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IMS 5200
Global Economy
Summer 2006
Course Description:
The course deals with economic relations in a global economy characterized by
increasing interdependence of nations. Students through the foundations of neoclassic
and contemporary economic theories will learn about absolute and comparative
advantage of nations in international trade. The course also introduces new theories of
international trade that have relevance in the current global economic situation. Students
through various graphs will be able to see the impacts of trade barriers and protectionist
government policies on the economic welfare of nations. Furthermore, students in this
course will learn about the challenges of globalization such as environmental questions,
child labor by multinational firms, the unfair terms of trade and the clash between
multinational firms and developing countries on employment, transfer pricing and
investment policies. In addition, students through group research and case reports will
present their findings to the class.
Required Text:
Recommended readings:
Yergin, D. and Stanislaw, J., Commanding Heights: The Battle for the World Economy,
PBS Series, 2002
The Economist, Wall Street-international section and Journal of International Business
Studies
Course Outline
Points of Discussion
• Is international trade a threat or a benefit to workers of every country?
• Explain how the global economy emerged
• Does global competition improve or diminish quality of life?
• Understand why global leadership tends shift from nations to nations
Points of Discussion
• Based on the story “Cloth Imports from China Threaten Italy’s
Markets” discussed on pp 4-5 in Carbaugh, how serious is the
Chinese competitive threat to Italy’s Textile market? Discuss
• What kind of strategy has the Italian Textile industry adapted in
order, to stay competitive in the global competition
• Is globalization responsible for the spread of terrorism throughout
the World, Carbaugh pp. 21-23?
• As nations become wealthier, the level of their interdependence
increases. Explain why this statement is true. (Apply the level of
interdependence coefficient, (import+export)/GNP, in order to
assess the above assumption.
Points of Discussion
• Explain how free trade tends to equalize commodity prices
among trading partners. Explain why some economists doubt
about the universality of such observation.
• Explain why globalization has not equally benefited all
economic sectors and all U.S. citizens. Explain the reasons
behind it by providing evidences.
• Does Factor Endowment Theory explain trade patterns
adequately?
• Discuss why cheap labor may not always guarantee high
investment return for the international firms that are relocating
from economically advanced countries to developing countries.
Sources of information for the above discussion is available in
chapter 3, Carbaugh, p.66
• “The Anxiety behind Globalization and Trade”. Globalization
carries consequences that can generate “winners and losers”.
Explain why this phenomenon is particularly visible in the
“Dual Economy” of modern US economy
Video: Commanding height: challenges and opportunities in
the global market
Points of Discussion
• Explain how the factor-endowment theory of trade differs from
the views expressed by Smith and Riccardo
• Does Factor Endowment Theory explain the trade patterns in
the current global economy?
• Discuss why the Theory of Overlapping Demands explains
how trade relationship among nations is shape
• Explain how inter-industry trade develops between countries
o Discuss why California imports French wine and
exports its home produced wine to foreign markets
• Explain how the product cycle determines
• Why do nations want to export by subsidizing their selected
industries?
Explain how relative exports and relative unit labor costs are
associated. Based on figure 2.8, Carbaugh, can you justify that
U.S Export of various industries to China is associated with the
current U.S-China trade pattern, on the base of unit labor cost
ratio?
Points of Discussion
• Identify the types of tariffs
• Should the U.S. apply tariffs on steel imports in order to
protect steel workers
• Understand the nominal and effective tariff rates.
• Explain the effects of tariff on a nation’s economy. What are
the arguments used by opponents free trade in order to justify
import restrictions?
• Explain how the tariff welfare affects small nations. Use the
model on page 113, Carbaugh to explain.
• Learn about concepts of consumer and producer surplus, and
revenue effect of tariff
Points of Discussion
• Explain how the Japanese voluntary auto export restraint policy
helped the automakers in the U.S.
• Explain how tariff and quota restrictions affect the welfare of a
nation
• Explain the effects of dumped and subsidized import and their
remedies.
Midterm chapters 1-4
27 Ch 8 Trade policies in developing countries
Points of Discussion:
• Who sets the prices of bananas and jet fighters?
• Do you see the importance of a new economic order?
• Is China setting an example for the rest of developing countries?
• Can developing countries follow OPEC’s strategy, in order to keep
the prices of their primary productive competitive?
Points of Discussion:
While WTO is expected to help the flow of goods and services from
country to country with little trade barriers, environmentalists have been
fighting it very forcefully. As long as the fight between the
environmentalist and the business community continues, WTO will have
supporters and opponents. Discuss how this never ending battle can be
stopped. In other words, is there any golden medium that can satisfy both
sides? (Use the full text available on pp 186-187, Carbaugh, for your
reference).
Points of Discussion:
• The Role of multinational firms
• What triggers multinational firms to expand to a foreign market?
• What are the modes of entry of foreign firms to a foreign market?
• Identify the issues that lead to conflicts between host countries and
multinational firms.
• Do multinational firms have the responsibility of being aware of
societal tensions, environmental issues, racial and gender
inequalities.
Each student will be given a grade based on the outcome of group project
and his/her level of participation within a group. The group project report
will consist of 5 pages, double-spaced and typed. The report also should
include the bibliography of the sources used in the report; at least five
references excluding your book are required. Even though, the whole
class is expected to read all cases and actively participate in discussion,
the assigned group should play an active role in leading and initiating
discussion. As the end of the group project presentation, the peer
evaluation reports will be collected by the instructor. Peer evaluation is
based on individual’s a) intellectual contribution, b) full participation c)
creative and original ideas submitted to the group, d) resourcefulness and
e) level of communication with group members.
Policy on cheating:
Students are expected to be above reproach in all scholastic activities. Students who
engage in scholastic dishonesty are subject to disciplinary penalties, including the
possibility of failure in the course. "Scholastic dishonesty includes but is not limited to
cheating, plagiarism, collusion, and the submission for credit of any work or materials
that are attributable in whole or in part to another person, taking an examination for
another person, any act designed to give unfair advantage