EC 380: Lecture 1

.title[
# EC 380: Lecture 1
]
.subtitle[
## Intro to International Economic Issues
]
.author[
### Philip Economides
]
.date[
### Winter 2024
]

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# Prologue

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# Course Objectives

For this class we will:

* study baseline models explaining why countries trade

* analyze policy-relevant trade tools (tariffs, quotas, subsidies)

* explore global finance through exchange rates and BoP

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# Course Objectives: Synergies

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# Today's Plan

1. __Course logistics__

1. About me

1. Key facts about international trade

1. If time allows... overview of key models of trade

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# Course logistics

We will use .hi-pink[(IE)] while latter text is completely optional:

* International Economics by James Gerber .hi-pink[(IE)] 7th-8th Ed.

* International Economics by Feenstra & Taylor .hi-pink[(IE)] 3rd-5th Ed.

Content will be available on Canvas. If familiar with the platform, see the course [Github](https://github.com/peconomi) page.

.pull-left[
* .hi-slate[W1-W3:] Theory of Trade
* .hi-slate[W4-W7:] Trade Policy
* .hi-slate[W8-W10:] Global Finance
]

.pull-right[
* 25% - 5 Problem Sets
* 10% - 3 Quizzes, best 2
* 25% - Midterm Exam
* 40% - Final Exam
]

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# Today's Plan

1. Course logistics

1. __About me__

1. Key facts about international trade

1. If time allows... overview of key models of trade

---

# About me

[**Philip Economides**](https://philip-economides.com)

- Currently: PhD Candidate, Economics, Teaching Int. Trade, Int. Econ and Econometrics

- Previously: RA at ESRI/Trinity College Dublin, Ireland

- Focus: International Trade, Transport Economics, Applied Econometrics

- Online Office hours: Tuesday 15:00-16:00, Thursday 10:00-11:00, or by appointment
- Email: [.mono[peconomi@uoregon.edu]](mailto:peconomi@uoregon.edu) **(use EC 380 in the subject line)**

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# Today's Plan

1. Course logistics

1. About me

1. __Key facts about international trade__

1. If time allows... overview of key models of trade

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# International Trade:

## Key Facts

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# Trade growth outpaces GDP growth

Recent slowdown in trade, which we will address

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# Flows rising as share of GDP (US)

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# Trade varies in importance

Small open economies are highly reliant on trade.

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# Key Facts I

* Trade is important and increasingly so
* Flows represent a large portion of US GDP
* Trade openness varies across countries of different sizes

Questions arise:

* Why do countries trade so much and why is it growing in scale?
* What are the gains from trade?
* How does trade translate into other changes (e.g. labor market outcomes, geopolitical tensions)

.hi-slate[Part I] of this course will focus on the .hi-slate[theories of international trade]. By the time we are done, very generalized lessons will be available to us.

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# Introducing Theory

Main Questions:

* What goods do each country trade?

* How does trade affect product specialization?

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# What goods do each country trade?

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# Specialization and Compar. Advantage

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# Key Facts II

* Countries specialize and export core products

* Trading the goods that countries are "best" at producing results in _gains from trade_

What factors, other than fundamentals, influence specialization?

- Foreign direct investment (FDI)?

- Knowledge diffusion?

- Cross-border migration shocks?

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# Why does trade continue growing?

Largely attributed to reduced trade barriers over time.

We refer to this process as .hi-slate[trade liberalization].

Examples include tariff rate reductions, preferential trade agreements and alleviating non-tarif measures (e.g. lower electronics quota for French imports to USA).

__Since trade is not frictionless, do these frictions vary across countries?__

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# Trade friction index

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# Reduced Tariffs

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# Lower Transport Costs

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# Key Facts III

* Explicit trade barriers have fallen over time, coinciding with the growth of trade relative to broad economic acivity

* Hidden barriers are the next hurdle, one which much of the literature suggests is far more impactful than existing tariff rates

Current trade theory and literature focuses on .hi-pink[heterogenous agent models], which was originally created to explain why not every firm functions as an exporter.

We __will not__ be going that deep into international trade, though I can recommend some texts for those interested in understanding the most modern forms of theory.

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# Overview Trade Theory

__I. Neoclassical models of trade__ ('old' theories):

- Ricardian model: Technology differences spur trade

- Heckscher-Ohlin model: Resource differences spur trade

__II. 'New' Trade Theory__

- Krugman model: Love of variety spurs trade

- Melitz model: Heterogenous firms drive trade

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# Next Class

We will begin looking into international trade theory, starting with the .hi-pink[Ricardo model].

* Single factor of production (labor)

* Two-country model (home, foreign)

* Technology differences across countries

Going forward, try to describe each model by three attributes, such as those listed above, and the model's main takeaway(s)!

__Readings:__ International Economics, Ch.1: Introduction to the World Economy

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