Integrated Programme in Management

2013-14 TERM: V

TITLE OF THE COURSE: INTERNATIONAL TRADE

CREDITS: 4

Name of the Faculty member: Dr. Pratap Mohanty

Faculty Block -NA Room No.

Email: [email protected] Telephone Number 011-26965124 (extn.613)

COURSE DESCRIPTION
This course provides the conceptual and theoretical framework to understand global developments
in trade and policy changes. Under the Pure Theory of Trade, the basis of trade, gains from trade,
direction of specialization and its effects on factor of production are discussed. Various advanced
theories on trade are also covered. The discussions on Trade Policy introduce the aspects of
protectionism with respect to tariff, quota, subsidies and the non-tariff measures (like SPS and
TBT). The course also covers the trade and macroeconomic issues by highlighting the BoP and
foreign exchange market disequilibrium. the role of fiscal and monetray strategies have also been
emphasized for the possible correction in the open economy macroeconomic problems. The last
session of the course includes popular indices to measure trade performance and also identifies
the role of RTAs, FTAs, PTAs to understand the integration of countries and their developmental
impacts, particularly for India.

COURSE OBJECTIVES

The course has been designed to understand the economics of international trade and related
issues. The discussions with the help of practical country cases would help one to understand the
trade patterns, production and welfare implications. The macroeconomic perspective of open
economy in the era of globalisation is essential for any policy making. International transactions
involve an international medium of exchange and its relation with domestic currency. This is
important to explain the dynamics of balance of payments of any country. As the economic issues
evoked from trade related problems are different for developed and developing countries, ‘trade
policy’ formulation remains as a vital task for every country. In this course, trade policy with
respect to tariff and non-tariff barriers, trade blocs and regional trading arrangement will be
explained to understand many emerging issues. The analysis would be instrumental in
understanding their importance in trade policy formulation.The course expects that at the end,
student is conversant with the salient features of international trade dynamics and its
macroeconomic effect. In short,
(a) To provide an analytical framework for understanding recent developments in global trade
issues
(b) Evaluating country’s policy solutions to international economic problems.
PEDAGOGY/TEACHING METHOD:

A mix of lectures, assignments , discussions, analysis of cases, exercises and quizzes

EVALUATION Weightage
Class Participation 20%
Quizzes 30%
Mid Term 20%
End Term 30%

Total 100%

SCHEDULE OF SESSIONS

Module I: Introduction: (Pure Theory of Trade- Why does trade take place?)
(5 sessions)

Module Objective
To develop a mapping of recent trade flows and its contribution to GDP. The pure theory of trade
identifies the reasons for trade.

Sessions and Objective

• Global Trade Developments
• Commodity structure and Direction of Trade Between Countries

Development of Trade Theory, Absolute Cost, Comparative Cost

• Development of Trade Theories
Free trade-Protectionism-Free and Fair trade( Through WTO)
• Absolute Cost Advantage - Adam Smith and Comparative Cost Advantage Theory-
Ricardo
• Production Possibility Curve (PPC)
• Various Cost Conditions
• Community Indifference Curve (CIC)
• Equilibrium at Autarky
• Concepts of Offer Curve
• Graphical Derivation of Offer Curve
• Elasticity of Offer Curve
Case: On Terms of Trade
References: DS: pages 1-15, 31-59, 61-79, 93-109.
RC (Chapt. 2, 3), SR (Chapt. 2, 11) KO (Chapt. 5)
Quiz-1 (15 marks)
Module II Extensions to Basic Trade Model and Trade under Imperfect Competition
(5 sessions)

Module Objective
• Explain how comparative advantage is based on differences in factor endowments and
economies of scale
• Explain how trade affects relative factor prices and inequalities
• Explain how product differentiation leads to intra-industry trade
• Understand the technological gap and product cycle models of trade

Sessions and Objective

• Factor Endowment Theory (Heckscher-Ohlin Theorem)
• International movement of factors of production
• Factor Price Equalization
• Leontief Paradox
• Trade and Distribution of Income (Stolper-Samuelson Theorem)
• Motives and Effects of Foreign Direct Investment (FDI)
Case: North-South Trade and Income Inequality

Trade under Imperfect Competition

• Krugman Model with Imperfect Competition
• Monopolistic competition and trade
• Economies of Scale and Comparative Advantage
• Intra-industry Trade
• Brander-Spencer Model of Strategic Trade
Case: Strategic Trade Policy of Advanced Countries
References: DS: 119-233. RC (Ch. 4), SR (Ch. 3, 4, 6, 8, 9, 13), KO (Ch. 3, 4, 6, 7)

Quiz-2 (15 Marks)

Module III Trade Intervention Mechanism: Trade Policy and Instruments

(4 sessions)

Module Objective
To understand the effect of tariff and non-tariff barriers for developed and developing countries,
India in particular.

Sessions and Objective

• Protectionism
• Partial Aspects of Tariff
• Effects on consumer and producers' surplus
• Tariffs and income distribution
• Nominal and Effective Tariff, the optimum tariff
• Non-Tariff Barriers
• Importance of these tools for trade policy formulation
Case: 1. WTO and Barriers to Trade, Barriers in Different Developed countries
2. Bali WTO: A triumph of multilateralism (ET, 13 December, 2013)
References: DS: 239-320. RC (Chapt. 5-8), SR (Chapt. 10-12, 17, 18), KO (Chapt. 8-11)

Mid Term (20 Marks)

Module IV : Trade and Macroeconomic issues: BoP Disequilibrium and Economic

Adjustment Policies (4 sessions)

Module Objective
Since BoP is one of the most important problems of macroecoeconomic issues, the major
objective is to understand the problems of BoP, foreign exchange market and the appropriate
policy measures.

Sessions and Objective

Balance of Payments
• Balance of Payments: Various Components & Accounting
• BoP Disequlibrium
Case: US BoP, India’s BoP
BoP Disequilibrium and Economic Adjustment Policies
• Various Adjustment Mechanism
• Fixed and Flexible Exchange Rate
• Foreign exchange market.
• Swan Diagram of Policy Mix
• Fiscal and Monetary Policy to mitigate internal and external imbalance
References: DS: 433-588. RC (Chapt. 14, 15), SR (Chapt. 24-30), KO (Part III)

Module V : Regional Integration and Popular Indices to Measure Trade

Performance (2 sessions)
Module Objective
To understand the linkages between Openness and Growth. This session also enable learners to
understand various measures of trade performance

Sessions and Objective

• Types of Economic Integration and their implications on trade
• Effects of Economic Integration
• Analysis of Free Trade Agreements, Customs Union
• Comprehensive Economic Partnership Agreements, Comprehensive Economic Cooperation
Agreements
• Regional Cooperation (Asia, Africa)
Case: Experience of Different Regional Integration of Asia Pacific
Special Reading:
1. ‘Meeting the Challenges in an Era of Globalisation By Strengthening Regional Development
Cooperation’. (Chapter 2 and 3) Available in
http://www.unescap.org/pdd/publications/regcoop/index.asp
2. An Econometric Modeling of Trade Flows between SAARC and ASEAN by Sarkar

Popular Indices to Measure Trade Performance

• Issues in Trade Data (Collection, Compilation and Dissemination)
• Revealed Comparative Advantage
• Trade Dependence
• Trade Intensity
• Regional Hirschman
• Export Diversification
• Complementarity
Case: Trade Data Difference between India and SriLanka
Reference: Mia Mikic & John Gilbert: Trade Statistics in Policy Making
http://ideas.repec.org/b/unt/ecbook/tipub2491.html
http://www.unescap.org/publications/detail.asp?id=1259
References: DS: 327-359, CH (Chapt. 22, 23), RC (Chapt. 9), SR (Chapt. 16)

End Term (30 Marks)

Additional Reading

I. Dominick Salvatore; (DS): International Economics, Wiley-India, 10th Edition (Text Book)

II. Robert Carbough; (RC): International Economics: Cengage Learning, 11th Edition

III. Krugman & Obstfeld (KO): International Economics: Theory and Policy, Pearson, 8th edn.

IV. Yarbough & Yarbough (YY): The World Economy: Trade and Finance, Cengage Learning, 7e.

V. Bo. Sodersten (and Reid); (SR): International Economics, Palgrave Macmillan; (1994)

VII. Miltiades Chacholiades; (CH): International Trade Theory and Policy; International Student
Edition.
• Economic Survey, Ministry of Finance, Government of India (2012-13), Chapter on India’s
external sector.
• UNCTAD, ‘World Investment Report’, various issues.
• World Trade Organization, ‘International Trade Statistics’, (ITS), Geneva, various years.
• World Trade Organization, ‘World Trade Report’, (WTR), Geneva, various years.
• World Trade Organisation (2011), “Trade patterns and global value chains in East Asia: From
trade in goods to trade in tasks”, in collaboration with Institute of Developing Economies (IDE) and
Japan External Trade Organization (JETRO), Geneva.
• Anukoonwattaka, Witada and Mia Mikic (2011), “India: A new player in Asian production
networks?”, United Nations, Studies in Trade and Investment 75, New York.
• Annual reports of the Ministry of Commerce, Government of India, Various issues.
• Report on Currency and Finance, RBI (latest issue).
• Michele Alessandrini, Bassam Fattouh, Benno Ferrarini and Pasquale Scaramozzino (2009),
“Tariff Liberalization and Trade Specialization in India”, ADB Working Paper No. 177, Manila.
• Shameek Mukherjee (2012), “Overview of India’ Export Performance: Trends and Drivers”, IIM
Bangalore Working Paper No. 363.
• Mikic, Mia and John Gilbert (2009), “Trade Statistics in Policymaking - A Handbook of Commonly
Used Trade Indices and Indicators”, Economic and Social Commission for Asia and the Pacific.
•Organization for Economic Cooperation and Development, “OECD-WTO Trade in Value Added
(TiVA)”, Available at http://stats.oecd.org/index.aspx?queryid=47807
• World Trade Organization, “A Practical Guide to Trade Data Analysis”, Chapter 4, WTO.
• Department of Industrial Policy and Promotion, “Investing in India: Foreign Direct Investment-
Policy & Procedures”, New Delhi.
• Reserve Bank of India (2012), “Master Circular on Foreign Investment in India”, Mumbai.
• Harun R Khan (2012), “Outward Indian FDI – Recent Trends & Emerging Issues”, RBI.
• Rabin Hattari and Ramkishen S. Rajan (2010), “India as a Source of Outward Foreign Direct
Investment”, Oxford Development Studies, 38(4): 497-518.
• K.S. Chalapati Rao and Biswajit Dhar (2011), “India’s FDI Inflows: Trends & Concepts”, Institute
for Studies in Industrial Development Working Paper No. 1.
• Jayanta Roy and Pritam Banerjee (2010), “Connecting South Asia: The Centrality of Trade
Facilitation for Regional Economic Integration”, in S. Ahmed, S. Kelegama and E. Ghani (eds.),
Sage, New Delhi, pp. 110-138.
• Julien Chaisse, Debashis Chakraborty and Biswajit Nag (2011), “The Three-pronged Strategy of
India's Preferential Trade Policy - A Contribution to the Study of Modern Economic Treaties”,
Connecticut Journal of International Law, 26(2): 415-455.
• United Nations (2011), “Fighting Irrelevance: The Role of Regional Trade Agreements in
International Production Networks in Asia”, Study by the Asia-Pacific Research and Training
Network on Trade, Economic and Social Commission for Asia and the Pacific”, New York.
• Rajesh Mehta (2005), “Non-tariff Barriers Affecting India’s Exports”, RIS Discussion Paper No.
97, New Delhi.
• Siddhartha Rastogi (2011), “Welfare Assessment of SPS Standards: An Empirical Study of Indo-
US Mango: Trade Dispute”, IIFT Working Paper No. 5, New Delhi.
• Nisha Taneja, Saon Ray, Neetika Kaushal and Devjit Roy Chowdhury (2011), “Enhancing Intra-
SAARC Trade: Pruning India’s Sensitive List under SAFTA”, ICRIER Working Paper No. 255, New
Delhi.
Important Web-Resources:
•http://commerce.nic.in/eidb/default.asp (Export-Import Data Bank, Ministry of Commerce and
Industry, Govt. of India)
•http://www.commerce.nic.in/trade/international_ta.asp?id=2&trade=i (Ministry of Commerce web-
page for various FTA / PTA Agreements)
•www.wto.org (World Trade Organisation)
•www.rbi.gov.in (Reserve Bank of India)

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