INTERNATIONAL TRADE POLICY

4th Module, 2002/2003

Professors:  Ksenya Yudaeva, Natalia Volchkova

This course is designed to provide students with the ability to conduct and evaluate economic analyses of policy issues relating to international trade. The course begins with a discussion of the reasons why countries trade. It proceeds to a discussion of the arguments for and against protection and managed trade. We study the effects of different trade policy instruments. Then we discuss the issues that arise in the design of policy for declining, import-competing industries (e.g., income distribution, unemployment), and for dynamic, export industries (e.g., strategic policies, dynamic externalities, capital market imperfections). In each case the theory is illustrated by industry case studies.
The last part of the course deals with the issues of trade agreements. We analyze the rationale for a world trade organization, custom unions and actual experience, and whether preferential trade agreements undermine or promote the multilateral trading system?
Prerequisite: course International Trade

The following methods and forms of study are used in the course:
· lectures (2 lectures per week)
· written home assignment (1 per course)

Grade determination:
Students sit a end-of-term exam. The final grade for the course consists of 30% of the grade for the written home assignment and of 70% of the grade for the end-of-term exam.

Course outline
The positive and normative theory of protection

Lecture 1.
1. Administered protection
2. Goals, results and costs of protection
G. Grossman, "Imports as a cause of injury: the case of US steel industry", Journal of International Economics, May 1986
T.J. Prusa, "On the Spread and Impact of Antidumping", NBER Working Paper No. 7404, 1999
Douglas Irvin, Free Trade Under Fire, Princeton University Press, Princeton and Oxford, 2002

Lecture 2.
1. Why do countries trade? (Overview)
2. The consequences of trade restrictions for small open economy. How to measure losses of protection: the case of import tariff. Equivalent Variation (EV) as a measure of deadweight losses (DWL) of protection.
3. Tariffs and non-economic objectives. Second-best vs. first best economic policy.
P. Krugman and M. Obstfeld, International Economics: Theory and Policy, 4th edition, Harper/Collins, 1994, chs. 2-6
N. Vousden (V), The economics of protection, Cambridge University Press, 1990, pp. 25-59
Lecture 3.
1. Quantitative restrictions: quotas, local content schemes, export subsidies. How to measure losses from quantitative restrictions. Equivalent tariff.
2. Export taxes and Lerner symmetry theorem.
3. Preferential government procurement policy.
4. How important are DWL of trade protection: static case.
V, pp. 38-43, 60-71
E. Helpman and P. Krugman (HK) Trade policy and market structure, MIT Press, 1989, pp. 27-38, 56-58
Lecture 4.
1. How costly is protection

Юдаева и др. "Анализ секторальных и региональных последствий вступления России в ВТО", www.cefir.ru
Jesper Jensen, Thomas Rutherford and David Tarr (2003) "Economy-Wide and Sector Effects of Russia's Accession to the WTO," paper prepared for the Allied Social Science Meetings, Washington DC, January 2-5.
R. Feenstra, "How costly is protectionism", Journal of Economic Perspectives, Summer 1992
Lecture 5.
1. Protection of intermediate goods' sectors: effective rate of protection.
2. Quotas vs. Tariffs: nonequivalence. Dynamic nonequivalence. The case of uncertain economic parameters.
V, pp. 60-74
Lecture 6.
1. Dynamic effects of trade liberalization
2. Trade policy and growth
3. Openness and income distribution

Sachs and Warner (1995): Economic Reform and the Process of Global Integration"

Edwards (1998) "Openness, Productivity and Growth: What Do We Really Know?"

Rodriques, Rodrik (1999) "Trade policy and economic growth: a skeptic's guide to the cross-national evidence"

Dollar and Kraay (2001) "Trade, growth and poverty"

Birdsall and Hamoudi (2002) "Commodity dependence, trade and growth: when openness is not enough"

Milanovic (2002) "Can we discern the effect of globalization on income distribution? Evidence from household budget surveys".

Lecture 7.
1. Nonequivalence of Quotas and Tariffs (cont'd). Risk aversion.
2. Protection as insurance?
3. More costs of protection: rent-seeking.
V, pp. 74-84
Lecture 8.
1. Large country case: features of protectionist policies and the corresponding losses from protection. Offer curves approach.
2. Optimum tariff.
3. Tariffs and retaliation.
4. Quotas and retaliation.
V, pp. 84-96
The Political Economy of Protection
Lecture 9.
1. Endogenous protection
2. Direct majority voting: Hecksher-Ohlin and Specific Factor models setups.
3. Pressure groups: features. Consumers vs. Producers pressure groups.
V, pp. 177-203
Lecture 10.
1. Grossman&Helpman'94: Protection for sale.
D.Rodrik, "The political Economy of Trade Policy", in G. Grossman and K.Rogoff, eds., Handbook of International Economics, vol.3, North Holland, 1996.
Lecture 11.
1. Empirical estimations of political economy theories
P. Goldberg and G. Maggi, "Protection for Sale: An Empirical Investigation," American Economic Review, Dec. 1999, pp. 1135-1155.
Dynamic effects of trade protection
Lecture 12.
1. Dynamic comparative advantage
2. Infant industry arguments
3. Dynamic externalities and economies of scale
Krugman (1997) "The Narrow movong band, the Dutch Disease, and the competitive consequences of Mrs. Thatcher: Notes on trade in the presence of dynamic scale economies"
R.Baldwin, "The Case Against Infant Industry Protection," Journal of Political Economy, May 1969

D. Irwin, "Did Late Nineteenth Century Tariffs Promote Infant Industries? Evidence from the Tinplate Industry," NBER Working Paper No.6835, December 1998.

Economic Integration

Lecture 13.
1. Traditional Customs Union Theory
2. Trade Creation and Trade Diversion
3. Conditions that maximize the chance that a CU is beneficial
R. Baldwin and A. Venables, "Regional Economic Integration," in G. Grossman and K.Rogoff, eds, Handbook of International Economics, vol.3, North Holland, 1996.
K. Bagwell and R.W. Staiger, "An Economic Theory of the GATT", American Economic Review, 1999
M. Kemp and H. Wan, "An Elementary Proposition Concerning the Formation of Custom Unions", Journal of International Economics, 1976
M. Kemp and H. Wan, "The Comparison of Second-Best Equilibria, The Case of Custom Unions", Journal of International Economics, 1981
Lecture 14.
1. Problems of multilateral trade agreements
2. Regional versus multilateral trade unions
3. Examples of Custom Unions
4. Russia and WTO
P. Krugman, "Is Bilateralism Bad?", in E. Helpman and A. Razin, International Trade and Trade Policy, The MIT Press, 1991.
P. Krugman, "Regionalism Versus Multilateralism: Analytical Notes", in J. De Melo and A. Panagariya eds, New Dimensions in Regional Integration, Cambridge University Press, 1993
World Trade Organization, Regionalism and the World Trading System, WTO, 1995, chs. 2,3.
Юдаева и др. "Анализ секторальных и региональных последствий вступления России в ВТО", www.cefir.ru