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ECON 335 International Trade and Finance

HKUST
School of Business and Management
Department of Economics
Spring Semester, 2010
Class: Room 4502 (Lifts 25-26), M W 12:00-13:20

Instructor: Prof. Edwin Lai, Department of Economics
Office: Room 2347
Office Hours: Monday 17:00-18:30
Office Phone: 2358-7611
E-mail: elai@ust.hk

Teaching assistant: John Cheng
Office: Room 2393, Phone: 2358-7597, Office hours Tuesday 15:00-17:00.
Tutorial session: Room 1505 (Lifts 25-26), M 19:00-19:50
E-mail: ecjcheng@ust.hk

Course objectives

This course will help you understand issues in international trade and open-economy monetary/financial
transactions. The first set of issues constitutes the topic of international trade, which includes topics such as
the sources of gains from trade, the determinants of pattern of trade, the causes and consequences of trade
protection, and the economic analysis of trade policies. The second set of issues, generally of a
macroeconomic nature, is concerned with international monetary/financial transactions. We shall discuss
balance of payments, foreign exchange markets, and the adjustment of exchange rates, interest rates and
outputs in the global economy.

Learning outcomes

At the end of this course, it is expected that you would understand/know
1. why free trade is almost always good to the country who adopts it, and to the world;
2. the causes and consequences of international trade and foreign direct investment,
3. the causes and consequences of trade protectionism;
4. how to carry out simple analysis of the causes and consequences of trade policies and trade
cooperation between countries;
5. the relationship between trade and development; and
6. the short-run and long-run relationship between international trade, price level, exchange rate,
interest rate and output in an open economy.

Teaching Approach

This course is primarily delivered through lectures, tutorials, and class discussion.

Teaching and
Learning Activities

Roles in the Course Course Learning
Outcome addressed

Lectures with in class
discussions

Explain key concepts and
models to students
1, 2, 3, 4, 5, 6

Tutorials Review basic model and
concepts, practice problem-
solving, presenting answers to
homework and exams
4, 6

Homework
assignments

Practice problem solving,
apply models to analyze
current economic issues
1, 2, 3, 4, 6


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Books

Required:

Krugman and Obstfeld, International Economics: Theory and Policy, eighth edition,
Pearson- Addison Wesley

Recommended:

Carbaugh, Robert J. International Economics, twelfth edition, South-Western.

Feenstra, Robert C. and Taylor Alan M., International Economics, Worth Publishers


Assessment

Component Weight Relevant Info.
Final Examination (closed book) 40% Date: TBD

Mid-term exam I (closed book) 25% Date: TBD

Mid-term exam II (closed book) 25% Date: TBD

Problem sets (about six) 5% will be given a grade of 1 or 0

Participation 5% Includes tutorial participation
______________________________________________________________________________


There will be two mid-term examinations. The final examination is three-hour long and will cover all the
material taught in the course, with an emphasis on the material not covered by the two mid-term
examinations. The final examination will be held during the regular final examination period.

About six problem sets will be given. When a problem set is due and submitted, the answer key will be
distributed, and the answers will be discussed in the tutorial if necessary. Only a grade of 1 or 0 will be
given to each problem set. You will be given a grade of 0 for a problem set if you do not turn it in by the due
date and time, or your answers indicate you did not spend enough efforts on it. The problem sets are good
guidelines for preparing for the mid-term and final examinations. Therefore, you should take them seriously.
You are strongly advised to work on and submit the problem sets so as to gauge how well you understand
the material on a continuous basis.

Participation in the tutorial is counted towards the participation score. Extra efforts put into the problem sets
can also count towards your participation score.

Plagiarism and cheating

Plagiarism and cheating are serious offences. The university takes these cases seriously. If you are found
guilty, you can be failed for the class and even expelled from the university.
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Reading List

A. International Trade

I. Introduction
Krugman & Obstfeld Chapter 1

II. Theories of Comparative Advantage

1. Who Trades What with Whom? An Overview.
KO Chapter 2

2. The Ricardian Model: The 2-Good Model and the Many-Goods Model.
KO Chapter 3

3. The Specific Factors Model and The Heckscher-Ohlin Model
KO Chapter 4 and class notes

III. The Law of Comparative Advantage

1. Pure Exchange
2. Production, Consumption, and Trade
3. Applications
KO Chapter 5

IV. Alternative Explanations of International Trade

1. Increasing Returns and Imperfect Competition
KO Chapter 6

V. Protection, Industrial Policy and the Economics of Trade Agreements
KO Chapters 8, 9, 11

VI. Trade Policy in Developing Countries
KO Chapter 10


B. International Finance

I. The Balance of Payments
KO Chapter 12
Recommended: Carbaugh Ch. 10

II The Foreign Exchange Market
KO Chapter 13
Recommended: Carbaugh Ch. 11

III. The International Adjustment Process
KO Chapters 14-17
Recommended: Carbaugh Ch. 12-16

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