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GWU - Econ 283
International Trade Theory and Policy
Course Syllabus

by Steven Suranovic ©2006

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Fall 2006

This course will be an overview of international trade theory and policy. The purpose is to explain how economic theory and policy analysis can help us to understand the economic opportunities and challeges the world will face in the future. Students should have a working knowledge of basic algebra, graphical techniques and the basics of Micro and Macro economics.
 
Professor: Steve Suranovic

Meeting Time: Sep 5- Dec 11, 2006
                         M 7:10 - 9:00p, Rome 352

Office: 1957 E St - Room 501M
Office Hours: Mondays, 3 - 6pm
Office Phone: 994-7579
E-mail: smsuran@gwu.edu

Evaluation
2 Quizzes (20-30 min. each) 10% each
1 Midterm 35%
1 Final Exam 45%

 
Exam Schedule
Quiz #1
Oct 9
Midterm
Oct 30
Quiz #2
Nov 27
Final Exam (Tentative)
Dec 18

 


  Course Outline
Sept 11 Trade History, Trade Law and the WTO
This session presents background information about the world of international trade. It covers bits and pieces of US trade history, a discussion of some international trade laws and an introduction to the World Trade Organization. It is not intended to be a comprehensive overview, but rather a way for students to learn some of the important real world issues to which the theory will later relate.

Readings:

Chapter 5 - Introductory Issues
Sections 5-1 to 5-5e
Chapter 10 - Trade Policy Tools
Sections 10-0 to 10-7

Chapter 20 - Trade History and Trade Law
Sections 20-0 to 20-4

U.S. Shares Blame for Trade Talk Collapse
By Lael Brainard, Washington Post, July 28, 2006

Supplementary Readings:

Problems:

Jeopardy 5-1
Jeopardy 10-1
Jeopardy 20-1
Internet Questions 20-1A
Internet Questions 20-1D

 

Sept 18 - 25 The Effects of Trade Policies: Tariffs and Quotas
This session first shows a represention of a free trade equilibrium in a partial equilibrium model. This model is then used to demonstrate the price effects of a tariff in large and small country cases. After explaining the concepts of consumer and producer surplus, the welfare effects of a tariff are presented. Finally a tariff setting game between governments is used to identify the motivation for trade wars.

Readings:

Chapter 90 - Trade Policy Effects with Perfectly Competitive Markets
Read sections 90-0 to 90-10

Section 110-1 - Retaliation and Trade Wars

Problems:

Jeopardy 90-1
Problem Set 90 3-1
Problem Set 110 2-1
Problem Set 110 2-2
Problem Set 110 2-3

 

Oct 2 More about Trade Policies: Quotas, VERs, Subsidies, etc.
Trade policy analysis is continued with a look at import quotas, VERs, export taxes and export subsidies. The similarities between the policies is noted. Although the small country welfare effects of each policy are not yet included in the notes, students should be able to apply the principles learned to evaluate those situations. The effects of retaliation to an export subsidy with a countervailing duty is also presented.

Readings:

Chapter 90 - Trade Policy Effects
Read sections 90-12 to 90-27

Section 110-3a Countervailing Duties

Chapter 105 - Political Economy and International Trade
Read sections 105-0 to 105-7

Problems:

Problem Set 90 2-1
Problem Set 90 2-2
Problem Set 90 2-3
Problem Set 90 2-4
Problem Set 90 3-2

 

Oct 9 Domestic Policies and International Trade
Concerns about domestic policy effects on international trade flows have become increasingly widespread. This session will emphasize three key ideas. The first is that domestic government policies, such as production subsidies or consumption taxes, can actually be a cause of international trade. The second is to show the welfare effects of domestic policies when a country is open to internationale trade. The third is to show that combinations of domestic policies can duplicate the effects of trade policies.

Readings:

Chapter 95 - Domestic Policy Effects on International Trade
Read sections 95-0 to 95-3

Supplementary Readings:

Problems:

Jeopardy 95-1
Problem Set 95 2-1
Problem Set 95 3-1
Problem Set 95 3-2

 

Oct 16 - 23 Trade Policy Choice Under Domestic Distortions: The Theory of the 2nd-Best
This is perhaps the most important session in a trade course. It will first identify a series of market imperfections and distortions and point out how these are likely to be prevalent in the real world. Next it shows that in the presence of a market imprefection, carefully selected trade policies can often be used to raise the natioanl welfare of a country. Third it is shown that carefully selected domestic policies are often superior to trade policies as a way of promoting the national welfare of a country.

Readings:

Chapter 100 - Trade Policies with Market Imperfections and Distortions
Read sections 100-0 to 100-8

Chapter 110 - Special Topics
Read sections 110-2 and 110-2a

Supplementary Readings:

Problems:

Jeopardy 100-1
Problem Set 100 2-1
Problem Set 100 2-2
Problem Set 100 3-2

 

 

Oct 30

 

 

Midterm Exam

Nov 6 The Ricardian Theory of Comparative Advantage
This session presents the first formal model of international trade. The chapter emphasizes the importance of the assumptions in generating the model results. Students learn some of the surprising outcomes of the Ricardian model, such as, that less productive nations may nonetheless benefit from free trade with its more productive neighbors.

Readings:

Chapter 40 - The Ricardian Model of Comparative Advantage
Read sections 40-0 to 40-5

Supplementary Readings:

  • Moving South - A Lehrer Newshour video segment discussing the shift of jobs in the textile and apparel industry to southern countries.

Problems:

Jeopardy 40-1
Problem Set 40 1-1
Problem Set 40 2-1

 

Nov 13 More Ricardo and Immobile Factors
The welfare effects in the Ricardian model are worked out by emphasizing changes in the real wages of workers. This allows us to focus on individuals rather than the effect of trade on the nation. (as is done with the national indifference curve diagram). The immobile factor model introduces a realistic issue (factor immobility) into the Ricadian model and shows that trade may cause a redistribution of income, with some individuals winning and others losing. The model is also a great way to show how small assumption changes can lead to important changes in outcomes.

Readings:

Chapter 40 - The Ricardian Model of Comparative Advantage
Read sections 40-6 to 40-9

Chapter 70 - Factor Mobility and Trade
Read sections 70-0 to 70-19

When Labor Loses Out to Trade
by Gustav Ranis and David Corderi, YaleGlobal, 10 August 2006


Supplementary Readings:

Information about US Trade Adjustment Assistance
a brief description of TAA provided by the Office of the White House

Problems:

Problem Set 40 3-1
Problem Set 70 2-1
Problem Set 70 2-2
Problem Set 70 3-1

 

Nov 20 The Heckscher-Ohlin Model: Rybczynski, Stolper-Samuelson
The factor proportions model is the second major trade model presented formally. This session presents the key assumptions of the model then builds the key relationships between endowments and outputs in the Rybczynski theorem and the relationship between output prices and factor prices in the Stolper-Samuelson theorem. Both of these relationships are extended to the more general versions of the theorems, the magnification effects.

Readings:

Chapter 60 - The Heckscher-Ohlin (Factor-Proportions) Model
Read sections 60-0 to 60-6

Problems:

Problem Set 60 3-1

 

Nov 27 More H-O Model
The session presents the H-O theorem which predicts the pattern of trade, notes the redistributive welfare effects of trade because of the changes in factor prices, discusses the factor-price equalization theorem and notes the importance of the compensation principle.

Readings:

Chapter 60 - The Heckscher-Ohlin (Factor-Proportions) Model
Read sections 60-7 to 60-14

Why ‘Outsourcing’ May Lose Its Power as a Scare Word
By DANIEL GROSS, NY Times, August 13, 2006

Supplementary Readings:

Problems:

Jeopardy 60-1
Problem Set 60 2-1
Problem Set 60 2-2
Problem Set 60 2-3

 

Dec 4 - 11 Economies of Scale and then some
In the last two sessions we'll introduce economies of scale, discuss free trade area formation and provide a brief overview of the course.

Readings:

Chapter 80 - Economies of Scale and International Trade
Read sections 80-0 to 80-5e

Chapter 120 - Evaluating the Controversy Between Free trade and Protectionism
Read sections 120-1 to 120-6

Problems:

Jeopardy 80-1
Jeopardy 110-1
Jeopardy 120-1

 

Dec 18

 

 

Final Exam (Tentative)


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Last Updated on 8/16/06