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ECONOMICS AND GLOBALIZATION
February-April 2015
Instructor
Giorgio Barba Navaretti, University of Milan
Outline of the Course and Reading List
This course analyzes the nexus among the causes and the effects of the ongoing globalization
process from the point of view of international economics, highlighting the main challenges and
opportunities faced by workers, firms and governments. It examines both financial globalization
(international finance) and real globalization (trade). Its aim is providing a broad perspective
interconnecting historical processes with contemporary questions on the future of the world
economy. Lectures will develop and liaise several methodological approaches and levels of
analysis: present day events; economic theory; empirical investigations. Students will also learn
key methodological tools like the balance of payment and the welfare analysis of trade policy.
Specifically the course addresses the following questions. What are the historical roots of
globalization? How do we explain global imbalances and the underlying financial flows? What are
the gains from trade and why do countries trade among themselves? Why is protectionism a cost
and why we have multilateral trading regulations? Who benefits and who loses out from
globalization?
Along the way students will develop the ability to reach a critical understanding of the global
economy and of many contemporary events. Seminar tutorials will offer students the opportunity
to deepen the knowledge of the methodological tools they need in apprehending and
understanding the concepts and issues presented through the lectures.
The basic background textbook is: Pugel, T., International Economics, XVth edition, McGraw-Hill,
2012 (P2012).
Chapters of the textbook to be covered will be indicated in each of the sections of the course.
Other compulsory readings will be indicated with a *. Other readings are for reference, but not
compulsory for the exam.
1. Two Waves of Globalization: A Historical Perspective
(Lectures 1 and 2)
and Stylized Facts
1.1 Trade and the Industrial revolution
1.2 Global financial flows
1.3 Migration
Reading Material
Lecture slides
*Baldwin R. and P. Martin, 1999, Two Waves of Globalisation: Superficial Similarities, Fundamental
Differences, NBER WP No. 6904.
Compulsory readings are marked with an *. Other readings are for reference.
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*R. Findlay and K. H. O’Rourke, Commodity Market Integration, 1500-2000, NBER WP No. 8579,
published in Bordo, Taylor and Williamson (eds.), 2003, Globalization in Historical Perspective,
NBER.
*Obstfeld M. and A. M. Taylor, 2002, Globalization and Capital Markets, NBER WP No. 8846.
*Chiswick B. R. and T. J. Hatton, International Migration and the Integration of Labor Markets, in
Bordo, Taylor and Williamson (eds.), 2003, Globalization in Historical Perspective, NBER.
2. Global Imbalances (Lectures 3,4 and 5)
2.1 Motivating facts
The pre-crisis great imbalances;
The post crisis adjustments;
The post crisis collapse in financial flows;
Who owns America?
2.2 How Are Global Imbalances Measured?
TOOL 2.1 GLOBAL FLOWS AND THE BALANCE OF PAYMENTS
2.3 How are trade and financial flows related to each other?
TOOL 2.2 KEY MACRO IDENTITIES IN AN OPEN ECONOMY
TOOL 2.3
EXCHANGE RATES AND MONETARY POLICY IN OPEN
ECONOMIES
2.4 Topics
The trilemma of international financial markets
Exchange rates and trade balance
2.5 Contemporary questions:
Why are global imbalances at the root of the financial crisis?
The rise and collapse of global financial flows: waiting for a come back?
Imbalances in Europe: is Germany to be blamed?
Reading Material
Lecture slides
TOOLS:
* P2012: Ch. 16-17.
(for a more advanced manual) Krugman, P. R., M. Ostfeld, and M. Melitz (2012), International
Economics. Theory and Policy, Addison Wesley (Ch. 12-13).
GLOBAL IMBALANCES:
* Borio, C. and P. Disyatat (2011), Global imbalances and the financial crisis: Link or no link?, BIS
WP No. 346.
Compulsory readings are marked with an *. Other readings are for reference.
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* Obstfeld, M. and K. Rogoff (2009), Global Imbalances and the Financial Crisis: Products of
Common Causes
* Merrouche, O. and E. Nier (2010), What Caused the Global Financial Crisis?—Evidence on the
Drivers of Financial Imbalances 1999–2007, IMF WP 10/265.
* Milesi-Ferretti, G (2009), Notes on the financial crisis and global financial architecture, in G20
Workshop on the Global Economy, Causes of the crisis: Key Lessons, Mumbai, India 24-26 May
2009..
* Philip R. Lane «The European Sovreign Debt Crisis», Journal of Economic Perspective, Vol 26, n3,
Summer 2012, Pages 49-68
*Bernanke, Ben S. (2005). “Remarks by Governor Ben S. Bernanke: The Global Saving Glut and the
U.S. Current Account Deficit.” The Sandridge Lecture, Virginia Association of Economists,
Richmond, VA (March 10).
http://www.federalreserve.gov/boarddocs/speeches/2005/20050414/default.htm
Bini Smaghi, L. (2009), The financial crisis and global imbalances – two sides of the same coin,
speech given at the Asia Europe Economic Forum conference “The Global Financial Crisis: Policy
choices in Asia and Europe”, Beijing, 9 December 2008.
Lin, J. Y. and V. Treichel (2012), The Unexpected Global Financial Crisis. Researching Its Root Cause,
WB, Policy Research WP No. 5937.
Suominen, K., Did global imbalances cause the crisis?, VoxEU, June 14th 2010.
The Economist, The Origins of the Financial Crisis. Crash course, September 7th 2013.
The Economist, Global Economic Imbalances. When a flow becomes a flood, January 22nd 2009.
POST CRISIS:
* Ollivaud, P. and C. Schwellnus (2013), The Post-Crisis Narrowing of International Imbalances.
Cyclical Or Durable?, OECD Economics Department WP No. 1062.
McKinsey Global Institute (2013), Financial Globalization. Retreat or Reset?;
Atkins, R. and K. Fray, Capital Flows: Powered Down, FT, January 6th 2014.
Wolf, M., We still need to learn the real lessons from the crisis, FT, December 19th 2013.
GERMANY
* Buti, M. and A. Turrini, Slow but Steady External Adjustments within the Eurozone starts working,
VoxEU, November 12th 2012.
* Ma, G. and R. N. McCauley (2013), Global and euro imbalances: China and Germany, BIS WP No.
424.
Corsetti, G., P. Martin, and P. Pesenti, Current-account rebalancing and international transfers
(immaculate or not), VoxEU, January 31st 2013.
Corsetti, G., P. Martin, and P. Pesenti, Varieties and the transfer problem, Journal of International
Economics, vol. 89(1), pp. 1-12.
Adam, N. and A. Thomas, U.S. tell Berlin to spend more, WSJ, January 8th, 2014.
Aizenman, J., Y. Jinjarak, and N. P. Marion, Why current accounts fell post crisis, VoxEU, January
5th 2014.
Compulsory readings are marked with an *. Other readings are for reference.
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Barber, T., EU will learn that attacking German economic success is not the right strategy, FT,
November 18th, 2013.
Dieter, H., Who's Afraid of Germany's Trade Surplus?, WSJ, November 28th, 2013.
Fratzscher, M., Investment, not the surplus, is Germany’s big problem, FT, November 18th, 2013.
Sinn, H. W. and A. Valentinyi, European imbalances, VoxEU, March 9th 2013.
Spiegel, P. and S. Wagstyl, Brussels launches inquiry into Germany’s current account surplus, FT,
November 13th, 2013.
The Economist, Europe’s economic rules. Brussels v Berlin, November 16th, 2013.
- The Economist, Imbalances. Blame Germany, or Frankfurt?, November 3rd, 2013.
3. New topics in international trade (Lectures 6,7 and 8)
3.1 Motivating facts
The crisis and the great trade collapse
The rise of Asia and the displacement of mature economies in manufacturing trade
Extra readings for beginners
3.2 Gains from trade
Trade among countries with different characteristics
Trade among similar countries
TOOL 3.1 MEASURING COMPARATIVE ADVANTAGE
TOOL 3.2 ECONOMIES OF SCALE: CONCEPTS AND IMPLICATIONS
Reading Material
Lecture Slides
TOOLS
* P2012: Ch. 2-6.
(for a more advanced manual) Krugman, P. R. and M. Ostfeld (2003), International
Economics. Theory and Policy, Addison Wesley (Ch. 2-6).
* Irwin, D. (1996), Against the Tide: An Intellectual History of free trade, Princeton
University Press (Ch. 5‐6‐8‐9).
Irwin, D. (2009), Free Trade Under Fire, Princeton University Press (Ch. 2).
WTO (2008), World Trade Report, Ch. C.
Compulsory readings are marked with an *. Other readings are for reference.
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3.3 Global Production Chains and multinationals
How much is the World interconnected?
3.4 Trade with heterogeneous firms
Who is trading: firms, industries or countries?
Reading Material
Lecture Slides
TRADE COLLAPSE
Baldwin, R. (ed.) (2009), The Great Trade Collapse: Causes, Consequences and Prospects, VoxEUCEPR (Introduction; Ch. 6).
RISE OF ASIA
* Hanson, Gordon (2012) "The Rise of Middle Kingdoms: Emerging Economies in Global Trade," Journal
of Economic Perspectives, 26(2), 2012, 41-64.
Asian Development Bank (2011), Asia 2050. Realizing the Asian century.
Hill, H. and M. S. Gochoco-Bautista (eds.) (2013), Asia rising. Growth and resilience in an uncertain
global economy, Asian Development Bank.
MGI (2012), Manufacturing the future: the next era of global growth and innovation.
GLOBAL PRODUCTION CHAINS
* Baldwin R. (2014), Trade and Industrialization after Globalization's Second Unbundling: How
Building and Joining a Supply Chain Are Different and Why it Matters, in R. C. Feenstra and A. M.
Taylor (eds) (p. 165 - 212), University of Chicago Press.
* Baldwin, R. and J. Lopez-Gonzalez (2013), Supply-Chain Trade: A Portrait of Global Patterns and
Several Testable Hypotheses, CEPR WP No. 9421.
* Barba Navaretti, G. and A. J. Venables (2004), Multinational Firms in the World Economy,
Princeton University Press (Ch. 1-2).
Elms, D and P Low (2013), Global value chains in a changing world, WTO, Fung Global Institute and
Nanyang Technological University (Part I).
UNCTAD, World Investment Report 2013 (Ch. 4).
IMF (2013), Trade Interconnectedness: The World With Global Value Chains.
Compulsory readings are marked with an *. Other readings are for reference.
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Lamy, P., Global value chains, interdependence, and the future of trade, VoxEU, December 18th
2013.
WEF (2012), The Shifting Geography of Global Value Chains: Implications for Developing Countries
and Trade Policy.
HETEROGENEOUS FIRMS
* Helpman, Elhanan. Trade, FDI, and the Organization of Firms. Journal of Economic Literature
44.3 (2006): 589-630 up to Melitz and Ottaviano (2008) model.
4 The Future of Trade Policy (Lectures 9 and 10)
4.1 Motivating facts
The crisis and the rise of protectionism: 2009 vs 1929
4.2 Costs and benefits of protectionism
TOOL 4.1 WELFARE ANALYSIS OF TRADE POLICY
4.3 International Trade negotiations
4.4. Contemporary Questions
Multilateral or regional agreements?
Nafta, 20th anniversary?
Reading Material
Lecture slides
TOOLS:
*P2012: Ch. 8-12.
(for a more advanced manual) Krugman, P. R. and M. Ostfeld (2003), International Economics.
Theory and Policy, Addison Wesley (Ch. 8-10).
*Irwin, D. (2009), Free Trade Under Fire, Princeton University Press (Ch. 3, 7).
NEW PROTECTIONISM AND 2008 VS. 1929
*Eichengreen, B. and D. Irwin, The protectionist temptation: Lessons from the Great Depression for
today, VoxEU, March 17th 2009.
Baldwin, R. (ed.) (2009), The Great Trade Collapse: Causes, Consequences and Prospects, VoxEUCEPR (Ch. 4-5).
Aggarwal, V. K. and S. J. Evenett (2013), A Fragmenting Global Economy: A Weakened WTO, Mega
FTAs, and Murky Protectionism, CEPR DP No. 9781.
Almunia, M., A. S. Bénétrix, B. Eichengreen, K. H. O'Rourke, and G. Rua (2009), From Great
Depression to Great Credit Crisis: Similarities, Differences and Lessons, Department of economics,
University of California, Berkeley, mimeo
Gamberoni, E. and R. Newfarmer (2009), Trade Protection: Incipient but Worrisome Trends, WB,
TRADEnotes No. 37.
Compulsory readings are marked with an *. Other readings are for reference.
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Gregory, R., C. Henn, B. McDonald, and M. Saito (2010), Trade and the Crisis: Protect or Recover,
IMF Staff Position Note 10/07.
Henn, C. and B. McDonald (2011), Protectionist Responses to the Crisis: Damage Observed in
Product-Level Trade, IMF WP No. 11/139.
Baldwin, R. and J. Evenett, Don't let murky protectionism stall a global recovery: Things the G20
should do, VoxEU, March 5th 2009.
BCG, Lessons from the Great Depression. Preparing for a tough year ahead, December 17th 2008.
Campbell, D. L., C. M. Meissner, D. Novy, and D. Jacks, Explaining two trade busts: Output vs. trade
costs in the Great Depression and today, VoxEU, September 19th 2009.
Evenett, S. (2013), Protectionism's Quiet Return. GTA's Pre-G8 Summit Report, CEPR-Global Trade
Alert.
Georgiades G. and J. Gräb, Growth, real exchange rates, and trade protectionism since the
financial crisis, VoxEU, December 8th 2013.
Helbling, T., How similar is the current crisis to the Great Depression?, VoxEU, April 29th, 2009.
GLOBAL AND BILATERAL AGREEMENTS
* World Bank (2005), Global Economic Prospects. Trade, Regionalism, and Development (Ch. 2-3,
6).
Freund, C. and Emanuel Ornelas (2010), Regional Trade Agreements, WB Policy Research WP No.
5314, published in Annual review of Economics, vol. 2, pp. 139-167.
Schott, J. J. (2008), The future of the multilateral trading system in a multi-polar world, Deutsches
Institut für Entwicklungspolitik, Discussion Paper No. 8/2008.
Hufbauer, G. C. and J. Schott (2012), Will the WTO Enjoy a Bright Future?, Peterson Institute.
Winters, L. A. (1996), Regionalism versus Multilateralism, World Bank Policy Research WP No.
1687.
Lipsey, R. G. and M. Smith (2010), Multilateral Versus Regional Trading Arrangements: Substitutes Or
Complements?, Simon Fraser University - Department of Economics WP No. 10-03.
Bohara, A. K., K. Gawande, and P. Sanguinetti (2004), Trade diversion and declining tariffs:
evidence from Mercosur, Journal of International Economics, vol. 64, pp. 65-88.
Foroutan, F. (1998), Does Membership in a Regional Preferential Arrangement Make a Country
More or Less Protectionist?, The World Economy, vol. 21(2), pp. 305-335.
Koo, W. W., P. L. Kennedy, and A. Skriptnichenko (2006), Regional Preferential Trade Agreements:
Trade Creation and Diversion Effects, Review of Agricultural Economics, vol. 28(3), pp. 408-415.
Limao, N. (2006), Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade
Liberalization: Evidence for the United States, American Economic Review, vol. 96(3), pp. 896-914.
Ornelas, E. (2008), Feasible multilateralism and the effects of regionalism, Journal of International
Economics, vol. 74, pp. 202-224.
Baldwin, R., Multilateralising 21st-century regionalism, VoxEU, January 20th 2014.
Donnan, S., World faces up to the era of regional agreements, FT, December 2nd, 2013.
Hufbauer, G. C. and D. A. De Rosa, What do gravity models tell us about PTAs impact on trade
flows: More creation or more diversion?, VoxEU, October 16th, 2007.
Compulsory readings are marked with an *. Other readings are for reference.
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Politi, J., Contentious Nafta pact continues to generate a sparky debate, FT, December 2nd 2013.
Rathbone, J. P., Nafta – the next 20 years, FT, December 2nd 2013.
The Economist, NAFTA at 20. Ready to take off again?, January 4th 2014.
The Economist, NAFTA at 20. Deeper, better, NAFTA, January 4th, 2014.
The Economist, Trade. In my backyard. Multilateral trade pacts are increasingly giving way to
regional ones, October 12th, 2013.
The Economist, Regional trade agreements. A second-best choice, September 4th 2008.
5. Globalization: Winners and Losers (Lectures 11 and 12)
5.1 Globalization and development: between countries inequality
5.2. Globalization and inequality: within country inequality.
5.3. Contemporary questions
Does trade in intermediates cause a rise in wage premia?
Reading Material
Lecture slides
Bourguignon, Francois, 2012, la Mondialisation de l’Inegalité, Seuil.
BETWEEN COUNTRIES INEQUALITY
*Irwin, D. (2009), Free Trade Under Fire, Princeton University Press (Ch. 6).
*Milanovic, B. (2012), Global Income Inequality by the Numbers: in History and Now —An
Overview—, WB Policy Research WP No. 6259.
Combes P.‐P., Mayer T. and Thisse J.‐F., “Economic geography: The Integration of Regions and
Nations”, Princeton University Press 2008. Ch. 1‐2.
Jaumotte, F., S. Lall, and C. Papageorghiou (2008), Rising Income Inequality: Technology, or Trade
and Financial Globalization?, IMF WP No. 08/185.
Joyce, J. P. (2008), Globalization and inequality among nations, in Sisay asefa (ed. ) Globalization
and International Development, Kalamazoo, MI: W.E. Upjohn Institute.
WITHIN COUNTRIES INEQUALITY
*Irwin, D. (2009), Free Trade Under Fire, Princeton University Press (Ch. 4).
* OECD (2011), An Overview of Growing Income Inequalities in OECD Countries: Main Findings;
Pavcnik, N. (2011), Globalization and within-country income inequality, in "Making Globalization
Socially Sustainable", WTO.
Lawrence, R. Z. (2008), Blue Collar Blues: Is Trade to Blame for Rising US Income Inequality?,
Washington DC: The Peterson Institute for International Economics.
Uri Dadush and Kemal Dervis (2013), The inequality challenge, Current History.
Giles, C., IMF warns on threat of income inequality, FT, January 19th, 2014.
Compulsory readings are marked with an *. Other readings are for reference.
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INTERMEDIATES AND INEQUALITY
*Feenstra, R. C. and G. Hanson (2003), Global Production Sharing and Rising Inequality: A Survey of
Trade and Wages, in E. Kwan Choi and J. Harrigan (eds), Handbook of International Trade,
Blackwell.
Feenstra, R. C. and G. Hanson (1997), Foreign direct investment and relative wages: Evidence from
Mexico’s maquiladoras, Journal of International Economics, vol. 42, pp. 371-393.
Compulsory readings are marked with an *. Other readings are for reference.