ADVANCED INTERNATIONAL TRADE THEORY AND POLICY

Professor Kala Krishna - Kern 523

Tel: 865-1106

E-mail: kmk4@psu.edu

Office hours: Th. 2:30-5:30 p.m. and by appointment

T.A.: Tatiana Tchesnokova

Tel: 865-1108

E-mail: tat159@psu.edu

Office hours:11:30 a.m.-12:30 p.m. Tue. and Th.- Kern 402

Class Meetings: 1:00-2:15 p.m. Tuesdays and Thursdays in 220 Hammond

This course is designed to provide an understanding of international trade and policy, and to serve as a relatively non technical introduction to research in the area. There will be two midterm exams and a final exam. There will be no make-up exams.⁽²⁾

In addition, there will be a number of problem sets. My web page will be a key resource. You may access it by clicking on my name in the faculty list in the economics department and then clicking on the course number. The syllabus, periodic handouts, problem sets, answers to problem sets, updates, etc. will be on the web site. You are advised to check the web site often. Answers to routine questions will be available on it in a timely manner. You are encouraged to form study groups and to work together on the problem sets. Please make sure you write the names of all your collaborators on each problem set. If you free ride on the efforts of your group, it will only hurt you, as you cannot do well on the exams without making an honest effort on the problem set. You are responsible for all material on the reading list, covered in class, and on the web site.

The grade will be determined as follows:

2 Midterm Exams 30% each on Sept. 26 and Oct. 31 in class.

Final Exam 30%

Problem Sets 10%

Books recommended for purchase:

The textbook for the course is International Trade: Theory and Evidence by Markusen, Melvin, Kaempfer and Maskus, 1995, McGraw-Hill. It has been ordered for this course and should be in the Penn State bookstore.

You may wish to read, or even purchase, some or all of the books below as they contain useful material for the course and are fun to read. They are available in the Penn State bookstore.

Krugman, P., Geography and Trade, MIT Press, 1991.

Irvin, D., Managed Trade: The Case Against Import Targets, AEI (American Enterprise Institute) Press, 1994.

Tyson, L., Who's Bashing Whom? Trade Conflict in High Technology Industries. Institute for International Economics, 1992.

*Denotes required reading in what follows.

PART I - International Trade

I. Introduction.

What is international economics? Why should we study it? Historical perspective. Partial versus general equilibrium. Trade Policy versus Domestic Policy.

*Ch. 1

II. Basic Trade Theory Under Perfect Competition.

a. The economy as a whole and the concept of general equilibrium

Application: The gains from trade: Who gains and who loses? Do small or large countries gain more from trade?

*Ch. 2-5, 7.6

b. Technology Differences as a Basis for : The Ricardian Model of Trade

Application: Does increased productivity in a trading partner help or hurt you?

*Ch. 6-7

c. Demand and supply

Applications: The transfer problem, immizerizing growth, technical change.

*Handout

d. The Specific Factor Model

Application: Factor rewards in the medium run.

*Ch. 9

e. Hechscher-Ohlin Trade Theory: The basic 2x2x2 model

Applications: The effect of tariffs on factor rewards (the Stolper-Samuelson Theorem), the effects of factor growth on outputs (the Rybczynskyi Theorem), Trade versus integration (the Factor-Price Equalization Theorem), and the pattern of trade (the HOS Theorem and the Factor Content of Trade), Factor Mobility.

*Ch. 8

f. Tests of Trade Theories

*Ch. 14

Slaughter, M., "Per Capita Income Convergence and the Role of International Trade," American Economic Review, 1997, Vol. 87, No. 2, pp. 194-210.

III. Imperfect Competition and Trade: External Economies, Product Differentiation, and Imperfect Competition.

Applications: Losses from trade. Increasing returns and the gains from trade. Trade volume and intra industry trade.

*Ch. 11-13

IV. Commercial Policy.

a. Political Economy of Protection

Ch. 19

*Baldwin, R.E., "The Political Economy of Protectionism" in Bhagwati (ed.), Import Competition and Response.

*Fernandez R. and Rodrik, D., " Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, December 1991, Vol. 81, pp. 1146-1155.

b. Tariffs, Subsidies, Effective Protection and Targeting

*Ch. 15

*Handout

c. Quotas, NTBs and Measurement

*Ch. 16

*Krishna, K., "Openness: A Conceptual Approach," Mimeo.

*Feenstra, R.C., "Automobile Prices and Protection: The U.S.-Japan Trade Restraint" in D. Salvatore (ed.), The New Protectionist Threat to World Welfare, North Holland, 1987.

d. Trade Policy with Imperfect Competition

*Ch. 17

Dixit, A., "Optimal Trade and Industrial Policies for the U.S. Automobile Industry" in R.C. Feenstra (ed.), Empirical Methods for International Trade, Cambridge: MIT Press, 1988.

*Krishna, K., "Theoretical Implications of Imperfect Competition on Quota License Prices and Auctions," World Bank Economic Review, 1993, 7 (1), pp. 113-136.

Krishna, K. and M. Thursby, "Whither Flat Panel Displays" in R. Feenstra (ed.), The Effects of U.S. Trade Protection and Promotion Policies, University of Chicago Press, 1997.

Krishna, K., "The Case of the Vanishing Revenues: Auction Quotas with Monopoly," American Economic Review, September 1990, pp. 828-836.

e. Trading Blocs

*Ch. 18

Krishna, K. and Anne Krueger, "Implementing Free Trade Areas: Rules of Origin and Hidden Protection," in J. Levinsohn, A. Deardorf and R. Stern (eds.), New Directions in Trade Theory. Ann Arbor: The University of Michigan Press, 1995.

*Krugman, P., Geography and Trade, MIT Press, 1991.

f. Administered Protection, GATT and the MFA

*Ch. 20

Irvin, D., Managed Trade: The Case Against Import Targets, AEI (American Enterprise Institute) Press, 1994.

Tyson, L., Who's Bashing Whom? Trade Conflict in High Technology Industries. Institute for International Economics, 1992.

*Prussa, T., "Why are so Many Anti Dumping Petitions Withdrawn?" Journal of International Economics, Vol. 33, pp. 1-20.

Krishna, K. and A. Caplin, "Tariffs and the MFN Clause: A Game Theoretic Approach," Seoul Journal of Economics, 1(3), pp. 267-290.

Krishna K. and L.H. Tan, "Rags and Riches: Implementing Apparel Quotas Under the Multi-Fibre Arrangement." University of Michigan Press, 1998.

Kaushik Basu, (1999), "Child Labor: Cause, Consequence, and Cure, with Remarks on International Labor Standards." Journal of Economic Literature, 37(3), September 1999, pp. 1083-1119.

http://www.aeaweb.org/journal.html

1. Disability Message: The Pennsylvania State University encourages qualified persons with disabilities to participate in its programs and activities. If you anticipate needing any type of accommodation in this course or have questions about physical access, please tell the instructor as soon as possible.

2. Valid Excuses: During the course many possible events may occur that would result in your inability to attend class, attend exams, or perform at a minimally acceptable level during an examination. Illness or injury, family emergencies, certain University-approved curricular and extra-curricular activities, and religious holidays can be legitimate reasons to miss class or to be excused from a scheduled examination.

In the case of your own illness or injury, a note from a physician, physician's assistant, or a nurse-practitioner that says, among other things, "..unable to attend.." is required. The words "unable to attend" must be precisely stated in the note. If the note leaves any ambiguity on this point you will not be excused. Further, the note must be provided to the instructor within one week of the missed course event (in cases of extended illness or incapacity, the note must be provided within a week of the end of your illness or incapacity, and it should specify the period of your inability to attend the course).

With regard to family emergencies, you must provide verifiable documentation of the emergency. Given the vast array of family emergencies the instructor will provide precise guidance as to what constitutes adequate documentation. Unless the emergency is critical you should notify the instructor in advance of your absence from the scheduled course event. In cases of critical emergencies, you must notify the instructor within one week of your absence.

For University-approved curricular and extra-curricular activities, verifiable documentation is also required. The student should obtain from the unit or department sponsoring the activity a letter (or class absence form) indicating the anticipated absence(s). The letter must be presented to the instructor at least one week prior to the first absence.

In the case of religious holidays, the student should notify the instructor by the third week of the course of any potential conflicts.