1

TRADE IN THE
GLOBAL ECONOMY

1
International
Trade
2
Migration and
Foreign Direct
3
Conclusion

Globalization
What is globalization?
International Trade
International Investment
International migration
It is about the expansion of economic transactions and
the organization of economic activities across the political
boundaries of nation states. More precisely, it can be
defined as a process associated with increasing economic
openness, growing economic interdependence and
deepening economic integration in the world economy.
- Deepak Nayyar, Cambridge Journal of Economics 2006.

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The Basics
Countries buy and sell goods and services from one
another constantly.
An export is a product sold from one country to another.
An import is a product bought by one country from another.

A countrys trade balance is the difference between

its total value of exports and its total value of imports
(usually including both goods and services).
Countries that export more than they import, such as China
in recent years, run a trade surplus.
Whereas countries that import more than they export, such
as the United States, run a trade deficit.

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A Little History
The First Golden Age of Trade
18901913
Significant improvements in transportation
Steamship and railroad

Ended with the beginning of WWI

Inter-War Period
During WWI trade fell in many countries, which was
made worse by the Great Depression which began in
1929.
U.S. adopted high tariffsSmoot-Hawley tariffsin
June 1930, some as high as 60%.

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Barriers to Trade
Inter-War Period
Tariffs backfired as other countries retaliatedthe
average world-wide tariff rate rose to 25% by 1933.
Import quotaslimitations on the quantity of an
imported goodwere also instituted during this time.
The situation is not that bad today

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Trade relative to GDP

Figure: Trade relative to GDP, 18902010

Figure 1.3 Trade in Goods and Services Relative to GDP

Feenstra and Taylor: International Trade, Second Edition
Copyright 2011 by Worth Publishers

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Barriers to Trade
Figure: Average Worldwide Tariffs, 18602010

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Second Golden Age of Trade

The main reason for stable tariffs is the World
Trade Organization (WTO)
Member countries are bound to a 6% tariff on most
products (with exceptions).
Chapter 8 has more detail on the WTO

Still, there are ways for countries to implement

trade protections.
We will see some examples of the US in chapters 8-10.

Reduction in trade post-2008 akin to 1930s?

Although there have been isolated cases of
protectionism, it is not comparable.
Most of the drop due to demand shortages.
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Globalization
But how open are we?
~20% of consumption is made up of imports.
It might seem like more.

The last 20 years has seen a rise in

interdependence:
Global Value Chains (GVCs) spread production
Half of the value of Made in China final goods actually
comes from US production.
Trade is concentrated in manufacturing (mostly
intermediate goods)

In addition, we have investments and people that

flow across national borders.
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World Trade in Goods, 2010 ($bill)

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CompositionofImports
Is Trade Today Different from the Past?

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CompositionofExports
Is Trade Today Different from the Past?

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Foreign-Born Migrants, 2005 (mill)

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Foreign Direct Investment, 2010 ($bill)

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Why we Trade
This class will focus on why we trade and what
are the consequences
Chapter by chapter we will build on models that allow
us to think about why trade occurs.
Starting point: prices are different for goods across
countries because costs of production differ.
Trade allows prices to converge across countries.

Consequences:
Some economic sectors expand while others contract.
This affects wages (price of labor) and capital prices.
There are productivity gains and lower prices overall.

Trade Protection?
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Syllabus
We will cover major theoretical and empirical issues
arising in the study of international trade flows. This
course examines the role of prices in determining
the pattern and direction of trade in goods, services,
labor, and capital.
We will explore multiple models of trade with the
emphasis on who wins and who loses as a result of
free trade in both goods and factors of production.
Finally, the class will cover the motivation and
welfare consequences of trade policy and
coordination, mostly through the eradication of policy
induced trade barriers.
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Course Information
Professor Weinberger:
CATE 332, Office Hours: Wednesdays 10:30-11:30AM
Ariel.weinberger@ou.edu

Graduate Teaching Assistant

Hyeonjin Im (Hyeonjin.im@ou.edu)
OFFICE HOURS: Monday 10AM-11AM, CATE 334

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Textbook and Website

Main Textbook: Robert Feenstra and Alan Taylor,
International Trade, 3rd Edition, 2014.
Announcements, problem sets, solutions, and
other information will be posted on CANVAS.

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Course Grading
There will be about 10 problem sets that follow
the structure of the book.
Problem sets will be graded mostly on
effort/completion, although we will check some
problems to establish incentive and variation. Each
homework will be graded on a scale of: (3/3 points),
check (2/3 points), and check minus (1/3 points).

We will have a number of pop quizzes based

entirely on the assigned readings.
I have listed outside (non-textbook) readings for each
topic.

All problem sets and reading assignments posted

on CANVAS.
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Grading
Midterms: September 29th and Thursday
November 3rd.
Final: Thursday December 8th, 6:00pm-8:00pm.
Overall grades will be calculated in 2 ways, with
the maximum raw score chosen:
1. 15% problem sets, 15% Quizzes, 40% midterms, 30%
final.
2. 15% problem sets, 15% Quizzes, 20% midterms
(drop one midterm), 50% final.

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ECN 1113
Start Chapter 2 on Thursday
But first I will discuss, What do Undergrads Need
to know about Trade, by Paul Krugman.
Homework #1 is posted on CANVAS and is due
next class! (sorry)

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