25751 - International Economics

Course Unit Page

Academic Year 2017/2018

Learning outcomes

The course is aimed at providing students that did not take International Economics in the First-cycle degree/Bachelor with some basic theoretical tools. In the part of the course devoted to international trade the focus is on what are the reasons explaining trade patterns among countries and what are the gains from trade. The most important instruments of trade policy are analyzed, and the costs and benefits of protectionist trade policies are assessed. Moreover, multinational enterprises organizational and production choices are explained, in order to understand their functioning. In the part of the course devoted to international monetary economics, the focus is on the mechanisms that determine the exchange rate between currencies, and on the relationship between exchange rates, money supply and interest rates.

Course contents

The general traditional model. Overview. The general traditional model: assumptions; autarkic equilibrium; free-trade equilibrium; gains from trade in consumption and production; the direction of trade; the excess demand curve (net imports). [Slides]

The Ricardian model. The concept of opportunity-cost. The Ricardian model of trade: assumptions: the linear production possibility frontier; definition of autarkic equilibrium; the free-trade equilibrium; the excess demand curve in the Ricardian model; gains from trade. [Slides]

The Heckscher-Ohlin model. Overview. The model: assumptions; production in a small open economy; factor prices and commodity prices; the Stolper-Samuelson theorem; international equilbrium; integrated equilibrium; the theorem of equalization of factors prices; the Rybczynski theorem; the Heckscher-Ohlin theorem; international trade and income distribution. [Slides]

Models with increasing returns to scale and imperfect competition. Determinants of international trade in the new theories. Market power. Pro-competitive effect (Markusen). Selection effect. Variety effect (Dixit and Norman). [Slides]

Trade policy. Efficiency and equity. What is protectionism in trade? Protectionism in trade: demand, supply and trade with a single industry; the effect of an import tariff - the case of a small economy; the effect of an export subsidy - the case of a small economy. [Slides]

Trade policy: arguments in favor of protectionism. Overview. Traditional arguments in favor of protectionism: the argument of a big economy (effect on the terms of trade); the argument of the infant industry; the argument of increasing returns to scale; the argument of internal market distortions. [Slides]

Multinational enterprises and Foreign Direct Investment. Definitions. Stylized facts. Advantages (and disadvantages) of multinationals. Location choice: horizontal and vertical FDI. Internalization choice: outsourcing and licensing. [Slides FDI.1] [Slides FDI.2] [Slides FDI.3] [Slides FDI.4] [Slides FDI.5]

Exchange Rates and the Foreign Exchange Market: An Asset Approach [Slides]

Money, Interest Rates, and Exchange Rates [Slides]

Price Levels and the Exchange Rate in the Long Run [Slides]

Readings/Bibliography

The textbook is: Krugman P. R., Obstfeld M., Melitz M. J. (2015) International Economics: theory and policy. Pearson. Three copies of this textbook are available at the Central Library Roberto Ruffilli (two copies are available for borrowing, the other is not).

Another book that will be useful for the class is: Markusen J. R., Melvin J. R., Kaempfer W. H., Maskus K. E. (1995) International Trade: Theory and Evidence. McGraw-Hill. ISBN: 0-07-040447-X. Five copies of this book are available at the Central Library Roberto Ruffilli.

Assessment methods

The final mark of the exam is structured in the following way.

15%: attendance of classes in an active manner, namely by giving evidence of having properly digested the topics covered during previous classes.

15%: project presentation.

70%: mark of the intermediate learning assessments (which are not mandatory); mark on the final written exam. Some old exam papers are available here.

In case of a positive final mark the student has the right to renege on the mark only once.

Office hours

See the website of Gaetano Alfredo Minerva