ECO5062S - Applied International Trade

Course Information

Introduction

The purpose of the course is the development of applied research skills in the area of international trade theory. There are two key components to this course: (a) an overview of international trade theory, and (b) the application of empirical research techniques and trade models in international trade theory. 

The first component covers topics relating to classical trade theory, trade liberalisation, trade and labour, new trade theory, regional integration and globalisation. 

The second component is largely computer based and covers the estimation of comparative advantage, the measurement of effective protection, the use of computable general equilibrium models and gravity/regional integration models. Assessment is largely project based.

Detailed Course Outline

The course consists of 12 lectures & seminars as well as 6 computer practicals.

Lectures

• General equilibrium in open and closed economies
• Gains from trade

• Heckscher-Ohlin theorem
• Factor price equalisation theorem
• Stolper-Samuelson theorem
• Rybczynski theorem

• Leontieff paradox and applications to South Africa
• International trade and labour markets

• Welfare impact of commodity price and endowment changes
• The political economy of trade: a preliminary view

• General equilibrium application of trade instruments
• Evaluating the trade policy stance (nominal and effective protection, incidence of protection)
• Impact of liberalisation benefits and adjustment costs

• Ricardian model with continuum of goods Dornbusch, Fischer, Samualson (1977)
• Technology gap models of international trade
• Trade and learning effects models with dynamic increasing returns

• Models of imperfect competition Monopoly/Cournot competition and pro-competitive gains
• Models with externalities gains from decreasing AC and the location of production
• Models of Chamberlinian monopolistic competition product diversity gains and the pattern of trade

• Core-periphery models with labour mobility - with and without non-traded consumption good)
• Core-periphery models with immobile labour symmetrical and non-symmetrical vertically-linked firms
• Geography and local specialisation industrial districts

• Trade creation / trade diversion
• Multi-core economic geography models and regional integration
• New growth theory and regional integration
• Regionalism vs. Multilateralism building block or stumbling block?

• Trade policy preferences Stolper-Samualson, Ricardo-Viner and increasing returns
• Trade policy coalitions collective action costs, specificity, time horizons
• Policy-maker preferences and the institutions of policy majoritarian, non-majoritarian
• Trade policy formation in South Africa

• Game theoretic basis for trade bargaining analysis
• Infinite horizon game under co-operative bargaining
• Enforced and committed moves
• Application to SA-EU trade talks

• Services
• Labour and environmental standards
• Government procurement
• Intellectual property rights

 Workshops

1. Introduction to trade data ?downloading trade data, aggregation problems, concordance commands in excel
2. Evaluating comparative advantage using post trade data - Revealed Comparative Advantage measurements
3. Empirical tests of the Heckscher-Ohlin-Vanek theorem as applied to South Africa - Factor content analysis using simplified input-output table, cross commodity regressions
4. Measuring the impact of trade policy & measuring the deadweight loss of protection, calculating nominal rates and effective rates of protection, aggregation problems and tariff incidence analysis.
5. Increasing returns & estimation of intra-industry trade
6. Regional integration analysis & estimation of trade creation/diversion using the gravity model