INTERNATIONAL ECONOMICS
Master Erasmus Mundus in Economic
Development and Growth
Universidad Carlos III de Madrid
2011-2012
INSTRUCTOR
Klaus Desmet
Email: klaus.desmet@uc3m.es
Phone: 91 624
9845
Web: http://www.eco.uc3m.es/~desmet/development.html
COURSE DESCRIPTION
This is an
advanced course in International Economics for Master students with a solid
training in economics. The first part of the course covers trade theory. It
starts with some of the standard models (Heckscher-Ohlin
and monopolistic competition), and then continues with some of the more recent
advances (trade, productivity and growth). The second part of the course covers
international finance. In particular, it discusses the current account in an intertemporal framework, the determination of exchange
rates, and macroeconomic policy under different exchange rate regimes. The
course mixes theoretical models with the discussion of relevant policy issues,
such as the relation between trade and migration, the effect of trade on
growth, global imbalances, and financial crisis.
ASSESSMENT
Grades will be
based on:
Problem sets:
25%
Class
discussion: 25%
Final Exam: 50%
Problem sets:
late handing in of problem sets will get a zero grade.
Class
discussion: each student will be asked to lead one class discussion on some of
the readings.
COURSE OUTLINE
Papers marked
with one asterisk “*” are required theoretical readings. Papers marked with two
asterisks “**” are required readings for class discussion. The other readings
are optional.
Part I: International Trade
1. Comparative advantage: the Heckscher-Ohlin
model.
*Krugman,P. and Obstfeld,
M., International Economics, chapter 4 (less advanced)
*Feenstra,R., Advanced
International Trade, chapter 1 (more advanced).
2. Discussion of Heckscher-Ohlin: trade, migration, foreign investment, and
offshoring.
**Schiff, M.,
1996. South-North Migration and Trade: A
Survey, Policy
Research Working Paper1696, The World Bank
**Hanson, G.,
2003. What Has Happened to Wages in Mexico
Since NAFTA? Implications for Hemispheric Free Trade, NBER Working Paper #9563.
**Krugman,P., 2007. Trade and Inequality Revisited.
**Grossman, G.
and Rossi-Hansberg, E., 2006. The Rise of Offshoring: It’s Not
Wine for Cloth Anymore, The New Economic Geography: Effects and Policy
Implications, Jackson Hole Conference Volume, Federal Reserve Bank of Kansas
City.
Baldwin, R.,
2006. Globalization:The Great Unbundling.
McKinsey Global Institute, 2003. Offshoring: Is It a Win-Win Game?.
3. Trade,
productivity and growth
*Desmet, K. and
Parente, S., 2010, Bigger is Better:
Market Size, Demand Elasticity and Innovation, International Economic Review,
51,319-333.
**Schmitz, J.A.
Jr. 2005. What Determines Productivity?: Lessons from the Dramatic Recovery of the US and Canadian
Iron Ore Industries Following Their Early 1980s Crisis. Journal of Political Economy, 115,
582-625.
**Mayer, T. and
Ottaviano, G.,2007. The happy few: the internationalisation of European firms.
Krugman, P., 1980, Scale Economies, Product
Differentiation and the Pattern of Trade, American Economic Review, 70,
950-959.
Nobel Foundation scientific
background on Krugman
Notes on monopolistic competition,
trade and productivity
4. Trade policy
and free trade areas
*Krugman, P. and Obstfeld, M.,
International Economics, chapter 9.
**Panagariya, A.,1999. The Regionalism Debate: An Overview, World Economy, 477-511
**Baldwin, R.,
2006. Multilateralising regionalism: Spaghetti bowls as
building blocks on the path to global free trade, World Economy.
Part II: International Finance
5. The current
account and intertemporal trade
*Krugman, P. and Obstfeld, M.,
International Economics, chapter 7 (less advanced).
*Obstfeld, M. and Rogoff, K., Foundations of International Macroeconomics, chapter
1 and 2 (more advanced)
**Bernanke, B.,
2005. The Global
Saving Glut and the U.S. Current Account Deficit.
**Suominen, K., 2010. Did Global Imbalances Causes the
Crisis?.
**Wyplosz, C., 2010. Is an undervalued renmimbi the source of global imbalances?.
6. The
determination of exchange rates: the uncovered interest parity condition
*Krugman, P. and Obstfeld, M., International
Economics, chapter 13.
Frankel, J.,
2007. Getting Carried
Away: How the Carry Trade and Its Potential Unwinding Can Explain Movements in
International Financial Markets.
Burnside, C., Eichenbaum,
M.S. and Rebelo, S., 2008. Do Peso Problems Explain the Returns to the Carry
Trade?, NBER Working
Paper 14054.
7. Exchange rates with flexible prices.
*Krugman, P. and Obstfeld, M.,
International Economics, chapter 15.
**Pakko,Michael R. and Pollard,
Patricia S., 2003. Burgernomics: A Big Macª Guide to Purchasing
Power Parity, St Louis Fed Review, November/December.
**McKinnon,
R.I., 2006. Why China Should Keep its Exchange
Rate Pegged to the Dollar: A Historical Perspective from Japan
**Krugman, P., 2006. Will There Be a Dollar Crisis?
Notes on exchange rates with
flexible prices
8. Exchange rates with sticky prices
*Krugman, P. and Obstfeld, M.,
International Economics, chapter 14.
Kenneth Rogoff, 2002. Dornbusch's Overshooting Model after 25 Years, IMF Staff Papers
49, 1-34.
Notes on exchange rates with fixed
prices
9. Recent work on the financial crisis
**Feldstein,
M., 2009. Reflections on Americans’ view of
the euro ex ante, VoxEU.
**Cooley, T.F.
and Marimon, R., 2011. A credible commitment for the
Eurozone, VoxEU.
**Reinhart,
C.M. and Rogoff, K., 2010. From Financial Crash to Debt Crisis, NBER Working Paper 15795
**Reinhart,
C.M. and Rogoff, K., 2008. This Time is Different, NBER Working Paper 13882