Review of Trade Policies, 1970-2014 the country of subject is China
Learning Outcomes
Building on the course objectives, after taking this course, students are expected to be able to
- a) define the main stylized features of the development process, b) examine the options and limitations of fiscal and monetary policies, and c) analyze trade policies of developing countries (these three outcomes will, respectively, be evaluated viathree research projects);
a) apply the Mundell-Fleming model to analyze the impact of macroeconomic policies, critically examine exchange rate policies, and c) examine the emergence of macroeconomic crises (these three outcomes will respectively, be evaluated via three Homework sets); and
- compare and contrast various macroeconomic strategies (which will be evaluated via guided discussions).
a.) Research Projects
There will be three short research projects (each with about 2,500 words):
Project 1: Reexamination of Patterns of Development, 1970-2014
Project 2: Review of Fiscal and Monetary Policies, 1970-2014
Project 3: Review of Trade Policies, 1970-2014
You will need to pick one developing country for each project. It typically makes sense to keep the same country for each project, though you are free to switch countries if you like to do so. Basically all the data needed for the three projects will be provided to you in an Excel file (as soon as you inform me what country you have picked). However, you may need to do some calculations from the given data. There will also be a Guidance Note with further information (like the list of countries you can choose from). It is crucial that you read the Guidance Note very carefully before you start working on any Research Project.
Exchange Rate Policies in Developing Countries
Impact of Devaluation on Current and Capital Account
- PowerPoint
- Required Readings:
o Bird, Graham (2007) An Introduction to International Macroeconomics (Houndmills, Basingstoke: Palgrave MacMillan), Chapter 9, pp. 125-135.
- Light Readings:
o Williamson, John (2008) "Exchange Rate Economics", Washington, DC: Peterson Institute for International Economics, Working Paper Series, WP 08-3 (February); available at: https://www.iie.com/publications/wp/wp08-3.pdf
o Rodrik, Dani (2008) "The Real Exchange Rate and Economic Growth: Theory and Evidence", Brookings Papers of Economic Activity (Fall), pp. 1-46 (revised version of September); available at: https://www.cid.harvard.edu/neudc07/docs/neudc07_s1_p04_rodrik.pdf
- Optional Internet Resources:
o https://www.youtube.com/watch?v=AAm_HJXRTxA(4 min, impact of a depreciation, example for South Africa)
o https://www.theguardian.com/business/2015/aug/11/china-devalues-yuan-against-us-dollar-explainer(1 min. explanation of August 2015 for why has China devalued its currency and what impact will it have?)
- Learning Objectives / What You Need to Know:
o The relationship between exchange rate and current account.
o The relevance of import and export demand elasticities.
- Discussion Questions:
1. Does currency depreciation improve the current account? Why or why not?
2. How can a currency depreciation worsen the current account in the short run?
Political Economy & Choice of Exchange Rate Regime
- PowerPoint
- Required Readings:
o Bird, Graham (2007) An Introduction to International Macroeconomics (Houndmills, Basingstoke: Palgrave MacMillan), Chapter 9, pp. 135-141.
- Light Readings:
o Calvo, Guillermo A. and Carmen M. Reinhart (2000) Fear of Floating, Cambridge, MA: National Bureau of Economic Research (NBER), NBER Working Paper, No. 7993 (November).
- Optional Internet Resources:
o https://www.youtube.com/watch?v=iRzr1QU6K1o(4 min., Nixon ending Bretton Woods fixed exchange rate)
o https://www.youtube.com/watch?v=UUBGFl7H298 (30 min., Joseph E. Gagnon takes questions following his presentation on his book, Flexible Exchange Rates for a Stable World Economy, September 19, 2011)
- Learning Objectives / What You Need to Know:
o How political considerations can influence the exchange rate.
o Be familiar with the various exchange rate regimes.
o The policy implications of the two main exchange rate regimes.
- Discussion Questions
1. What are some important reasons for developing countries being typically more resistant to adopt flexible exchange rates than industrialized countries?
2. What are some important reasons for developing countries resisting devaluation?
3. What are the main problems of defending an overvalued exchange rate?
Monetary Integration, Optimum Currency Areas, Dollarization and Regime Change
- PowerPoint
- Required Readings:
o Bird, Graham (2007) An Introduction to International Macroeconomics (Houndmills, Basingstoke: Palgrave MacMillan), Chapter 9, pp. 141-146.
- Light Readings:
o Bird, Graham (2002) "Where Do We Stand On Choosing Exchange Rate Regimes in Developing andEmerging Economies?", World Economics, Vol. 3, No. 1 (January-March), pp. 145-167.
- Optional Internet Resources:
o https://www.youtube.com/watch?v=1fKdNMcAMcw(1.5 min. explanation of East African Monetary Union)
o https://www.youtube.com/watch?v=AtyGbTR5S-U(Alex Tabarrok on Optimum Currency Areas, 12 min.)
- Learning Objectives / What You Need to Know:
o Understand the circumstances and rational for countries to adopt a common currency.
o Understand the main advantages and disadvantages of dollarization.
o Understand the main requirements for regime change.
- Discussion Questions:
1. Provide some pros and some cons for the following statement: "Given that adjustments in exchange rates are unavoidable in the long-run, it is best to adopt flexible exchange rates right from the beginning."
2. What do you think is the main problem with the following statement: The first best solution would be to have a single world currency, issued by a world central bank, which would share seigniorageacross countries.
Exchange Rate Policies in Developing Countries
Week 5: Trade Policies in Developing Countries
Globalization
- PowerPoint
- Required Readings:
o Todaro, Michael P. and Stephen C. Smith (2015) Economic Development (12th edition) (Boston et al.: Pearson), Sections 12.1-12.2 (pp. 600-612).
- Light Readings:
o Gunter, Bernhard G. and Rolph van der Hoeven (2004) "The Social Dimension of Globalization: A Review of the Literature"; International Labour Review, Vol. 143, No. 1-2; available at:https://www.ilo.org/public/english/revue/download/pdf/gunter.pdf
o Nayyar, Deepak (2009) "Developing Countries in the World Economy: The Future in the Past?" [Note: pp. 35-38 cover: 8.2. Widening gap between countries, 8.3. Exclusion of countries]; available at: https://www.wider.unu.edu/publications/annual-lectures/en_GB/AL12/
- Optional Internet Resources:
o https://www.youtube.com/watch?v=RdYwAXZh0ME (Noam Chomsky: What Is Globalization?)
o https://www.youtube.com/watch?v=QGLseQFTgeM (BBC Hard Talk, well worth its 23 minutes)
o https://www.youtube.com/watch?v=oh03fuIlQNI (not too exciting Pros & Cons, but only 3 minutes)
- Learning Objectives / What You Need to Know:
o The main economic characteristics of globalization.
o That some countries are excluded from the overall globalization.
o The relationship between globalization, trade and development.
o The Prebisch-Singer Hypothesis
- Discussion Questions:
1. Provide two arguments for why poorer countries may be excluded from the overall globalization.
2. Why might it matter for development what kind of products a country is exporting?
3. How realistic is the Prebisch-Singer Hypothesis?
Trade Theory
- PowerPoint
- Required Readings:
o Todaro, Michael P. and Stephen C. Smith (2015) Economic Development (12th edition) (Boston et al.: Pearson), Sections 12.3-12.4 (pp. 612-630).
- Light Readings:
o Galbraith, James and Sara Hsu (2010) "Trade Policy in the Post-Neoliberal Era", Background Paper for the UN's World Economic and Social Survey 2010; available at:
https://www.un.org/en/development/desa/policy/wess/wess_bg_papers/bp_wess2010_galbraith.pdf
- Optional Internet Resources:
o https://www.youtube.com/watch?v=38hvvAzgXZY (very nice explanation on comparative advantage)
- Learning Objectives / What You Need to Know:
o Understand the concept of comparative advantage.
o The six main assumptions of the traditional neoclassical trade model.
- Discussion Questions
1. How realistic is the neoclassical trade model, focusing on relative factor endowments?
2. Why might there be a problem with promoting the sector in which a developing country has a comparative advantage?
3. Provide one pro and one con for having special arrangements for developing countries within international trade agreements.
Trade Strategies
- PowerPoint
- Required Readings:
o Todaro, Michael P. and Stephen C. Smith (2015) Economic Development (12th edition) (Boston et al.: Pearson), Sections 12.5-12.8 (pp. 630-662).
- Light Readings:
o Blecker, Robert A. (1999) The Diminishing Returns to Export-Led Growth (Washington, DC: Council on Foreign Relations, A Paper from the Project on Development, Trade, and International Finance); available at: https://www.cfr.org/trade/diminishing-returns-export-led-growth-cfr-paper/p8709
o Rodrik, Dani (2001) "Trading in Illusions", Foreign Policy (March/April); available at: https://foreignpolicy.com/2009/11/18/trading-in-illusions/
- Optional Internet Resources:
o https://www.youtube.com/watch?v=Y2X3KPilAt0(very nice explanation for why countries restrict trade)
- Learning Objectives / What You Need to Know:
o The rational for and failure of ISI
o The rational for and limits of export promotion.
o The emergence of and relevance of the industrialization strategy approach to export policy.
- Discussion Questions:
1. Critically assess two of the five undesirable outcomes of ISI.
2. Critically assess two arguments put forward by trade pessimists.
3. Critically assess two arguments put forward by trade optimists.
4. How different is South-South trade from North-South trade?
Project 3: Review of Trade Policies, 1970-2014
Project 3 is a review of trade policies of a specific developing country from 1970-2014.