Module Code and Title:       CET207          International Economics

Programme:                          BA in Development Economics

Credit Value:                         12

Module Tutor:                       Sanjeev Mehta

General objective: This module aims to provide an up to date and understandable analytical framework for international economics. It develops a systematic exposition of theories that explain the causes and consequences of international trade, and examines international trade policies and patterns. The module will focus on mathematical/econometrical treatment of the relevant models.

Learning outcomes – On completion of this module, learners should be able to:

1. Examine the economic importance of international trade.
2. Explain various trade theories.
3. Illustrate the effects of trade on labour allocation, outputs, and income distribution.
4. Explain the causes and consequences of international trade.
5. Evaluate different explanations of the links between trade, growth and development.
6. Identify the basic rationale for preferential trade areas.
7. Participate in debate on the issues pertaining to international trade and finance.
8. Describe the role of exchange rates in open economies.
9. Examine prevailing trade policies.

Learning and Teaching Approach: This module will be taught by means of lectures, tutorials, case study, group work and self-directed study. Lectures will aim at explanation of various concepts and theories. Tutorials will be an integral part of the module, and it is expected that much of the learning and application of econometric concepts will be achieved through these. Students will also use cross sectional/ country specific case study for better understanding. 

Assessment Approach:

A. Problem solving (2): Portion of Final Marks: 20%

One each before and after mid semester examination, entailing analysis and application of theoretical framework in a given situation (worth 10% each) should have a maximum limit of 250 words.

• 1%       Adequacy of references used
• 1%       Defining the concepts
• 2%       Use of appropriate analytical tools
• 4%       Analysis and findings
• 2%       Conclusion

B. Class Test: Portion of Final Marks: 5%

One written test will be conducted that will comprise 45 min duration. This will be a test of understanding of the concepts and the ability to apply the theoretical models; it should contain 10 MCQs and 5 fill-in-the-blanks type questions.

C. Group work: Portion of Final Mark: 20%

In groups of 4, students will complete a case study on an issue related to international monetary system/ financial globalisation/ Welfare impact of trade policy. Report word limit: 500 words.

• 2%       Situation analysis
• 3%       Methodology
• 9%       Discussion on findings
• 1%       Adequate references
• 2%       Peer review (individually marked)
• 3%       Viva voce (individually marked)

D. Midterm Examination: Portion of Final Mark: 20%

Students will take a written exam of 1.5 hr duration covering topics up to the mid-point of the semester. 

Pre-requisites:

Subject matter:

(Note: In units 2, 4 and 6, the focus should be simple conceptual/ theoretical framework with graphical explanation and not mathematical treatment)

1. Introduction
   • Nature and scope of international economics
   • Overview of World Trade and Investment
   • Gravity model
   • Impediments to trade-distance, barriers and borders
2. Theories of International Trade
   • The Ricardian theory: concept of comparative advantage, misconceptions about comparative advantage
   • Specific factors and Heckscher-Ohlin models, income distribution and gains from trade
   • Standard trade model
   • Factor reversals
   • Factor price equalisation
   • Leontief paradox
   • New trade theories
   • International location of production
   • Gains from trade
   • Firms in the global economy - outsourcing and multinational enterprises

1. External Economies of scale and international location of production

• Economies of scale and market structure
• Economies of scale and international trade
• Interregional trade and economic geography

4. Economic Growth and International Trade
   • Model and basic formula
   • Terms of trade
   • Rybczynski Theorem
   • Singer-Presbisch hypothesis
   • Immiserisation of growth
5. Trade Policy
   • Instruments of trade policy
   • Theory of tariff
   • Stopler-Samuleson Theorem
   • Optimum tariff, tariffs and distortions in the markets
   • Infant industry argument for protection, effective rate of protection
   • Political economy of trade policy, case for free trade
   • Controversies in trade policy: trade liberalisation, activist trade policy
   • International negotiations in trade policy, Regional Trade Blocks
6. International Macroeconomic Policy
   • Fixed versus flexible exchange rates
   • Review of Balance of Payment
   • Approaches to Balance of Payment, with a primary focus on the Bhutanese context
   • International monetary systems
   • Financial globalization and financial crises

Reading List:

1. Essential Reading
   • Krugman, P., Obstfeld, M., & Melitz, M. (2012). International Economics: Theory and Policy. Addison-Wesley (Pearson Education Indian Edition).
   • Salvatore, D. (2011). International Economics: Trade and Finance. John Wiley International Student Edition. .
2. Additional Reading
   • S¨odersten, B & Reed, G. (1994). International Economics, MacMillan.
   • UNCTAD (Latest). World Trade Report. (Can be downloaded from the WTO website).
   • UNCTAD (Latest). World Investment Report. (Can be downloaded from the WTO website).

Date: January 15, 2016