. Harrison, J. (2003): Specialisation and the Volume of Trade: Do the Data observe the Laws?; Ch. 4 in: Choi, E.K. and J. Harrigan, eds. (2003): Handbook of International Trade; Blackwell Publ.

3. ‘New trade theory’: imperfect competition, product differentiation and economies of scale

• •

• • •

Helpman E. (1984): Increasing Returns, Imperfect Markets and Trade Theory; Ch. 7 in Handbook of International Economics, vol.I, ed. By R.W. Jones and P.B. Kenen, North-Holand. Krugman, P. (1995): Increasing Returns, Imperfect Markets and the Positive Theory of International Trade; Ch. 24 in: Handbook of International Economics, vol.III, ed. By G. Grossman and K. Rogoff, North-Holland. Smith, A. (1994): Imperfect Competition and International Trade; Ch. 3 in Surveys in International Trade, ed. by D. Greenaway and L.A. Winters: Surveys in International Trade; Basil Blackwell. Papers in section III of G.M. Grossman (1993): Imperfect Competition and International Trade; The MIT Press. Neary, J.P. (2003): Globalisation and market structure; Journal of the European Economic Association; April-May.

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4. Strategic trade policy • •

Brander, J.A.: Strategic Trade Policy; Ch. 27 in: Handbook of International Economics, vol.III, ed. By G. Grossman and K. Rogoff, North-Holland. Papers in section II of G.M. Grossman (1993): Imperfect Competition and International Trade; The MIT Press.

5. Technology, growth and trade • • • •

Grossman G.M. and E. Helpman (1995): Technology and Trade; Ch. 25 in: Handbook of International Economics, vol.III, ed. By G. Grossman and K. Rogoff, North-Holland. Papers in section V of G.M. Grossman (1993): Imperfect Competition and International Trade; The MIT Press. Grossman G.M. and E. Helpman (1993): Innovation and Growth in the Global Economy; MIT Press. Krugman, P. (1990): Chs. 9-11 in: Krugman, P.: Rethinking International Trade; The MIT Press.

6. Foreign direct investment and the theory of the multinational firm •



• • • •

Cantwell J. (1994): The Relationship between International Trade and International Production; Ch. 11 in Surveys in International Trade, ed. by D. Greenaway and L.A. Winters: Surveys in International Trade; Basil Blackwell. Lipsey, R.E. (2003): Foreign Direct Investment and the operations of Multinational Firms: Concepts, History and Data; Ch.10 in: Choi, E.K. and J. Harrigan, eds. (2003): Handbook of International Trade; Blackwell Publ. Markusen J (1995): The boundaries of multinational enterprises and the theory of international trade; Journal of Economic Perspectives, 9(2). Markusen J.R. (2002): Multinational Firms and the Theory of International Trade; MIT Press.. Papers in section IV of G.M. Grossman (1993): Imperfect Competition and International Trade; The MIT Press. Wong K-Y (1995): The Multinational Firm, Ch. 13 in: Wong, K-Y (1995): International trade in goods and factor mobility, MIT Press

7. International production linkages, fragmentation and technology spillovers • • •

Feenstra R.C.: Integration of Trade and Disintegration of Production in the Global Economy; Journal of Economic Perspectives, 12(4), pp. 31-50. Arndt, S. and H. Kierzkowski, eds.(2000): Fragmentation: The New Production Patterns in the World Economy; Oxford Univ. Press. Venables, A. (1999): Fragmentation and Multinational Production, European Economic Review, 43 (4-6), pp.935-945.

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• • • • • •

Laursen K. (2000): Trade Specialisation, Technology and Economic Growth – Theory and Evidence from Advanced Countries; E. Elgar. Hummels, David, Jun Ishii, and Kei-Mu Yi (2001), "The Nature and Growth of Vertical Specialization in World Trade", Journal of International Economics 54, pp. 75-96. McLaren, John (2000), "Globalization' and Vertical Structure", American Economic Review 90, pp. 1239-1254 Baldwin, R. (2006): Globalisation: the great unbundling(s); Report to the Economic Council of Finland; to be downloaded from Baldwin's Website. Lawrence R.Z: and Bradford, S. (2003): Has Globalisation Gone Far Enough? The Costs of Fragmentation in OECD Markets; Institute for International Economics; Washington, 2003. Coe D.T. and E. Helpman (1995): International R&D Spillovers; European Economic Review; 39(5), 859-887 and Coe D.T., E. Helpman and A.W. Hoffmaister (1997): North-South R&D Spillovers; Economic Journal, 107; pp. 134-149.

8. International integration and labour markets • • •

• • • •

Wood A. (1994): North-South Trade, Employment and Inequality; Clarendon Press. Feenstra R.C. and Hanson G.H. (1996): Globalisation, Outsourcing and Wage Inequality; American Economic Review; 86(2), pp. 240-245. Feenstra, R.C. and G.H. Gordon (2003): Global Production Sharing and Rising Inequality: A Survey of Trade and Wages; Ch.6 in: Choi, E.K. and J. Harrigan, eds. (2003): Handbook of International Trade; Blackwell Publ. Rodrik. D. (1997): Has Globalisation Gone Too Far?; Institute for InternationalEconomics, Washington. Freeman, R. (1995): Are your wages set in Beijing?; Journal of economic Perspectives; vol. 9; pp. 1532. Lawrence R.Z (1996): Single World, Divided Nations, OECD Development Center, Paris. Special Issue of Journal of International Economics, 2000.

9. Economic effects of international migration • • • • •

Wong K-Y (1995): International Labor Migration, Ch. 14 in: Wong, K-Y (1995): International trade in goods and factor mobility, MIT Press Hatton T.J. and J.G. Williamson (1998): The Age of Mass Migration, Causes and Impacts; Oxford University Press. Borjas, G.J.: Issues in the Economics of Immigration; The University of Chicago Press. Zimmermann, K.F., ed. (2005): European Migration: What do we Know?; Oxford Univ. Press. Zimmermann, K.F. (1995): European Migration: Push and Pull; World Bank Economic Review; pp. 313-342.

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10. Economics of Geography • • • • •



Neary, J.P. (2001): Introducing the new economic geography; Journal of Economic Literature, vol. 39, 2, pp. 536-561. Krugman P.R. (1991): Geography and Trade, MIT Press. M. Fujita, P. Krugman, A.J. Venables (1999): The Spatial Economy; MIT Press; first 3 chapters. Brulhart M, J. Torstensson (1996): Regional integration, scale economies, and industrylocation in the European Union; CEPR Disc. Paper 1435, London Neary, P. (2001): review of Fujita, Krugman and Venables; in: Journal of Economic Literature. Overman, S. Redding and A.J. Venables (2003): The economic geography of trade, production, and income:a survey of empirics; in: Choi, E.K. and J. Harrigan, eds. (2003): Handbook of International Trade; Blackwell Publ. Ottaviano, G., Puga D. (1997): Agglomeration in the Global Economy: A Survey of the ‘New Economic Geography’; CEPR Discussion Paper 1699, London.

11. Regional economic integration and regionalism • • • •

Baldwin R.E. and A.J. Venables (1995): Regional Economic Integration; Ch. 31 in: Handbook of International Economics, vol.III, ed. By G. Grossman and K. Rogoff, North-Holland. Panagariya A.(2000): Preferential Trade Liberalization: The Traditional Theory and New Development; Journal of Economic Literature, 38, pp. 287-331. De Melo, J. and A. Panagariya, eds. (1993): New Dimensions in Regional Integration; Cambridge Univ. Press. Ito T. and A.O. Krueger, eds. (1997): Regionalism Versus Multilateral Trade Arrangements; Univ. of Chicago Press.

12. Heterogeneity of firms, international trade and production location • • • • • • •

Helpman E. (2006): Trade, FDI, and the Organization of Firms; Journal of Economic Literature; pp. 589-630. Bernard, Andrew B., Jonathan Eaton, J. Bradford Jensen, and Samuel Kortum (2003), "Plants and Productivity in International Trade, "American Economic Rewiew 93, pp. 1268-1290. Bernard, Andrew B. and J. Bradford Jensen (2004), "Why Some Firms Export", Rewiew of Economics and Statistics 86, pp. 561-569. Bernard, Andrew B., Stephen Redding and Peter K. Schott (2005), "Comparative Advantage and Heterogeneous Firms", mimeo, Yale University. Eaton, Jonathan, Samuel Kortum and Francis Kramarz (2004), "Dissecting Trade: Firms, Industries, and Export Destination", American Economic Rewiew (Papers and Proceedings) 94, pp. 150-154. Helpman, Elhanan, Marc J. Melitz and Stephen R. Yeaple (2004), "Export versus FDI with Heterogeneous Firms", American Economic Rewiew 94, pp. 300-316. Melitz, Marc J. (2003), "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity", Econometrica 71, pp. 1695-1725.

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13. European integration: specific issues •



Economics of the Single Market (Cechini Report, Evaluation studies); Winters L.A. and A. Venables, eds.(1993): European Integration: Trade and Industry; Cambridge Univ. Press; Growth Effects (Baldwin). EMU and Labour Markets

14. European Integration – New members, Wider Europe: Effects of Trade Integration, Effects of Foreign Direct Investment; Estimates of Extent and Effects of Labour Migration; Catching Up and Dynamics of Specialisation. Convergence and membership of the Stability Pact and the EMU.

Topics and literature under 13 and 14 will be further differentiated and elaborated as students’ presentations require.

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