International Trade

Description

ECON222 applies microeconomic theory to the analysis of international trade and trade policy. Part 1 gives a brief introduction to issues in international trade. Parts 2 and 3 look at classic trade theories. We will examine several reasons for countries wanting to engage in international trade. We will find that countries that differ either in technology or in input endowments gain from trading with each other, i.e., that trade is not a zero-sum game but offers mutual gains. Gains from trade arise because it allows for countries to specialise in what they are relatively good at, i.e., where their comparative advantage is. We will discuss how trade affects the distribution of income within a country. In particular, we will see that some interest groups may be hurt from trade even if the people on the average gain.

Part 4 discusses modern trade theories, which utilise models of imperfect competition and game theory. We will see that even countries that have the same technology and endowments, i.e., that do not possess a comparative advantage in anything, can gain from trade. Modern trade theories can explain why we observe intra-industry trade, i.e., countries exporting and importing the same or similar goods.

Part 5 looks at what happens to the welfare of countries and their various interest groups when countries that already engage in trade start using trade policy (tariffs, quotas, export subsidies, etc.) to limit trade flows. We will discuss the merits of the most common arguments for restricting trade. We will also analyse the welfare consequences of regional trade arrangements, i.e., partial integration.