International Economics
Economics 432: July 15 5:30-7:30, July 16 8:30-1:30, July 22 5:30-7:30, July 23 8:30-1:30, July 30 8:30-1:30, August 6 8:30-1:30
Final exam August 13-14 takehome exam (via email)
Summer 2005

Prof. Michael Kevane
email: mkevane@scu.edu
Office Hours: by appointment
website: http://lsb.scu.edu/~mkevane/
Tel. 554-6888
300-P Kenna Hall

Purpose: International trade is widely touted as being the single most important factor behind economic change since World War II. Yet the driving forces behind trade remain poorly understood by the public and by many policymakers. This class is intended to be a rigorous introduction to the essential debates and conclusions of international trade and finance theory. The concept of protection, in the form of tariffs and other trade barriers, will be analyzed in terms of short and long run effects on an industry and economy. That will be supplemented by a discussion of comparative advantage and other sources of gains from trade. We will see what trade theorists have to say about the industrial policy and the income distribution effects of trade, and whether the theories are empirically sound. The second half of the course will look at international financial institutions, especially the determinants of the exchange rate among developed countries, and the determination and processes of balance of payments crises among developing countries.

Text: Paul Krugman and Maurice Obstfeld, International Economics, 6th edition, Addison-Wesley.
Plus supplemental readings that will be available on class website, as noted below. All readings should be done before class in which reading topic is assigned.

Requirements: Final grades will be determined on the basis of the following:
50% Final exam
25% Score on three take home problem sets
25% Score on three twenty minute in-class quizes

The class comprises 24 hours of contact time, with short coffee breaks on the Saturday sessions. My experience has been that MBA students prefer to leave early rather than have a long lunch break.

We will not bother with an introduction to the course instead getting right down to business. I will assume you have read Chapter 1 in the text. The first days of class we will cover Chapter 2 and Chapter 3, which develop two models of international trade, and Chapter 8 which covers the basic analysis of tariffs. Please read these chapters in advance. I will go over them in class, but the more you have read the more prepared you will be to absorb the material, which can be difficult especially for the graph-phobic. Prepare problems 1-5 at the end of Chapter 2 and problems 1-4 at the end of Chapter 3 in advance, and we will go over in class in small groups at the blackboard, on Friday and Saturday.

Please don't hesitate to ask me to go slower or to explain something again: if you have a question, chances are good that everyone else in the class has the same question. Refrain, however, from asking unrelated, distracting questions that will take me on a tangent. I find it irresistible to respond, and then that takes time away from the material we need to cover.

(For a useful site on definitions of international economics terms, see http://www-personal.umich.edu/~alandear/glossary/)

Schedule and readings

1. Friday July 15 5:30-7:30
a. 5:30-6:55 Comparative advantage model of gains from trade, KO Chapter 2, Notes on comparative advantage from text, More lecture notes on comparative advantage
b. 6:55-7:30 Problems 1-5 at the end of Chapter 2 with small groups at the blackboard

2. Saturday July 16 8:30-1:30 (Homework 1 due, 5 points: Do problems 2 and 3 of Chapter 3 on page 61 in an Excel spreadsheet. Put the resulting graphs and text on one or at most two pages, print out and hand in at beginning of class.)
a. 8:30-8:50 Short comparative advantage quiz (please be on time; you will not get extra time for the quiz!)
b. 8:50-10:30 Sector Specific model, KO Chapter 3, Notes on specific factors model
c. 10:30-10:45 Problems 2-3 at the end of Chapter 3 discussion
d. 10:45-12:00 Instruments of trade policy and basic tariff analysis KO Chapter 8, notes on basic tariff analysis
e. 12:00-12:10 Stretch legs, get lunch
f. 12:10-12:50 In-class lunch with video (Life and Debt, about Jamaica and opening up to trade and investment)
g. 12:50-1:10 discussion of video, notes on Life and Debt
h. 1:10-1:30 Problems 1-4 at the end of Chapter 8 with small groups at the blackboard

3. Friday July 22 5:30-7:30 (Homework 2a and Homework 2b due, 10 points each)
a. 5:30-6:00 Recap of basic trade theory, two stories of Bastiat and lumber miracle
b. 6:00-6:20 Quiz on sector specific model and effects of tariff
b. 6:20-7:30 Why then is there so much protection? Theories of protection from positive political economy to normative prescriptions regarding externalities and increasing returns Chapters 9, 10, 11, Notes on strategic trade,

4. Saturday July 23 8:30-1:30
a. 8:30-9:30 Trade liberalization debates An interview with David Dollar
b. 9:30-10:30 Outsourcing and fair trade debate, Stern and Terrell on labor standards, Tom Tomorrow on outsourcing, my attempt at humorous dialogue on these issue
c. 10:30-11:15 Mechanisms for redressing adjustment costs of liberalization: the antidumping bureaucracy Desmet notes on reciprocal dumping
d. 11:15-12:00 in-class video (Trading Democracy, about Article 11 in NAFTA agreement), Links to reading on Article 11 and Methanex, Notes on Methanex case
e. 12:00-12:30 Trade crimes. Why, despite the good reasons to be in favor of free trade, are so many opposed to free trade? The rules for managing international commerce and investment are often suspect, Notes on trade crimes
f. 12:30-1:30 Notes on the WTO, The shrimp case as example of dispute resolution mechanism, Notes on shrimp case, Reading Shrimp dispute panel

5. Saturday July 30 8:30-1:30
a. 8:30-9:15 Balance of payments accounting KO Chapter 12, Notes on Chapter 12, Talk by IMF official on current account of US
b. 9:15-11:15 Interest parity approach to exchange rate determination KO Chapter 13, 14, Notes on chapter 13, Notes on chapter 14
b. 11:15-11:30 in-class problems
c. 11:30-1:30 Macroeconomic policy under floating exchange rates KO Chapter 15, 16

6. Saturday August 6 8:30-1:30 (Homework 3 due, 10 points)
a. 8:30-9:15 Fixed exchange rates
b. 9:15-9:35 Quiz
c. 9:35-11:30 Balance of payments crises KO Chapter 17, 18, 22, Notes on balance of payments crises
b. 11:30-1:30 Introduction to IMF

7. Saturday August 13 Take home final exam (will be distributed and returned via email)
a. John McCarty's study guide
b. Sample questions for final

c. Additional sample questions for final