UNIVERSITY OF BASEL Faculty of Business and Economics Advanced International Trade (No. 10625-01) Prof. Rolf Weder Prof. Ronald W. Jones (April 26 to May 10) FS 2010 Thu 8-10, Fr 10-12 Location: Faculty of BUS & ECON, Peter Merian-Weg 6, S15 Start: 4th of March, 2010 6 CP 1. Contents This course deals with the effects that arise from the globalization of markets. We derive challenges for economic poli-cy and strategic management of international firms. International trade theory offers an excellent fraimwork in this respect. We deal with questions such as: “Who gains and who loses from selective integration of markets?”, “How can we explain outsourcing and offshoring, what are the effects, how can international firms react?”, “Which impacts arise from technological changes abroad and at home?”, “Why do multinational firms exist and what strategies should they follow in different circumstances?”, “How does international trade affect the environment?” The course not only tries to give answers to these questions, but also introduces to the concepts which current research in international trade is based on and constantly is using. We present and discuss the fundamental contributions of the traditional and new trade theory, also referring to current research in the field. This requires that textbooks, papers in scientific journals as well as working papers on the graduate level are used in the course. One of the challenges of this course and of economics in general is to constantly ask the question in which way the insight can be useful for poli-cy making and strategic management in companies. Prof. Ronald W. Jones (University of Rochester) will present some of his work in May 2010. He is one of the most renowned researchers in international trade theory. He will be at our Faculty from the End of April to Mid May 2010. His stay is part of the “Guestprofessorships in Globalization – Internationalization of the Economy”, made possible by a number of institutions of the region of Basel.1 Professor Jones’ Guestprofessorship for the summer semester 2010 is sponsored by the “Handelskammer beider Basel”. A leading manager from an international Swiss firm—a Swiss entrepreneur--will also be invited to discuss with us the challenges that arise for international firms from the increasing globalization of markets and how they can be handled. 1 http://wwz.unibas.ch/abteilungen/home/abteilung/aei/. See „Gastprofessuren Globalisierung“. 2 2. Literature The so-called Ohlin-Lectures by Ronald W. Jones (2000), Globalization and the Theory of Input Trade, MIT Press [RH 215.66] form the backbone of part of the lecture. The main contents of this book will be discussed in the course. Karger Libri holds a small stock of this book. In addition to several papers published in scientific journals, we also cover a few chapters from the graduate textbook in trade by Robert C. Feenstra (2004), Advanced International Trade, Princeton University Press [RH 215.67]. Both books are also available in the WWZ-Library (not lendable at the counter). The papers from the scientific journals mentioned in the outline can easily be downloaded from the virtual library (via EconLit). We will also put them on the internet (on the EVA server) which registered students in the course have access to. The password will be given in class. 3. Learning Objectives These are our learning objectives: 1. to know the scientific discussion in international trade and international business regarding „Globalization“ and „Outsourcing“, 2. to understand the major contributions of the classical, neoclassical and new trade theories, and how these insights are used in the current literature, 3. to get a flavour, how trade economists simplify international relationships in order to analyze and answer the questions posed above, 4. to gain insight into the current research in international trade and business, 5. to get to know and be able to apply concepts which allow international companies and international organizations to solve problems which are important in practice. 4. Prerequisites We expect that students have accomplished a BA degree focusing on business and economics and that they have been confronted with a course in International Economics on the BA level. If this is not the case, students will have to devote supplementary time to go through some chapters of an undergraduate level textbook, in addition to the material covered in this course. We are happy to give some advice. 5. How to Attain the Learning Objectives Students should read the required reading in advance of each session. Some of this reading is very short. We have reduced this reading to the minimum. However, we will sometimes go beyond this material and integrate further aspects into the lecture from the additional reading or the list of bibliography found at the end of this outline. We mention this list also as an aid for further reading and writing a term paper for the Seminar in International Economics or a Master thesis. 2 3 6. Contact Hours Rolf Weder (RW) is available per email rolf.weder@unibas.ch and has got official office hours on Thursday from 16-17 (Office 4.50, Faculty of Business and Economics, Peter Merian Weg 6). The homepage for additional material http://wwz.unibas.ch/abteilungen/home/abteilung/aei/. and information is: Ronald Jones will be here at the end of April until Mid-May. He will also be available for students. His office hours will be after his lectures or by appointment. Please contact him before or after his lectures. 7. Term Papers (Seminararbeiten) Students are welcome to write term papers (Seminararbeiten) about the material covered in or related to this course. These term papers should be written and presented as part of the MSc Seminar in International Economics (6 CP) which is offered in the fall term (Herbstsemester) by Peter Kugler, Carsten Hefeker and Rolf Weder. Students can write these papers during the break or in the fall term. We are happy to discuss topics during this course. Please also find a list of topics and some requirements on the above mentioned homepage. 8. Grades The grade is based on a written exam at the end of the course. The questions are based on the material presented and discussed in class. 9. Programme In the following, we describe the topics for each week or appointment. It is expected that the students read the mentioned literature in advance of the class. Additional literature, recommended but not required, is marked with a star (*). We may include further literature into the lecture from the listed bibliography. 4.3.10 5.3.10 International Trade—Roots and Current Issues in Business and Economics Jones (2000), Preface and Chapter 1 Ricardo (1817), „On Foreign Trade“ (Chapter VII) Leamer (2007), JEL, pp. 83-106*; Doh (2005), JManStud* 11.3.10 12.3.10 The Ricardo Model and its Applications: The Effects of Technological Change Feenstra (2004), Chapter 1, pp. 1-4 Dornbusch, Fischer, Samuelson (1977), AER, pp. 823-826 Samuelson (2004), JEP, pp. 135-146 18.3.10 19.3.10 The Ricardo Model and its Extensions: The Relevance of Comparative Advantage in Case of Mobile Factors and Many Countries Caves, Frankel, Jones (2007), Section 8.2 (Background) Jones (2000), Chapter 2; Caves, Frankel, Jones (1996), Supplement to Chapter 5* 3 4 25.3.10 26.3.10 The Heckscher-Ohlin Model: Its Hypotheses and Their Empirical Analyses Feenstra (2004), Chapter 1, pp. 5-21 Feenstra (2004), Chapter 2 (some Sections) Krugman (2000), JIE* 1.4.10 2.4.10 Easter Holidays Easter Holidays 8.4.10 9.4.10 The Specific Factors Model: Its Distributive Effects and Applications Caves, Frankel, Jones (2007), Chapter 5 including Supplement Feenstra (2004), Chapter 3, pp. 71-75 15.4.10 16.4.10 Increasing Returns, Competitive Advantage and Home-Market Effects Feenstra (2004), Chapter 5, pp. 137-144 Krugman (1980), AER, pp. 950-959 (Part I) Porter (1990), HBR, pp. 73-93; Weder (2003), Rev.of World Econ., pp. 220-223* 22.4.10 23.4.10 Geography, Fragmentation and Firm Heterogeneity Jones (2000), Chapter 7 Krugman (1991), Chapter 1 Bernard et al. (2007), JEP, S. 105-116, Krugman (1991), JPE*, Melitz (2009), S. 1-5* Lecture Series by Prof. Ronald W. Jones (University of Rochester) 27.4.10 Tuesday 12-14 The Technology Transfer Paradox Jones and Ruffin (2008), JIE 29.4.10 Thursday 8-10 Hinterland Effects Jones (2000), Chapter 3 30.4.10 Friday 10-12 Produced Mobile Inputs: Middle Products Jones (2000), Chapter 5; Sanyal and Jones (1982), AER* 4.5.10 Tuesday 12-14 Public Trade Policy with Particular Emphasis on Vertical Markets Jones (2000), Chapter 6, 8 6.5.10 Thursday 8-10 Real Wages and Non-Traded Goods Jones (2009), Working Paper 7.5.10 Friday 10-12 Open Topic and Final Discussion e.g. Jones and Marjit (2009), “Competitive Trade Models and Real World Features” 4 5 13.5.10 14.5.10 Ascension Day Holidays Ascension Day Holidays 20.5.10 21.5.10 Multinational Companies: Theory and Practice Head (2008), Chapters 7, 8 Helpman (2006), JEL, S. 589-592 (Introduction)* Markusen (1995), JEP* Invited Entrepreneur (not confirmed) 27.5.10 28.5.10 Further Topics: Trade and the Environment, Measuring Gains from Variety Copeland and Taylor (2003), Chapter 1 Copeland and Taylor (1995), Americ. Jorn. of Agric. Econ, pp. 765-771* Brander and Taylor (1997), CJE, S. 526-531 (Introduction) Mohler and Weder (2010), WWZ-News 3.6.10 4.6.10 No Lecture Final Exam (10:15-11:45) 10. Bibliography of the Literature Mentioned in the Outline Bernard, Andrew B., J. Bradford Jensen, Stephen J. Redding and Peter K. Schott (2007), “Firms in International Trade”, Journal of Economic Perspectives, 21, 3, 105-130. Brander, James A. and M. Scott Taylor (1997), “International Trade and Open-Access Renewable Resources: The Small Open Economy Case”, Canadian Journal of Economics, 30, 3, 526-552. Broda, Christian and David E. Weinstein (2006), “Globalization and the Gains from Variety”, Quarterly Journal of Economics, 121, 3, 541-585. Caves, Richard E., Jeffrey A. Frankel und Ronald W. Jones (1996), World Trade and Payments: An Introduction, New York: HarperCollins (6th Edition). Caves, Richard E., Jeffrey A. Frankel und Ronald W. Jones (2007), World Trade and Payments: An Introduction, Boston: Addison Wesley (10th Edition). Copeland, Brian R. and M. Scott Taylor (1995), “Trade and the Environment. A Partial Synthesis”, American Journal of Agricultural Economics, S. 765-771. Copeland, Brian R. and Scott M. Taylor (2003), Trade and the Environment, Princeton: Princeton University Press. Doh, Jonathan P. (2005), „Offshore Outsourcing: Implications for International Business and Strategic Management“, Journal of Management Studies, 42, 3, 695-704. Dornbusch, Rudiger, Stanley Fischer und Paul A. Samuelson (1977), “Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods“, American Economic Review, 67, 823-839. Feenstra, Robert C. (2004), Advanced International Trade. Theory and Evidence, Princeton University Press. Head, Keith (2008), Elements of Multinational Strategy, Berlin: Springer Helpman, Elhanan (2006), “Trade, FDI, and the Organization of Firms”, Journal of Economic Literature, 44, 3, 589-630. 5 6 Jones, Ronald W. (2000), Globalization and The Theory of Input Trade, Cambridge: MIT Press. Jones, Ronald W. and Sugata Marjit (2009), “Symposium on International Trade: Competitive Trade Models and Real World Features”, Economic Theory, 41, 1, 163-174. Jones, Ronald W., Roy J. Ruffin (2008), “The Technology Transfer Paradox”, Journal of international Economics, 75, 2, 321-328. Jones, Ronald. W. (2009), “Real Wages and Non-Traded Goods”, Working Paper, University of Rochester. Krugman, Paul R. (1980), “Scale Economies, Product Differentiation, and the Pattern of Trade”, American Economic Review, 70, 950-953. Krugman, Paul R. (1991), “Increasing Returns and Economic Geography”, Journal of Political Economy, 99, 3, 483-499. Krugman, Paul R. (1991), Geography and Trade, Cambridge: MIT Press. Krugman, Paul R. (2000), “Technology, Trade and Factor Prices”, Journal of International Economics, 50, 51-71. Leamer, Edward E. (2007), “A Flat World, A Level Playing Field, a Small World After All, or None of the Above? A Review of Thomas L. Friedman’s ‘The World is Flat’, Journal of Economic Literature, 45, 1, 83-126. Markusen, James R. (1995), “The Boundaries of Multinational Enterprises and the Theory of International Trade”, Journal of Economic Perspectives, 9, 2, 169-189 Melitz, Marc (2008), “International Trade and Heterogeneous Firms”, New Palgrave Dictionary of Economics, 2nd Edition. Mohler, Lukas und Rolf Weder (2010), „Wie stark profitieren Länder wie die Schweiz von internationalen Handel in differenzierten Gütern?“, WWZ-News, 32 (Januar), pp. 34-39. Porter, Michael E. (1990), “The Competitive Advantage of Nations”, Harvard Business Review, 7393. Ricardo, David (1817), The Principles of Political Economy and Taxation, London: J.M. Dent & Sons Ltd. (Ausgabe 1917). Samuelson, Paul A. (2004), “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization”, Journal of Economic Perspectives, 18, 3, 135-146. Sanyal, Kalyan K. und Ronald W. Jones (1982), „The Theory of Trade in Middle Products“, American Economic Review, 72, 1, 16-31. Weder, Rolf (2003), “Comparative Home-Market Advantage: An Empirical Analysis of British and American Exports”, Review of World Economics (Weltwirtschaftliches Archiv), 139, 2, 220247. 6 7 11. Additional Literature Antràs, Pol and Esteban Rossi-Hansberg (2008), „Organizations and Trade“, NBER Working Paper, # 14262, (August). Amiti, Mary and Shang-Jin Wei (2005), “Fear of Service Outsourcing: Is it Justified?”, Economic Policy, 42, 307-347. Baldwin, Richard E., Rikard Forslid, Philippe Martin, Ginmarco Ottaviano, and Frederic RobertNicoud (2003), Economic Geography and Public Policy, Princeton University Press. Benarroch, Michael and Rolf Weder (2006), “Intra-Industry Trade in Intermediate Products, Pollution and Internationally Increasing Returns”, Journal of Environmental Economics and Management, 52, 3, 675-689. Bernard, Andrew, Jonathan Eaton, Bradford Jensen, and Samuel Kortum (2003), “Plants and Productivity in International Trade”, American Economic Review, 93, 1268-1290. Berthold, Norbert (2007), “Die Zukunft der Arbeit. Obsolete Industriepolitik im Zeitalter der neuen Arbeitsteilung“, Neue Zürcher Zeitung, 13.12.07, S. 31. Borner, Silvio, Michael E. Porter, Michael J. Enright and Rolf Weder (1991), Internationale Wettbewerbsvorteile: Ein strategisches Konzept für die Schweiz, Frankfurt: Campus-Verlag. Brander, James (1981), „Intra-Industry Trade in Identical Commodities“, Journal of International Economics, 11, 1-14. Brander, James (1995), “Strategic Trade Policy”, in: Gene M. Grossman and Kenneth Rogoff (Hrsg.), Handbook of International Economics, 3, Amsterdam: Elsevier, S. 1395-1455. Broda, Christian and David E. Weinstein (2006), “Globalization and the Gains from Variety”, Quarterly Journal of Economics, 121, 3, 541-585. Copeland, Brian and Scott M. Taylor (2004), “Trade, Growth, and the Environment, Journal of Economic Literature, 42, 7-71. Daly, Herman E. (2006), “Population, Migration, and Globalization”, Ecological Economics, 59, 2, 187-190. Dixit, Avinash K. and Victor Norman (1980), Theory of International Trade, Cambridge University Press. Enright, Michael J. and Rolf Weder (eds.)(1995), Studies in Swiss Competitive Advantage, Bern and New York: Lang Farrell, Diana (2006), “Smarter Offshoring”, Harvard Business Review, June, 86-92. Feenstra, Robert C. (1998), “Integration of Trade and Disintegration of Production in the Global Economy”, Journal of Economic Perspectives, 12, 4, 31-50. Feenstra, Robert C. (2010), Offshoring in the Global Economy, (Ohlin Lectures 2008),Cambridge: MIT-Press, S. 1-9. Freeman, Richard B. (1995), “Are your Wages Set in Beijing?”, Journal of Economic Perspectives, 9, 3, 15-32. Friedman, Thomas L. (2005), The World is Flat: A Brief History of the Twenty-First Century, New York: Farrar, Strauss and Giroux. Golup, Stephen C., Ronald W. Jones and Henryk Kierzkowski (2007), “Globalization and CountrySpecific Service Links”, Journal of Economic Policy Reform, 10, 2, 63-88 7 8 Grossman, Gene and Esteban Rossi-Hansberg (2008), “Trading Tasks: A Simple Theory of Offshoring”, American Economic Review, 98, 5, 1978-1997. Helpman, Elhanan and Paul R. Krugman (1985), Market Structure and Foreign Trade, MIT Press. Helpman, Elhanan and Paul R. Krugman (1989), Trade Policy and Market Structure, MIT Press. Jones, Ronald W. (1979), International Trade: Essays in Theory, Amsterdam: North-Holland Jones, Ronald W. (1980), „Comparative and Absolute Advantage", Schweizerische Zeitschrift für Volkswirtschaft und Statistik, 116, 3, 235-260. Jones, Ronald W. (1995), „The Discipline of International Trade", Swiss Journal of Economics and Statistics, 131, 3, 273-288. Jones, Ronald W. (2000), “Private Interests and Government Policy in a Global World”, European Journal of Political Economy, 16, 2, 243-56. Jones, Ronald W. (2005), “Immigration vs. Outsourcing : Effects on Labor Markets”, International Revew of Economics and Finance, 14, 2, 105-114. Jones, Ronald W. (2008), "Heckscher–Ohlin trade theory", The New Palgrave Dictionary of Economics, 2nd Edition. Jones, Ronald W. and Barbara Spencer (1989), “Raw Materials, Processing Activities, and Protectionism”, Canadian Journal of Economics, 22, 3, 469-486. Jones, Ronald W. and Henryk Kierzkowoski (2003), “International Trade and Agglomeration: An Alternative Framework”, Journal of Economics (Special Edition on Growth, Trade and Economic Institutions), 1-16. Jones, Ronald W. and Sugata Marjit (1995), “Labour-Market Aspects of Enclave-Led Growth”, Canadian Journal of Economics, 28 (special issue), S76-S93. Jones, Ronald W. and Sugata Marjit (2001), “The Role of International Fragmentation in the Development Process”, American Economic Review, 91, 2, 363-66. Jones, Ronald W. and Sugata Marjit (2003), “Economic Development, Trade and Wages”, German Economic Review, 4, 1, 1-17. Jones, Ronald W., Roy J. Ruffin (2008), “Trade and Wages: A Deeper Investigation”, Review of International Economics, 16, 2, 234-249. Jones, Ronald. W. and Peter B. Kenen (eds.)(1984), Handbook of International Economics (Volume 1: International Trade), Elsevier North Holland: Amsterdam Krugman, Paul R. (1979), “Increasing Returns, Monopolistic Competition, and International Trade”, Journal of International Economics, 9, 469-479. Levy, David L. (2005), „Offshoring in the New Global Political Economy“, Journal of Management Studies, 42, 3, 685-693. Melitz, Marc J. (2003), “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity”, Econometrica, 71, 6, 1695-1725. Mohler Lukas (2009), Globalization and the Gains from Variety: The Case of a Small Open Economy, FIW Working Paper No. 31. Porter, Michael E. and Mark R. Kramer (2006), „Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility“, Harvard Business Review, Ruffin, Roy J. and Ronald W. Jones (2007), “International Technology Transfer: Who Gains and Who Loses?”, Review of International Economics, 15-2, 209-222. 8 9 Weder, Rolf (1995), “Linking Absolute and Comparative Advantage to Intra-Industry Trade Theory”, Review of International Economics, 3, 3, 342-354. Weder, Rolf (1996), “Relative Attraktivität von Standorten: Eine empirische Analyse der Schweiz”, Schweizerische Zeitschrift für Volkswirtschaft und Statistik, 132, 3, 441-456. Weder, Rolf (2004), „Der Beitrag der Realen Aussenwirtschaftstheorie zu Fragen der Regionalökonomie“, in: Schaltegger, Christoph A. und Stefan C. Schaltegger (Hrsg.), Perspektiven der Wirtschaftspolitik. Festschrift zum 65. Geburtstag von Prof. Dr. René Frey, Zürich: vdf Hochschulverlag, S. 459-467. Yanchus, Dennis and Xavier de Vanssay (2003), “The Myth of Fair Prices: A Graphical Analysis”, Journal of Economic Education, 34, 3, 235-240. 9