Lecture Notes on International Trade Theory and Policy

The following sections are included:

• Preface

• Contents

• List of Figures

Trade theory has long been at the heart of economics. Adam Smith, the father of modern economics, identified the division of labour as the key to The Wealth of Nations. This is true at any level; an individual can have much higher material living standards by specialising than by being self-sufficient. If one person produces cloth and another produces the necessary pins and needles and a third sews the garment, more clothing can be made than if each person tries to do all the tasks. In the opening chapter of his book Smith goes a step further, describing a pin factory in which different specialists make the various components and join them together. Such manufacturing was at the heart of the industrial revolution going on around him in Scotland in 1776…

The benefits from specialisation according to comparative advantage can be powerfully illustrated by a numerical example, as with the cabbage growers and cuckoo clock makers in Chapter 1. A more general approach to illustrating the potential gains from trade is to represent all the production possibilities in both countries. For a pair of goods we can do this in a two-dimensional diagram showing the production possibility frontiers (PPFs)…

The following sections are included:

• The Gravity Model

The following sections are included:

• The Closed Economy Neoclassical Model

• The Open Economy Model

The standard trade model is a general equilibrium model, which highlights the way in which goods and factor markets are interconnected. The fundamental drivers, the production possibility frontier and community indifference curves are difficult to construct, and in a world of many goods and factors tracking all of the general equilibrium interconnections may be overwhelming. For analysing trade in a good which does not form a large part of total trade, and hence has limited impact on the rest of the economy, it is useful to adopt a partial equilibrium approach, with the more familiar and operational constructs of demand and supply curves in a single market…

The following sections are included:

• The Specific Factors Model

The following sections are included:

• Technology Gaps and the Product Cycle

• Subcontracting, Global Scanning, and Global Value Chains

The following sections are included:

• Growth and Trade in a Large Country

The following sections are included:

• Trade with Monopoly or Oligopoly

• Intra-Industry Trade

• Monopolistic Competition

The following sections are included:

• Goods Flows and Factor Flows: Substitutes or Complements?

• Policy Implications

The following sections are included:

• Partial Equilibrium Analysis of a Tariff

• The Optimum Tariff Argument

• The Distortions Approach to Trade Policy

• Trade Policy with Imperfect Competition

• Conclusions

The following sections are included:

• Vested Interests and Trade Policy Formation

• Evidence on the Impact of Trade Barriers in High-Income Countries

• Adjustment Assistance

The following sections are included:

• Tariffs

• Export Taxes and Export Subsidies

• Quantitative Restrictions

• Other Non-tariff Barriers to Trade

• Anti-dumping and Countervailing Duties

• Conclusions

The following sections are included:

• Multilateral Trade Negotiations

• The World Trade Organisation

The following sections are included:

• Trade Creation and Trade Diversion

• Free Trade Areas versus Customs Unions

• The European Union

• Evidence on Other Discriminatory Trading Arrangements

• Is Regionalism a Threat to the Multilateral Trading System?

The following sections are included:

• Import-substituting Industrialisation

• Trade, Economic Growth and Poverty

• The Political Economy of Reform and Resource Abundance

The following sections are included:

• Trade in Services

Governments' attitudes towards the global economy and international trade have changed dramatically in recent decades. This was partly in (over) reaction to global events, but mostly in response to evidence–based understanding of the consequences of trade policies…

The following sections are included:

• Appendix

• References

• Index