International_Trade_Syllabus

International_Trade_Syllabus - Topics in International...

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IP/Gen. 435, Spring 2009 Gordon H. Hanson ( gohanson@ucsd.edu ) Class Meetings: TuTh 2:00pm-3:20pm, Office Hours: M 1:30-3:00PM Synopsis This course examines current policy topics related to the international economy. Our goals are (1) to develop analytical tools to understand the consequences of global economic integration, (2) to examine empirical evidence on how the globalization of markets for capital, goods and services affects macroeconomic performance, income inequality, and industrial structure in economies of the Pacific Rim and elsewhere, and (3) to assess the choices available to countries regarding fiscal, monetary, trade, technology and other policies. This year, I have organized the course around four topics. The gravity model of trade . Trade models based on comparative advantage predict that trade is based on differences between countries in technology (the Ricardian model) or factor supplies (the Heckscher-Ohlin model). Other motivations for trade include economies of scale (which mean countries get more efficient, the more they produce of a good) and consumers’ love of variety (which means consumers want a wide variety of goods and not just select goods at a low price). Adding these two elements to standard trade theory leads to the gravity model of trade, a powerful empirical tool for analyzing trade flows between countries and evaluating the impact of policy and other trade barriers on trade flows. We will see that the world isn’t nearly as globalized as one might think. Firms in international trade . Standard trade theory pays little attention to firms. Export capabilities depend on characteristics of countries (factor supplies) or industries (factor intensity, technology) but not so much on what firms do. Recent theory brings firms back in by acknowledging that innovation is an important source of differences in firm productivity. These models can account for the empirical regularities that only a small share of firms export, the firms that do export are larger and more productive than those that do not, and reductions in trade barriers raise average productivity in an industry. The global financial crisis . An important precursor of the global financial crisis was massive capital flows from Asia (mainly China and Japan) to the US, which provided US consumers with easy access to credit and helped sustain the US housing bubble. We will examine research on why Asia exports so much capital to the US, why bubbles in financial markets are an inherent feature of the global economy, and what role fiscal and monetary policy have in light of these features of the global economy. 1
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International_Trade_Syllabus - Topics in International...

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