TO: Students of International Economics (ECN 331), Fall 2018

FROM: Richard E. Mshomba, Ph.D.

Professor of Economics
262 Olney Hall
Tel.: (215) 951-1116 (direct) or (215) 951-1178 (Economics Department)
Fax: (215) 991-3511; E-mail: mshomba@lasalle.edu

DATE: August 2018

SUBJECT: International Economics – ECN 331

OFFICE Tuesday and Thursday: 8:30-9:15 a.m.

HOURS Monday and Wednesday: 9:00-12:30 p.m. and 2-2:45 p.m.

It is possible that your other commitments may not allow you to see me during these office
hours. Don’t let that be a problem or an excuse! Just let me know when you want to see me and I
am sure we will find a time that is convenient.

Catalogue Description: International Economics – ECN 331, 3 credits

An introduction to the theory of international trade. Topics include specialization and

gains from trade, tariffs and protectionist policies, trade imbalances, the role of international
institutions, foreign exchange markets, and monetary and fiscal policies in an open economy.

Note that this course fulfills the requirement for “understanding abroad.” 
Prerequisites: ECN 150, 201.

Class days and times: Tuesday and Thursday: 9:30-10:45 a.m., O223

Course objectives:

(1) Understanding why nations trade.

(2) Examining the impact of trade on consumption and production.
(3) Analyzing the economic welfare effects of trade policies.
(4) Examining the role of the World Trade Organization and analyzing the economic welfare
effects of economic integration.
(5) Examining the role of exchange rates and interest rates.
(6) Examining the impact of different policies on macroeconomic variables in an open
economy.
(7) Examining the role of trade on economic development.
(8) Examining the motives for the existence of multinational corporations.

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 The course is structured so as to help you:

(1) learn how different theories and concepts are connected;

(2) develop analytical and communicative skills as you deal with complex situations and
incomplete and imperfect information;
(3) keep up with economic news;
(4) apply theory to real situations;
(5) learn from one another;
(6) see the connection between economics and other fields; and
(7) incorporate sociological and ethical arguments in discussions.

The work load for this course is based on the assumption that two to three hours of study
accompany each contact hour.

Background:

Trade between nations has grown very rapidly over the last seven decades. The rate of
growth in the volume of manufactured goods traded between nations, for example, has increased
more than twice the world production of these goods during this period. The world has become
"smaller" and nations are more interdependent than ever before. This interdependence makes the
whole world a single market for many commodities, placing constraints on the extent to which
prices can differ across borders. Given the increased openness of many economies, international
economics has become an essential field of study for business, government, and non-government
organizations.

International economics uses the same fundamental methods of analysis as other branches
of economics. This is the case because the motives and behavior of individuals and firms are the
same in international trade as they are in domestic transactions. There are several reasons,
however, why international economics is treated as a separate field of study from general
economics. The main reasons are:

(a) Factors of production are less mobile between countries than within a single
country; and
(b) The presence of different countries as distinct sovereign states raises special
problems which do not occur in general economics, such as the levying of
duties, exchange rate fluctuations, changes in the terms of trade, and
external imbalances.

Textbook and other sources:

(1) Dominick Salvatore, Introduction to International Economics, 3th Edition, (2012), ISBN
13: 978-0-470-93489-0, John Wiley & Sons. (It is the textbook for the course.)

(2) Cases and articles on international economics.

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Course Requirements:

(1) Attendance and participation (10%). It includes unannounced brief questions that will
be given at the beginning of class meant to encourage your preparation for class. You are
required to prepare for and attend every class session. Half a percentage point will be
subtracted for any unexcused absence. Please note that if you miss class (for any reason),
you are still responsible for finishing all assignments on time. Let me know in advance
(whenever possible) if you have a legitimate reason not to be in class or to finish an
assignment. Participation does not include using your mobile devices during class. Using
your phone during class will earn you negative points.

(2) Case analysis, library assignments, and problem sets (16% altogether).

(3) Paper assignment (12%). Each student is required to write a paper on a country of their
choice. Each paper should have basic information about the country including: major
exports and imports (that is, the structure of exports and imports); major trading partners
(by percentage) with an explanation of how might the Ricardian or Heckscher-Ohlin or
other trade models explain or fail to explain the pattern of trade; the trends of the terms of
trade and trade balance for the period from 2000 and explanations for those trends.

In addition, your paper should include analysis of one of the following topics with respect
to your country. If you prefer to write on a topic listed below, you must discuss it with me
first.
(a) Exchange rate policy.
(b) A major shift in trade policy in the last 5 years.
(c) Fiscal or monetary policy.
(d) Foreign direct investment.
(e) Economic integration.

The paper should be about 8 pages long (about 2400 words), not including tables, charts,
and graphs. All sources must be indicated clearly. The paper is due on November 27,
2018.

(4) Two midterm exams (20% each), tentatively scheduled for October 2, 2018 and
November 6, 2018, and a final exam (22%). The final exam will be cumulative, that is, it
will integrate the material covered during the semester.

Please note:

(a) We shall begin our first class of each week with a prayer. (See page 6 below.)
(b) You are always welcome to discuss with me your progress in the course.
(c) You may come to my office for help on any assignment. Of course, my role is to help
clarify the material and guide you in the logical steps to figuring out a solution to a
question, not to dictate answers to you. I encourage you to make use of my office hours.
You may come to see me individually or as a group.

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(d) You are responsible for taking all exams and submitting all assignments as scheduled,
unless prior arrangements have been made. Make-up exams and assignments will be given
only in cases of excused absence. I will not accept any unexcused overdue assignment.
(e) For each new topic, I will give, in advance, questions to guide you in your reading. At the
end of each topic you will give me questions on the material that is not yet clear or that
needs further discussion.
(f) The syllabus and assignments are posted on Canvas.
(f) Any academic dishonesty such as plagiarizing, cheating on exams, having your work
done by someone else, etc., will result in an automatic failure for the course.
(g) You may not use your phones during class.
(h) I encourage you to keep up with economic news. We will incorporate this new
information into our class discussions.
(i) Grading:
Superior: A 93-100; A- 90-92;
Very good: B+ 87-89; B 83-86; B- 80-82;
+
Average: C 77-79; C 73-76 C- 70-72;
Passable: D+ 67-69; D 60-66;
Failure F Less than 60.

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 TENTATIVE COURSE OUTLINE

August 28 – September 27, 2018

Models of international trade

▸Chapters 2, 3, and 4 in Dominick Salvatore.

.
The Ricardian Model
Autarky/free trade
Absolute advantage/comparative advantage
The terms of trade
The impact of trade on consumption and production
The gains of trade
Demand and supply under free trade

The Heckscher-Ohlin model

Factor abundance and factor intensity
Heckscher-Ohlin theorem
The Stolper-Samuelson theorem (impact of trade on income distribution)
The role of tastes in determining comparative advantage
Factor price equalization
Short-run effects of trade
The Leontief Paradox

Intra-industry trade
Trade with economies of scale
Technological theories of trade
Transportation costs and trade

October 2 – November 1, 2018

International trade policy; Multilateral agreements to reduce trade barriers

▸Chapters 5, 6, and 7 in Dominick Salvatore.

A tariff: specific, ad valorem

Protected trade versus no trade
Consumer surplus and producer surplus
Welfare effects of a tariff, small country and large country
Consumption distortion loss, production distortion loss, and tariff revenue
Optimal tariff
The rate of effective protection
Non-tariff trade barriers: quotas, export subsidies, voluntary export restraints, etc.
Arguments (and counter-arguments) for a protection
The World Trade Organization
Regional Economic Integration

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November 8-27, 2018

International finance and open economy macroeconomics

▸Chapters 11 and 13 in Dominick Salvatore

Exchange rate; Effective exchange rate

Factors that determine the supply of and the demand for foreign currency
Equilibrium exchange rate
Exchange rate regimes
Exchange rate and the trade balance
Covered interest rate parity
Foreign exchange options
Macroeconomic policy under flexible exchange rate
Repercussions effect

November 29 – December 6, 2018

Selected topics
▸Chapter 9 in Dominick Salvatore

Reasons for the existence of multinational corporations

Advantages and disadvantages of multinational corporations

Students’ presentations of their papers.

Commentary:

What I hear, I forget; what I see, I remember; what I do, I understand - Chinese proverb.
If you take part in this class only as a spectator, it will be as boring as watching a game
whose rules you don't understand. Effective and enjoyable teaching and learning is a team effort.
I will try to do my best. I trust that you will do the same.

LET’S HAVE A GOOD SEMESTER!

PRAYER
Almighty GOD, we thank you for the gift of life.
You have brought us together from different parts of
this area and the world in search of knowledge. Inspire
us to enjoy learning and help us retain what we learn.
May our knowledge help us increase our contributions
to society, to serve one another, and You. AMEN.