SOUTHERN ILLINOIS UNIVERSITY CARBONDALE DEPARTMENT OF ECONOMICS. Econ 530 Foreign Trade

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1 SOUTHERN ILLINOIS UNIVERSITY CARBONDALE DEPARTMENT OF ECONOMICS Session Fall, 2015 Professor Sajal Lahiri Econ 530 Foreign Trade Outline Syllabus: This course is concerned with the key theoretical and policy issues that arise in trying to understand the economics of foreign trade. It begins by looking at a variety of trade models both under perfectly competitive and imperfectly competitive market conditions and their implications for both patterns of trade and their effects on the level and distribution of welfare. This leads to an analysis of further topics as the effects of international resource transfers, second-best policy options, multilateral and unilateral reforms of trade policies, the interactions between trade and environment, and the economic and political forces that shape trade policy. Learning Outcomes: The objective of the course is to train students to understand the reasons for and advantages of foreign trade. Upon successful completion of the course, a student would have acquired an in-depth understanding of the principles that determine the nature and extent of foreign trade. It will also prepare students to carry out advanced research into, and to act as policy advisers on, issues related to foreign trade. They should also be capable of evaluating policies in the context of the subject matter of the course from an economic point of view. Lectures: Tuesday, Thursday 3:30-4:45, Faner 4135 Office Hours: Thursday: 12:00-3:00 Office: Faner 4131; Telephone: ; lahiri@siu.edu Evaluation: Evaluation will be based on an end-of-the-semester test (40%) (on Tuesday, December 1, 2015), one midterm test (30%) (on Tuesday, October 20, 2015), and an essay to be submitted by 4 PM of Monday, November 30, 2015 (30%). Essay: The essay should be double-spaced and typed, and should not be more than 4-pages long. It should be written in plain English and without the use of any symbol or diagram whatsoever. You should pick a key empirical paper in international trade (with my help and approval) and write about the contributions of the paper and its relevance for practical policy making. Textbooks: For Part I of the course: Dixit, A.K. and V. Norman, 1980, Theory of International Trade, Cambridge University Press. For Part II of the course: Lahiri, S. and Y. Ono, 2007, Trade and industrial policy under international oligopoly, paperback edition, Cambridge University Press. 1

2 Complementary reading: See the outline below for articles. In addition to those, I would encourage you to look up some of the internet sites on international economics listed under Links on my homepage ( Course Outline: Part I: Perfectly Competitive Framework 1. Models of Production Dixit and Norman, Ch. 2, Jones, R. W. and J. P. Neary, 1984, The positive theory of international trade, in R. W. Jones and P. B. Kenen (Eds.) Handbook of international economics, Vol. 1, North-Holland. 2. Gains from Trade Dixit and Norman, Ch. 3., Corden, W. M., The normative theory of international trade, in Jones and Kenen, op.cit. 3. Patterns of Trade Dixit and Norman, pp , 4. Factor Price Equalisation Dixit and Norman, pp Foreign Aid Dixit and Norman, ch. 6 Lahiri, S. and Raimondos, P., 1995, Welfare Effects of Aid under Quantitative Trade Restrictions, Journal of International Economics. Lahiri, S. and Raimondos-Moller, P., 1997, Tying of Aid to Tariff Reduction and Welfare, Journal of Development Economics. Lahiri, S. and Raidmondos-Moller, P., 1997, Competition for Aid and Trade Policy, Journal of International Economics. Schweinberger, A. and S. Lahiri, 2006, On the provision of private and public foreign aid, Journal of Development Economics 6. Trade Policy Dixit and Norman, Ch. 6. Corden, W. M. (op.cit) pp Dixit, A. K., 1985, Tax Policy in Open Economies, in A. K. Auerlach and M. Feldstein 2

3 (Eds.), Handbook of Public Economics, Vol. 1, North-Holland. Corden, M. W. and R. Falvey, 1985, Quotas and the Second Best, Economics Letters, pp Lahiri, S. and P. Raimondos, 1996, Correcting Trade Distortions in a Small Open Economy, Review of International Economics. Lahiri, S. and A. Nasim, 2005, Commercial Policy Reform in Pakistan: Opening up the Economy Under Revenue Constraint, International Tax and Public Finance, 12, pp Trade and Environment Antweiler, W., B.R. Copeland, and M.S. Taylor, 2001, Is free trade good for the environment? The American Economic Review, vol. 91, pp Beghin, J., D. Roland-Holst and D. van der Mensbrugghe, 1997, Trade and pollution linkages: piecemeal policy reform and optimal intervention, Canadian Journal of Economics 30, Copeland, B., 1994, International trade and the environment: policy reform in a polluted small open economy, Journal of Environmental Economics and Management, 26, Copeland, B.R., 1996, Pollution content tariffs, environmental rent shifting, and the control of cross-border pollution, Journal of International Economics, 40, Hatzipanayotou, P., S. Lahiri, and M.S. Michael, 2002, Can cross-border pollution reduce pollution?, Canadian Journal of Economics, 35, Political Economy of Trade Policy Findlay, R. and Wellisz, S., 1982, Endogenous tariffs, the political economy of trade restrictions, and welfare. In Import competition and response (ed. J.N. Bhagwati) Chicago: University of Chicago Press. Grossman, G. and E. Helpman, 1994, Protection for Sale, American Economic Review. Hillman, A.L., 1989, The political economy of protection. Chur: Harwood Academic Publishers. Mayer, W., 1984, Endogenous tariff formation, American Economic Review. Magee. S.P., Brock, W.A. and Young, L., 1989, Black hole tariffs and endogenous policy theory. Cambridge: Cambridge University press. Rodrik, D., 1995, Political Economy of Trade Policy, in G. Grossman and K. Rogoff, eds., Handbook of International Economics, Vol. 3, North-Holland Publishing House, Amsterdam. 3

4 Lahiri, S. and Raidmondos-Møller, P., 2000, Lobbying by ethnic groups and aid allocation, Economic Journal. Part II: Imperfectly Competitive framework 9. Imperfect Competition and Trade Lahiri and Ono, chs. 4, 5, 6. Helpman, E. and P. Krugman, 1989, Market structure and foreign trade, MIT Press; chs. 5-6, Helpman, E., Increasing returns, imperfect markets, and trade theory, in Jones and Kenen, op.cit. Grossman, G., 1986, Strategic export promotion: a critique, in: P. Krugman (ed.) Strategic trade policy and the new international economics, MIT:Mass. Markusen, J. R., 1981, Trade and Gains from Trade with Imperfect Competition, Journal of International Economics, pp , Lahiri, S. and Y. Ono, 1995, The Role of Free Entry in an Oligopolistic Heckscher- Ohlin Model, International Economic Review. Schweinberger, S, 1996, Pro-competitive Gains from Trade and Comparative Advantage, International Economic Review. 10. Foreign Direct Investment Lahiri and Ono, chs Brander, James A. and Barbara J. Spencer, 1987, Foreign direct investment with unemployment and endogenous taxes and tariffs, Journal of International Economics 22, Ethier, W.J., 1986, The multinational firm, Quarterly Journal of Economics 101, Helpman, E., 1984, A simple theory of international trade with multinational corporations, Journal of Political Economy 92, Lahiri, S. and Y. Ono, 1998, Foreign direct investment, local content requirement, and profit taxation, Economic Journal 108, Motta, M., 1992, Multinational firms and the tariff jumping argument: a game theoretic analysis with some unconventional conclusions, European Economic Review 36, Ruffin, R.J., 1984, International factor movements, in: R.W. Jones and P.B. Kenen, eds., Handbook of International Economics, Vol.1 (North-Holland, Amsterdam),

5 11. Monopolistic competition and trade with heterogeneous firms 1. Melitz, M, J., 2003, The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity, Econometrica, Vol. 71, Melitz, M.J. and D. Trefler, 2012, Gains from Trade when Firms Matter, Journal of Economic Perspectives, Vol. 26, Andrew B. Bernard A.B, Jensen, B., Redding, S. J. and Schott, P.K., 2012, The Empirics of Firm Heterogeneity and International Trade, Annual Review of Economics, vol. 4, (economics.annualreviews.org) Southern Illinois University Emergency Procedures Southern Illinois University Carbondale is committed to providing a safe and healthy environment for study and work. Because some health and safety circumstances are beyond our control, we ask that you become familiar with the SIUC Emergency Response Plan and Building Emergency Response Team (BERT) program. Emergency response information is available on posters in buildings on campus, available on the BERT S website at Department of Public Safety s website (disaster drop down) and in the Emergency Response Guidelines pamphlet. Know how to respond to each type of emergency. Instructors will provide guidance and direction to students in the classroom in the event of an emergency affecting your location. It is important that you follow these instructions and stay with your instructor during an evacuation or sheltering emergency. The Building Emergency Response Team will provide assistance to your instructor in evacuating the building or sheltering within the facility. 5