International Trade Theory and Policy 2400-FIM3ITT

Part 1. Trade theory

Topic 1. Introduction. A historical overview of trade theory, the importance of international trade and investment, contemporary patterns of international trade and investment, classical trade theory, the gravity model of trade.
Topic 2. Ricardian model. Simple Ricardian 2x2x1 model, comparative advantage, excess demand functions, international equilibrium, the role of wages, gains from trade.
Topic 3. Extensions of the Ricardian model. Ricardian model with more goods and more countries, the role of relative wages and the patterns of trade.
Topic 4. The specific factors model of trade, pattern of trade, commodity prices and factor prices, Haberler theorem, endowment changes and outputs, income distribution, gains from trade.
Topic 5. Heckscher-Ohlin model. 2x2x2 factor abundance model, pattern of trade, Heckscher-Ohlin theorem, factor price equalization theorem, Stolper-Samuelson theorem, Rybczyński theorem, Jones magnification effect.
Topic 6. Heckscher-Ohlin model with substitutable factors of production. Extensions: many goods, many factors of production. Empirical tests of the HO theory.
Topic 7. New Trade Theory. Intra-industry trade under oligopoly. The Brander-Krugman model, role of transportation costs, welfare effects of opening to trade. Empirical tests.
Topic 8. New Trade Theory. External versus internal economies of scale, market structure and increasing returns, monopolistic competition, Dixit-Stiglitz preference for variety, intra-industry trade in the Krugman model.
Topic 9. Heterogenous firms in international trade. Melitz model and the impact of differentiated productivity on the structure of trade and gains from trade.
Topic 10. International factor movements. Multinational corporations, foreign direct investment, Dunning OLI eclectic framework, horizontal and vertical FDI in developed and developing economies, international fragmentation of production, international labor migration, gains from FDI, and labor flows. Proximity-concentration trade-off.

Part 2. Trade policy
Topic 11. Instruments of trade policy. Import tariffs in the partial and general equilibrium in a small and large economy. Welfare effects of tariffs, optimal tariff, and retaliation. The effective protection rate.
Topic 12. Import quotas, quotas versus tariffs, non-tariff barriers, export subsidies, voluntary export restraints.
Topic 13. Strategic trade policy. Import protection as export promotion, export rivalry, quotas, and VERs as facilitating practices, evaluation of strategic trade policy.
Topic 14. Preferential trading agreements. Neoclassical theory of economic integration, types of regional economic integration, trade creation versus trade diversion, European integration, regionalism, and the new trade theory.
Topic 15. International trade organizations. International institutions and rules, bilateralism versus multi-multilateralism, GATT/WTO, United Nations and UNCTAD, OECD, administered protection, safeguards, trade policy, and environmental regulations.