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Regular version of the site
Bachelor 2019/2020

International Economics

Area of studies: Economics
When: 4 year, 1-4 module
Mode of studies: Blended
Instructors: Roman Zakharenko
Language: English
ECTS credits: 10

Course Syllabus


The main goal of the first part course is to introduce students to both classical and modern theories of international trade in goods and services, as well as empirical research on trade. A substantial fraction of the course is dedicated to examination of efficient trade policies. The main goal of the second part of the course is to introduce students to introductory level of theories of international finance flows, determination of interest and exchange rates in interconnected economies, macroeconomic policies available to the government, and the nature of financial crises. Prerequisites: Microeconomics 1-2, macroeconomics 1-2, calculus
Learning Objectives

Learning Objectives

  • Upon successful completion of the course, you should be able to discuss and explain economic forces that drive international trade, as well as welfare effects of various trade policies
  • able to discuss and explain economic forces that drive international finance flows.
Expected Learning Outcomes

Expected Learning Outcomes

  • explain the relevance of international macroeconomics in the modern global economy and Russia in particular
  • identify the main parts of national accounts and their connection with the external sector dynamics, outline the key factors behind the balance of payments formation
  • assess the factors driving the equilibrium on the foreign exchange market, the role of interest rates and the expectations about the future exchange rate
  • explain the role of money and banking in an economy; construct the model of money and foreign exchange markets in the short run; explain and analyze the effects of monetary policy on the interest rates, exchange rates and expectations
  • explain the factors behind price indices behavior and their connection with the external sector, analyze the long-run dynamics of the real exchange rate behavior using a range of models
  • construct the expenditure side Keynesian model of the real sector; analyze the effects of monetary and fiscal policies on the real economy and monetary variables under flexible exchange rate regime; decide on the appropriate macro policy options in response to the state of the economy
  • explain the role of the central bank as a price-setting actor on the foreign exchange market; analyze the effects of monetary and fiscal policies on the real economy and monetary variables under fixed exchange rate regime, outline the factors behind the emergence of currency crises phenomena
  • evaluate the pros and cons of global monetary systems used in the XX century; analyze the restrictions each system places on the monetary and fiscal policies
  • explain how international capital markets provide gains from trade in financial assets; outline the rough structure of global financial markets, the leading countries, currencies and types of transactions; analyze the problems that international finance (mainly banking) is facing in recent years; decide on the direction of international cooperation needed to solve those problems.
  • explain the theoretical underpinnings of the most prominent currency crises of the last decades; decide on the driving factors of the observed currency crises
  • Discuss and explain specific policy issues such as ‘environmentalism as protectionism’; international dumping; the choice of exchange rate regime; the desirability of free capital flows
  • Apply a specific framework to illustrate the connection between a variety of models and approaches. Explain the connections between Ricardian, Heckscher-Ohlin and the specific factors models in trade theory, or between the ‘monetary approach’ and the ‘asset approach’ in exchange rate theory
  • Explain how international economic theory has been shaped by real world events
Course Contents

Course Contents

  • Introduction
    - Important issues in international trade. - History and present state of world trade flows - Russian trade balance - History of the development of trade theory
  • Essentials: Ricardo and Comparative Advantage
    - The Ricardian model of trade - Empirical evidence and policy results
  • Factor Price Equalization and Trade
    - Hecksher-Ohlin model of trade - Stolper-Samuelson effects - Rybczynski effects
  • Who Wins and Who Loses from Trade?
    - The “Specific Factors” model of trade - Redistribution aspect of trade policy - International experience
  • Standard Trade Models and Country Welfare
    - Welfare comparisons across countries - Welfare comparisons within countries
  • An Empirical Evaluation of Trade Patterns
    - Problems with the Hecksher - Ohlin model - Empirical evidence of trade theory
  • Market Imperfections and Trade
    - Imperfect Competition and trade - Externalities and protectionism - Empirical evaluation of importance
  • International Factor Movements
    - International Labor Mobility - International Capital Flows - Multinational Firms and Direct Foreign Investment
  • Tariffs and Non-Tariff Barriers to Trade
    - Economics of Tariffs - Economics of Quotas - Protection and Imperfect Competition
  • Government Intervention in Trade
    - Welfare arguments - Income Distribution - Optimum Tariff
  • Strategic Trade Policies
    - Technology and Externalities - Imperfect Competition and Protection
  • Development through Trade Policies
    - Import Substitution and Infant Industry argument - Export-oriented development strategies - The East Asian Miracle?
  • Political Economy of Trade
    - Pros and Cons of government intervention - Strategic trade policy - Median voter theorem - Theory of collective action - Politicians for sale (partial eqm analysis)
  • World Trade Organization, Preferential Trading Arrangements, Custom Unions and Economic Integration
    Free trade agreements, customs unions - Trade creation vs trade diversion - Trade policy in developing countries: import substitutions, export promotion - International negotiations: GATT, WTO, Doha round
  • Introduction to international finance
    - Distinction between International Trade and International Macroeconomics - Why International Finance became relevant in the last decade: capital flows in open economy, Washington consensus rethink, global crisis 2008-09, eurozone problems, global banking. Importance for Russia
  • National Income accounting revisited and the Balance of Payments
    - National income accounts, main macroeconomic identity reminder. - National income accounting for open economy, BoP and transaction accounting - Importance of BoP as a measure of foreign currency flow balance
  • Asset Approach to Exchange Rate Determination
    - Demand for foreign currency assets - Equilibrium in the foreign exchange market. - Interest rates, expectations, and uncovered exchange rate parity
  • Money, Interest Rates, and Exchange Rates
    - Aggregate money demand - Equilibrium interest rate - Money and exchange rate in the short run. Dornbusch overshooting model - Money, price level and exchange rate in the long run
  • Price Levels and the Exchange Rate in the Long Run
    - Empirical evidence on PPP and the law of one price. Problems with PPP approach - Models of long-run exchange rates determination - Real exchange rate and real interest parity
  • Output and the Exchange Rate in the Short Run
    - Output market equilibrium in the short run: The DD schedule - Asset market equilibrium in the short run: The AA schedule - Short-Run Equilibrium for an open economy - Temporary vs. permanent changes in monetary and fiscal policies - Macroeconomic policies and the current account - Mundell-Fleming (IS-LM-BP) model and comparison with AA-DD model
  • Fixed exchange rate regime
    - Central bank intervention in the foreign exchange market - Stabilization policies and exchange rate regimes comparison - Three models of currency (balance of payments) crises
  • The international monetary system
    - The Gold Standard and the Bretton Woods agreements. IMF. - Policy coordination with floating exchange rates. - Optimum currency area theory. Single currency and economic integration. EMU
  • International capital markets and emerging markets
    - The efficiency of international capital markets: theory and evidence - Problems in international banking - Problems of international finance for developing countries
  • Financial and economic crisis of 2008-09
    - Recent financial crises: Mexico 1994, Asia 1997-98, Russia 1998. - What was the same, and what was different in 2008-09. - European crisis in 2010-15, Russian crisis in 2014-15
Assessment Elements

Assessment Elements

  • non-blocking home assignments
  • non-blocking class activity
  • non-blocking mid-semester evaluation
  • non-blocking end-of-semester exam
  • non-blocking UoL exam
    Not counted toward the final grade
Interim Assessment

Interim Assessment

  • Interim assessment (2 module)
    0.06 * class activity + 0.5 * end-of-semester exam + 0.16 * home assignments + 0.28 * mid-semester evaluation
  • Interim assessment (4 module)
    0.02 * class activity + 0.25 * end-of-semester exam + 0.1 * home assignments + 0.5 * Interim assessment (2 module) + 0.13 * mid-semester evaluation


Recommended Core Bibliography

  • Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2015). International Economics: Theory and Policy, Global Edition (Vol. Tenth edition, global edition). Boston: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=nlebk&AN=1419045

Recommended Additional Bibliography

  • International economics, Appleyard D. R., Field A. J., 2001
  • International economics, Sodersten B., Reed G., 1994