EC3341: International Economics I
AY2013/2014, Semester 2, Lecturer: Tomoo Kikuchi
Course Coverage:
1. Ricardian Model
2. Hecksher-Ohlin Model
3. Intertemporal Trade
4. Exchange Rate
This module is the first on international economics covering both international trade and finance, with more emphasis on trade than finance.
The whole module is very mathematical, but there is not much variation in the formulas so it's just how much you practice.
Ricardian model gives students the general idea of comparative advantage and how consumption can be expanded through trade. It's a very simplistic model which considers only 1 factor of production, 2 goods and 2 countries. In short, we can call it the 1x2x2 model.
The H-O model is a 2x2x2 model in contrast, and the addition factor of production makes it much more complicated than the Ricardian counterpart. This section first examine the model in a 2x2 setting, ignoring trade. Instead, the focus will be on the domestic equilibrium production and consumption choice of both goods assuming perfect mobility of labour and fixed total factor of production. The factor price is determined when producers make the optimal production choice according to the competitve equlibrium price, and will in turn determine the labour and capital used in the two sector. Next the model is extended to trade across 2 identical countries, examining the effect on consumption as well as income distribution. This part may be a bit confusing but it's not that hard. Be sure to remember the explanation in words, because I suppose that's how I deviated away from A. Important theorems in the model are Stolper-Samuelson Theorem, Rybczinski Theorem, Factor Price Equalization and of course, the Hecksher-Ohlin Theorem. If you still don't understand this by reading work, please google extensively or seek consultation. This is especially important because Dr. Kikuchi always set questions on applying and evaluate these theorems on application questions based on historical data. So, remember that the theorem can fail in some scenarios and it is important to know why those theorems are applicable or fail to hold in the different cases.
Intertemporal trade will model two-period international trade using dynamic optimization under both assumptions of small, open economy and two identical large economies, giving rather different results. This part moves away from the more micro-oriented analysis of consumers and production sectors, which are essentially generalized household and firm interactions, towards a more macro-oriented analysis of Y=C+I+G+CA. Domestic markets are assumed to be in equilibrium, and the focus will be on finding the S-I equilibrium in the international market. The results are similar to that of the IS-relation analysis in EC3102, with less focus on policy changes and more on establishing the dynamic equilibria of IS-relation in the two countries across two-period, and hence their intertemporal current account.
The last part of the module focus on exchange rate as well as some international finance. It will introduce exchange rate and the money market adjustment, the AA schedule and the DD schedule which are analogous to the IS-LM framework and finally establishing the equilibrium and analyzing the effect of fiscal and monetary policies. This last part overlaps with the open economy analysis of EC3102, with more focus on expectations and differentiating the effects of temporary and permanent policies. This part can be the least or the most mathematical part, because the general analysis may not require mathematics, but the lecturer could specifically ask students to use total derivatives of the AA and DD equations to illustrate the overall impact of a particular policy. Therefore, it is very important to distinguish between total and partial derivatives in this module, because the economic significance behind them are very important.
On the whole, this module has a very balanced mixed analysis and mathematics, so you have to be really good in both to score well for this module. Familiarity with writing mathematical proofs is a plus, but it is not necessary as most proofs are merely manipulations or taking derivatives of equations and does not require excessive brain power. Taking this module with EC3102 is a also a bonus because the overlapping syllabuses allow you to compare and contrast the derivation and deviation of the macroeconomic equilibrium, which gives additional insights to certain questions in exams that require more thinking. In AY2014/2015, EC3342 and EC3343 will be offered in place of EC3341, with the former focusing on output market and the latter focus on international finance and money market. This review is, however, more relevant for EC3342 and not EC3343.
Workload: Moderate
Difficulty: Difficult
Grade: A-
Course Coverage:
1. Ricardian Model
2. Hecksher-Ohlin Model
3. Intertemporal Trade
4. Exchange Rate
This module is the first on international economics covering both international trade and finance, with more emphasis on trade than finance.
The whole module is very mathematical, but there is not much variation in the formulas so it's just how much you practice.
Ricardian model gives students the general idea of comparative advantage and how consumption can be expanded through trade. It's a very simplistic model which considers only 1 factor of production, 2 goods and 2 countries. In short, we can call it the 1x2x2 model.
The H-O model is a 2x2x2 model in contrast, and the addition factor of production makes it much more complicated than the Ricardian counterpart. This section first examine the model in a 2x2 setting, ignoring trade. Instead, the focus will be on the domestic equilibrium production and consumption choice of both goods assuming perfect mobility of labour and fixed total factor of production. The factor price is determined when producers make the optimal production choice according to the competitve equlibrium price, and will in turn determine the labour and capital used in the two sector. Next the model is extended to trade across 2 identical countries, examining the effect on consumption as well as income distribution. This part may be a bit confusing but it's not that hard. Be sure to remember the explanation in words, because I suppose that's how I deviated away from A. Important theorems in the model are Stolper-Samuelson Theorem, Rybczinski Theorem, Factor Price Equalization and of course, the Hecksher-Ohlin Theorem. If you still don't understand this by reading work, please google extensively or seek consultation. This is especially important because Dr. Kikuchi always set questions on applying and evaluate these theorems on application questions based on historical data. So, remember that the theorem can fail in some scenarios and it is important to know why those theorems are applicable or fail to hold in the different cases.
Intertemporal trade will model two-period international trade using dynamic optimization under both assumptions of small, open economy and two identical large economies, giving rather different results. This part moves away from the more micro-oriented analysis of consumers and production sectors, which are essentially generalized household and firm interactions, towards a more macro-oriented analysis of Y=C+I+G+CA. Domestic markets are assumed to be in equilibrium, and the focus will be on finding the S-I equilibrium in the international market. The results are similar to that of the IS-relation analysis in EC3102, with less focus on policy changes and more on establishing the dynamic equilibria of IS-relation in the two countries across two-period, and hence their intertemporal current account.
The last part of the module focus on exchange rate as well as some international finance. It will introduce exchange rate and the money market adjustment, the AA schedule and the DD schedule which are analogous to the IS-LM framework and finally establishing the equilibrium and analyzing the effect of fiscal and monetary policies. This last part overlaps with the open economy analysis of EC3102, with more focus on expectations and differentiating the effects of temporary and permanent policies. This part can be the least or the most mathematical part, because the general analysis may not require mathematics, but the lecturer could specifically ask students to use total derivatives of the AA and DD equations to illustrate the overall impact of a particular policy. Therefore, it is very important to distinguish between total and partial derivatives in this module, because the economic significance behind them are very important.
On the whole, this module has a very balanced mixed analysis and mathematics, so you have to be really good in both to score well for this module. Familiarity with writing mathematical proofs is a plus, but it is not necessary as most proofs are merely manipulations or taking derivatives of equations and does not require excessive brain power. Taking this module with EC3102 is a also a bonus because the overlapping syllabuses allow you to compare and contrast the derivation and deviation of the macroeconomic equilibrium, which gives additional insights to certain questions in exams that require more thinking. In AY2014/2015, EC3342 and EC3343 will be offered in place of EC3341, with the former focusing on output market and the latter focus on international finance and money market. This review is, however, more relevant for EC3342 and not EC3343.
Workload: Moderate
Difficulty: Difficult
Grade: A-