University of Waterloo Department of Economics Econ … Outline – Econ 637 1 University of Waterloo Department of Economics Econ 637 - Economic Analysis and Global Governance

Course Outline – Econ 637 1

University of Waterloo

Department of Economics

Econ 637 - Economic Analysis and Global Governance

Winter 2013

Instructor: Nafeez Fatima

Office: Hagey Hall 221

Phone: (519)-8884567, ext. 36559

E-mail Address: [email protected]

Office Hours: Monday from 4.30 pm to 6.00 pm

(Other times by appointment only)

Lecture Hours and Location: Mondays from 1.30 pm to 4.20 pm in BSIA 1-43

Where to find this course outline: This course outline will be available at two locations

for the duration of the term:

1. Department of Economics website: http://economics.uwaterloo.ca/ug-

courseschedule.htm

2. LEARN website: http://learn.uwaterloo.ca

Course Description:

This is a core economics course for graduate students enrolled in the Global Governance

programs. The purpose of the course is to introduce students to economic analysis that

pertains to globalization and the study of an increasingly integrated global economic

order. The modern economies and societies are highly interconnected and thus

interdependent as a result of globalization processes. Therefore, the question of global

economic governance is highly relevant in a globalized world.

The study of global economic governance focuses on issues such as global economic

institutions, multilateral negotiations, international flows of goods and services and

movements of labor and capital. The global economic system and its principal actors

play an important role in shaping the present and future of the world economy and

there are both short term and long term effects of global economic policies. The current

global financial crisis paints a dim picture of how the system can fail and calls for a

much needed reform in terms of global fiscal and monetary policies.


In the first part of the course, we focus on issues related to international economics. The

primary concern of international economics is to describe and predict the patterns of

production, trade and investment among interdependent countries of the world. The

two broad subfields of international economics are international trade and international

finance. International trade analysis focuses on interactions among countries through

real transactions of physical commodities and services. The focus of international

finance, in contrast, is the monetary side of international economics. Topics on

international trade will include sources of comparative advantage, gains from trade, the

pattern of trade, effects of trade policy interventions and the argument for and against

free trade. Topics on international finance will include foreign direct investment,

determination of exchange rates and international capital markets and open economy

macroeconomics.

In the second part of the course, we discuss sustainable development models and global

environmental governance issues. Problems of developing countries can be understood

best with reference to the international environment in which they are part of and in a

global world. Underdevelopment can be a result of core and peripheral relationships

between developed and developing countries. In this light, debate centers around

whether growth is good for the poorer countries and whether the economic benefits of

globalization trickle down to the masses in these countries. Two important aspects of

the Millennium Development goals include policies for implementing sustainable

development and for reducing inequalities worldwide.

The impacts of global warming are likely to be hardest on the poorest peoples even

though they have contributed little to causing the problem. The nature and pace of

greenhouse induced climate change and trans-boundary resource depletion calls for

international environmental coordination.

After completion of this course, students will be able to understand better the structure

and functioning of the modern international and global economy. They will be better

equipped to form critical judgements and opinions about issues such as protectionism,

globalization and the impact of trade and open economy macroeconomics on economic

growth and development for countries of the world and their citizens.


Course Objectives:

Learn the basic international trade models and their applications.

Study the methods and objectives of trade instruments (tariffs, quotas, subsidies

etc).

Explore the role of various international institutions governing the global

economy (WB, IMF and WTO).

Evaluate arguments for and against free trade and “political economy” views of

trade policy.

Investigate the trade policy issues of developed and developing countries.

Study national income accounts and determination of exchange rates.

Discuss climate change and international development issues.

Readings:

The required textbook for this course is Krugman, R. Paul, Maurice Obstfeld & Marc J.

Melitz, International Economics: Theory and Policy.

For international trade and finance related topics, we will utilize the following

textbooks:

(1). Feenstra, C. Robert & Alan M. Taylor, International Trade, Second Edition, Worth

Publishers, 2011. (Feenstra)

(2). Krugman, R. Paul, Maurice Obstfeld & Marc J. Melitz, International Economics:

Theory and Policy, Ninth Edition, Pearson Wesley Publishers Limited, 2010.

(Krugman)

For development and environmental issues, we will concentrate on:

(1).Todaro, P. Micheal and Stephen C. Smith, Economic Development, 11th Edition,

Pearson Wesley Publishers Limited, 2012. (Todaro)

(2).Ray Debraj, Development Economics, Princeton University Press, 1998. (Ray)


The lecture notes for each relevant topic will be posted on Learn. The journal articles

with an * sign in front of them are required reading for this course. These articles will be

discussed at the end of each topic in class and will be posted periodically on Learn.

Required Textbook (International Trade and Finance):

Krugman, R. Paul, Maurice Obstfeld & Marc J. Melitz, International Economics: Theory

and Policy, Ninth Edition, Pearson Wesley Publishers Limited, 2010.

Students can also use the eighth edition of the textbook, however it is your

responsibility to cover the new materials included in the ninth edition.

Other Useful References:

For Microeconomics:

Varian, H. R. Intermediate Microeconomics: A Modern Approach, Eighth edition,

Norton, Toronto, 2009.

For International Economics:

Feenstra, C. Robert & Alan M. Taylor, International Trade, Second Edition, Worth

Publishers, 2011.

Salvatore, Dominick, International Economics, Eighth Edition, John Wiley & Sons, Inc,

2004.

James Markusen, Melvin, Kaempfer & Maskus, International Trade : Theory and

Evidence at http://spot.colorado.edu/~markusen/textbook.html (Markusen)

For Economic Development:

Todaro, P. Micheal and Stephen C. Smith, Economic Development, 11th Edition,

Pearson Wesley Publishers Limited, 2012.

Ray Debraj, Development Economics, Princeton University Press, 1998.

For Economic Globalization:

Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy,

Norton, 2011.

Carmen Reinhart and Kenneth Rogoff, This Time is Different: Eight Centuries of Financial

Folly, Princeton University Press, 2011.

http://spot.colorado.edu/~markusen/textbook.html


Dani Rodrik, One Economics, Many Recipes, Princeton University Press, 2007.

Joseph Stiglitz, Globalization and Its Discontents, New York:W.W. Norton, 2003.

Joseph Stiglitz, Making Globalization Work, New York:W.W. Norton, 2006.

Thomas Homer-Dixon, The Upside of Down: Catastrophe, Creativity, and the Renewal of

Civilization, Island Press, 2006.

Paul Collier, The Bottom Billion, Oxford University Press, 2007.

Eric Helleiner, States and the Re-emergence of Global Finance, Cornell University Press,

1994.

Jeffrey Sachs, Common Wealth: Economics for a Crowded Planet, Penguin Group, 2008.

(available also as an audio-book from KW Public Libraries)

Jagdish Bhagwati, In Defense of Globalization, Oxford University Press US, 2007.

William Easterly: The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have

Done So Much Ill and So Little Good, Penguin Press, 2006.

Important Websites:

Countries and Regions (www.worldbank.org/html/extdr/regions.htm)

World Bank Development Data and Statistics (www.worldbank.org/data/)

International Monetary Fund (www.imf.org)

IMF World Economic Outlook (www.imf.org/external/pubs/ft/weo/2005/01/index-htm)

United Nations Economic and Social Development (www.un.org/ecosocdev/)

United Nations Statistics Division (unstats.un.org/unsd/)

United Nations Development Program (www.undp.org)

International Trade Related blogs:

http://rodrik.typepad.com/

http://economistsview.typepad.com/

http://rodrik.typepad.com/

http://economistsview.typepad.com/


Resources:

Course related materials including lecture notes and journal articles will be posted on

Learn at:

1131 Winter 2013 ECON 637 Economic Analysis and Global Governance

The content of the exams will be announced in class and on Learn. Students are

responsible for visiting this site frequently. It is highly recommended that students

attend the lectures and read the textbook and the Journal articles ahead of time. Lecture

notes are provided as a supplement to the text book. One copy of the textbook will be

placed on reserve in the Dana Porter library for three hours.

Evaluation:

Student evaluation for this course will consist of two in-class midterm exams and a final

exam. Alternatively, students can choose to write a research paper (or a book report) on

a particular topic in international trade and can substitute this paper for one of the

midterm exams. For this paper, students can prepare a book report based on the

selection of one of the books under the heading “Economic Globalization” .The due

date for paper submission is April 1, 2013. No late submission will be accepted. The

guideline for the paper will be distributed in class. Midterms and final will consist of

both multiple choice questions and short essay questions. Final exam will be

comprehensive; it will include all materials covered in this course. The final exam date

will be announced by the Registrar’s Office. The final exam period for Winter Term

2013 is April 11 to April 25. Students are expected to be available during this time. An

alternative final exam time is not allowed on the ground of travel plans.

The Exam Schedule:

Exams Date Time Weight

Midterm 1 Monday, February 11,

2013

In class exam 25%

Midterm 2 Monday, March 18, 2013 In class exam 25%

Final TBA TBA 50%

Alternative Grading Scale:

25% paper, 25% midterm exam (1 or 2) and 50 % final.


Policy for Missed Exams:

No make-up midterm exam will be provided for this course. Students who do not have

a relevant medical certificate will receive a mark of zero on any missed exam and their

final grade will be assigned in accordance with the formula specified above. For

students who have valid medical certificate (approved by the instructor), the weight of

the missed exam will be transferred to the final exam. Policy regarding the missed final

exam can be found at: http://www.economics.uwaterloo.ca/DeferredExams.html

Students are advised to notify the instructor in person about the missed exam as soon as

they are better. E-mail notification about the missed exam is not accepted.

Grades:

Exam marks will be posted on Learn. Posting grades in public places or sending grades

by e-mail are prohibited by university regulations.

Remarking Policy:

If any student feels that the exam is not marked properly, he/she must inform the

instructor within 6 days of the date on which the grades are posted on Learn. Please be

advised that the entire test will be remarked and the grade may improve, remain

unchanged or perhaps even decrease as a result of the remarking process.

Topics Covered from the Required Textbook (Krugman):

(I). Part 1: International Trade Theory

Chapter 2: World Trade: An Overview

Chapter 3: Labor Productivity and Comparative Advantage: The Ricardian Model

Chapter 4: Specific factors and Income Distribution

Chapter 5: Resources and Trade: The Heckscher-Ohlin Model

Chapter 6: The Standard Trade Model

Chapter 7: External Economies of Scale and International Location of Production

Chapter 8: Firms in Global Economy: Export Decisions, Outsourcing and Multinational

Enterprises

And,

Feenstra Chapters I - 6

http://www.economics.uwaterloo.ca/DeferredExams.html


Relevant Journal Articles:

*Paul Krugman (1998), “Two Cheers for Formalism,” The Economic Journal, vol. 108

(451), p. 1829-36.

*Paul Krugman (1993),” What Do Undergrads Need to Know About Trade?”, American

Economic Review Papers and Proceedings, p. 23-26.

Paul Krugman, “Ricardo’s Difficult Idea,” can be retrieved from web:

mit.edu/krugman/www/ricardo.htm

* Freeman, Richard B (1995), ”Are Your Wages Set in Beijing?,” Journal of Economic

Perspectives, American Economic Association, vol. 9(3), p. 15-32.

*Williamson & O’Rourke, “The Heckscher-Ohlin Model Between 1400 and 2000: When

It Explained Factor Price Convergence, When It Did Not, and Why,” National Bureau of

Economic Research (NBER), Working Papers 7411.

Donald R. Davis & David E. Weinstein (2001), ”An Account of Global Factor

Trade,” American Economic Review, American Economic Association, vol. 91(5), p. 1423-

1453.

Paul Krugman (1979), ”Increasing returns, monopolistic competition, and international

trade”, Journal of International Economics, vol. 9 (4), p. 469-479.

(II). Part 2: International Trade Policy (Krugman)

Chapter 9: The Instruments of Trade Policy

Chapter 10: The Political Economy of Trade Policy

Chapter 11: Trade Policy in Developing Countries

And,

Feenstra Chapters 8-11


*Krugman, P. (1997), “What should trade negotiators negotiate about?,” Journal of

Economic Literature, vol. 35 (1), p. 113-120.

(III). Part 3: Exchange Rates and Open-Economy Macroeconomics (Krugman)

Chapter 13: National Income Accounting and the Balance of Payments

Chapter 14: Exchange Rates and Foreign Exchange Market: An Asset Approach



“The Current Financial Crisis”, C, I. Jones, Macroeconomics, Second Edition, Norton,

Toronto, 2010. (Chapter 13)

Fischer, S. (2001): “Exchange Rate Regimes: Is the Bipolar View Correct?,” Journal of

Economic Perspectives, vol.15(2), p.3-24.

Alberto Alesina, Robert J. Barro and Silvana Tenreyro (2002), ‘Optimal Currency Areas,’

NBER Working Papers 9072, National Bureau of Economic Research, Inc.

(IV). Part 4: International Development Issues (Trade, Aid and Development)

Todaro – Chapter 2, 5 and 14

Browett (1985), “Newly industrialised countries and radical theories of Development",

World Development, vol. 13(7), p. 789-80.

*Amartya Sen (1983), "Development: Which way now?" The Economic Journal, vol. 93

(372), p.745-62.

*Dollar, D., and A. Kraay (2002), “Growth is Good for the Poor,” Journal of Economic

Growth, Springer, vol. 7(3), p.195-225.

Dollar, D., and A. Kraay (2004), “Trade, Growth, and Poverty,”The Economic Journal,”

vol.114 (493), F22-F49.

*Easterly, W. (2003), “Can Foreign Aid Buy Growth?,” Journal of Economic Perspectives,

vol. 17(3), p.23-48.

Easterly, W. (2006), “Reliving the 1950s: the big push, poverty traps, and takeoffs in

economic development,” Journal of Economic Growth, vol. 11(4), p. 289-318.

*Martin Ravallion (1997), “Good and Bad Growth: The Human Development Reports",


* Robert Dorfman (1991), "Economic Development from the Beginning to Rostow", Journal

of Economic Literature, vol. 29(2), p. 573-591.

Stavros Theofanides (1988), "The Metamorphosis of Development Economics", World

Development, vol.16 (12), p. 1455-63.


(V). Part 5: The Environment and Development:

Todaro - Chapter 10

Markandya, Anil and David Pearce (1991),"Development, the Environment and the Social

Rate of Discount," World Bank Research Observer, 6(2), pg. 137-152.

Brander, James A. (2007), “Viewpoint: Sustainability: Malthus revisited?”, Canadian

Journal of Economics, vol. 40(1), p. 1-38.

*Tol, R. (2009), “The economic effects of climate change,” The Journal of Economic

Perspectives, vol. 23(2), p.29-51.

Notes:

Although it is not mandatory, attendance is highly recommended. Some of the

materials covered in the class will not be included in the lecture notes so it is strongly

advised that students attend classes regularly. Student participation in class is also

highly encouraged. Since, the course contents are technical in nature; a person to person

communication is preferred in answering questions. Students are welcome to ask any

questions during regular office hours. Regarding e-mail communication, students

should use the university e-mail address. When sending an e-mail, write Econ 637 on

the subject line and include your name and student ID number.

University Statements:

Academic Integrity: in order to maintain a culture of academic integrity, members of

the University of Waterloo community are expected to promote honesty, trust, fairness,

respect and responsibility.

Discipline: A student is expected to know what constitutes academic integrity, to avoid

committing academic offenses, and to take responsibility for his/her actions. A student

who is unsure whether an action constitutes an offense, or who needs help in learning

how to avoid offenses (e.g., plagiarism, cheating) or about “rules” for group

work/collaboration should seek guidance from the course professor, academic advisor,

or the Undergraduate Associate Dean. When misconduct has been found to have

occurred, including writing exams in a section that you are not registered in,

disciplinary penalties will be imposed under Policy 71 – Student Discipline. For

information on categories of offenses and types of penalties, students should refer to

Policy 71 - Student Discipline,


http://uwaterloo.ca/secretariat/policies-procedures-guidelines/policy-71.

Grievance: A student who believes that a decision affecting some aspect of his/her

university life has been unfair or unreasonable may have grounds for initiating a

grievance. Read Policy 70 - Student Petitions and Grievances, Section 4,

http://uwaterloo.ca/secretariat/policies-procedures-guidlines/policy-70. In addition,

consult http://arts.uwaterloo.ca/student-grievances-faculty-arts-processes for the

Faculty of Arts’ grievance processes.


Appeals: A student may appeal the finding and/or penalty in a decision made under

Policy 70 - Student Petitions and Grievances (other than regarding a petition) or Policy

71 - Student Discipline if a ground for an appeal can be established. Read Policy 72 -

Student Appeals,http://uwaterloo.ca/secretariat/policies-procedures-guidelines/policy-

72.

Academic Integrity Website(Arts):

http://arts.uwaterloo.ca/arts/ugrad/academic-responsibility.html

Academic Integrity Office uwaterloo):

http://uwaterloo.ca/academic-integrity/

Note for students with disabilities: The AccessAbility Services (AS) Office, located in

Needles Hall Room 1132, collaborates with all academic departments to arrange

appropriate accommodations for students with disabilities without compromising the

academic integrity of the curriculum. If you require academic accommodations to lessen

the impact of your disability, please register with the AS Office at the beginning of each

academic term.


Tentative Class Schedule and Reading List:

January 7, Lecture 1: Course Outline & Trade in the Global Economy

Readings:

Krugman – Chapter 2

Feenstra – Chapter 1

Journal Articles:

*Paul Krugman (1998): “Two Cheers for Formalism,” The Economic Journal, vol. 108

(451), p. 1829-36.

January 14, Lecture 2: Trade and Technology The one factor Ricardian model

Readings:

Krugman – Chapter 3

Feenstra – Chapter 2

Journal Articles:

*Paul Krugman (1993),” What Do Undergrads Need to Know About Trade?”, American

Economic Review Papers and Proceedings, p. 23-26.

Paul Krugman: “Ricardo’s Difficult Idea,” can be retrieved from web:

mit.edu/krugman/www/ricardo.htm

January 21, Lecture 3: The Specific Factors Model

Readings:

Krugman Chapter 4

Feenstra Chapter 3

Markusen Chapter 9

Journal Articles:

* Freeman, Richard B (1995), ”Are Your Wages Set in Beijing?,” Journal of Economic

Perspectives, American Economic Association, vol. 9(3), p. 15-32.

January 28, Lecture 4: Resources and International Trade: The Heckscher Ohlin

Model

Readings:

Krugman Chapter 5

Feenstra Chapter 4


Journal Articles:

*Williamson & O’Rourke, “The Heckscher-Ohlin Model Between 1400 and 2000: When

It Explained Factor Price Convergence, When It Did Not, and Why,” National Bureau of

Economic Research (NBER), Working Papers 7411.

Donald R. Davis & David E. Weinstein (2001), ”An Account of Global Factor

Trade,” American Economic Review, American Economic Association, vol. 91(5), p. 1423-

1453.

February 4, Lecture 5: The Standard Trade Model

Readings:

Krugman Chapter 6

Markusen Chapter 11 and 12 (additional readingtime permitting)

February 11, Lecture 6: The Monopolistic Competition Model of Intra-industry Trade

& External Economies of Scale in Production

Krugman Chapter 7 and 8

Feenstra Chapter 6

Journal Articles:

Paul Krugman (1979), ”Increasing returns, monopolistic competition, and international

trade”, Journal of International Economics, vol. 9 (4), p. 469-479.

No class: February 18 University Holiday

February 25, Lecture 7: International Trade Policies (Tariffs, Quotas, VERs, Export

subsidies and Local content requirements)

Readings:

Krugman Chapters 8

Feenstra Chapters 8-10

March 4, Lecture 8: The Political Economy of International Trade

Readings:

Krugman Chapter 10 and 11

Feenstra Chapter 11

Journal Articles:

*Krugman, P. (1997): “What should trade negotiators negotiate about?,” Journal of

Economic Literature, vol. 35 (1), p. 113-120.

Dani Rodrik (2001) “The Global Governance of Trade - As If Development Really

Mattered”, UNDP, background paper to the UNDP project on Trade and Sustainable

Human Development, can be retrieved from web:

http://www.lse.ac.uk/collections/globalDimensions/seminars/trade/UNDPtrade.pdf


March 11, Lecture 9: Exchange Rates and Open-Economy Macroeconomics

Readings:

Krugman Chapter 13 & 14

“The Current Financial Crisis”, C, I. Jones, Macroeconomics, Second Edition, Norton,

Toronto, 2010. (Chapter 13)

Fischer, S. (2001): “Exchange Rate Regimes: Is the Bipolar View Correct?,” Journal of

Economic Perspectives, vol.15(2), p.3-24.

Alberto Alesina, Robert J. Barro and Silvana Tenreyro (2002), ‘Optimal Currency Areas,’

NBER Working Papers 9072, National Bureau of Economic Research, Inc.

March 18 & 25, Lecture 10 & 11: International Development Issues

Readings:

Todaro – Chapter 2, 5 and 14

Journal Articles:

Browett (1985), “Newly industrialised countries and radical theories of Development",


*Amartya Sen (1983), "Development: Which way now?" The Economic Journal, vol. 93

(372), p.745-62.

*Dollar, D., and A. Kraay (2002), “Growth is Good for the Poor,” Journal of Economic

Growth, Springer, vol. 7(3), p.195-225.

Dollar, D., and A. Kraay (2004), “Trade, Growth, and Poverty,”The Economic Journal,

vol.114 (493), F22-F49.

*Easterly, W. (2003), “Can Foreign Aid Buy Growth?,” Journal of Economic Perspectives,

vol. 17(3), p.23-48.

Easterly, W. (2006), “Reliving the 1950s: the big push, poverty traps, and takeoffs in

economic development,” Journal of Economic Growth, vol. 11(4), p. 289-318.

*Martin Ravallion (1997), “Good and Bad Growth: The Human Development Reports",


* Robert Dorfman (1991), "Economic Development from the Beginning to Rostow", Journal

of Economic Literature, vol. 29(2), p. 573-591.

Stavros Theofanides (1988), "The Metamorphosis of Development Economics", World

Development, vol.16 (12), p. 1455-63.


March 25 and April 1, Lecture 11 & 12: The Environment and Development:

Todaro Chapter 10

Markandya, Anil and David Pearce (1991),"Development, the Environment and the Social

Rate of Discount," World Bank Research Observer, 6(2), pg. 137-152.

Brander, James A. (2007), “Viewpoint: Sustainability: Malthus revisited?”, Canadian

Journal of Economics, vol. 40(1), p. 1-38.

*Tol, R. (2009), “The economic effects of climate change,” The Journal of Economic

Perspectives, vol. 23(2), p.29-51.

****This course schedule is tentative. There may be addition or slight modification in

this schedule given the pace of the class.****

Documents

University of Waterloo Department of Economics Econ … Outline – Econ 637 1 University of Waterloo Department of Economics Econ 637 - Economic Analysis and Global Governance