Course description
This course provides an overview of the modern international trade theory based on microeconomic foundations. The students will recall Ricardian model of comparative advantage applied to neoclassical macroeconomic model and will realize which assumptions have to be changed in the modern world. They will learn a number of international trade models based on production factors, including models of specific production factors and the Heckscher–Ohlin model. The students will also master more recent models of monopolistic competition in international trade as well as with modern political economy branch accounting for international trade effects. The students will learn to forecast results of trade policy in different situations and their influence on social welfare.
Topics
Topic 1. The Theory of Comparative Advantage
International trade overview. The gravity model. Absolute and comparative advantages. The labor theory of value. Prices in a closed economy. Relative prices after trade. Gains from trade.
Topic 2. The Standard Neoclassical Trade Model
Production possibilities. Equilibrium in closed and open economies. Gains from exchange. Gains from specialization. The distribution of the gains from international trade.
Topic 3. The Specific Factors Model
Factor prices and goods prices. Equilibrium in the model. Comparative statics. Income distribution and the gains from trade.
Topic 4. The Heckscher–Ohlin Model
Basic blocks of the model. The Rybczynski theorem. The Heckscher–Ohlin theorem. Factor-price equalization. The Stolper–Samuelson theorem. Leontief paradox.
Topic 5. Monopolistic Competition and International Trade
Economies of scale and market structure. The Krugman model. Gains from international trade with monopolistic competition. Trade policy in monopolistic competition models.
Topic 6. The Instruments of Trade Policy
Effects of a tariff. Effective rate of protection. Costs and benefits of a tariff. Import quotas and export subsidies.
Topic 7. The Political Economy of Trade Policy
Arguments for free trade. Income distribution and trade policy. Optimal tariff rate. Median voter theorem. Protectionism.
Literature
- Feenstra R. C. Advanced International Trade: Theory and Evidence, 2nd ed. Princeton, NJ: Princeton University Press, 2016.
- Gandolfo G. International Trade Theory and Policy, 2nd ed. Springer, 2014.
- Krugman, P. R., Obstfeld M., and Melitz, M. J. International Trade: Theory and Policy, 10th ed. Prentice Hall, 2015.
- Markusen J. R., Melvin J. R., Kaempfer W. H., and Maskus K. E. International Trade: Theory and Evidence. McGraw-Hill, 1995.