School of Management

University of Texas at Dallas

IMS 5200 Global Economy
Summer 2005
Instrucator: Habte G. Woldu, Ph.D.
Office Location: SM.4.805
Phone: (972) 883-6357
Office Hours: M, W 4:00-5:45 pm
T 10-11:30 pm
E-mail: wolduh@utdallas.edu

Course Objectives:
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 the challenges of globalization such as environmental questions, the
exploitation of children 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.

Text book:

Carbaugh, Robert, International Economics, 9th edition, South-Western, 2004.

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

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Course Outline

June 02 Ch 1 An overview of the international economy

• 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
Video: The Battle of Ideas: Commanding Heights

June 09 Ch 2 Foundation of modern trade theory

Reading Assignments for Class Discussion:

• Why are people worried about globalization?

• Does free trade apply to cigarettes? Carbaugh, 2004, p 19
• Is there any correlation between globalization and the spread of
terrorism through out the World, Carbaugh and pp. 21-23
• Explain how globalization can be helpful and harmful for local
workers.
• As nations become wealthier, the level of their interdependence
increases. Explain why this statement is true.

Ch 3 International equilibrium

• Explain why globalization has not equally benefited all economic

sectors and all U.S. citizens. Explain the reasons behind it by
providing evidences.
• Should low-skilled jobs migrate into other countries in order to
maximize benefit and increase efficiency globally? Who are the
losers and the winners? What are their consequences of such trends?
Carbaugh, p 53

June 16 Special lecture on “out-sourcing, re-sourcing and offshore investments

Guest Speaker: Mr. Sanjeeb Samanta, Texas Instruments

June 23 Ch 4 Trade Model extensions and application

• Is there fair distribution of income in international trade?

• Did international trade, as reflected in the trade deficit, slow the
growth in U.S. real wages? And did international trade, especially with
low-wage developing countries such as China, cause the real income
of low-skilled and poorly educated U.S. workers to fall?
• Does trade make poor nations poorer?

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 • Does Factory Endowment theory explain trade patterns well?
• Should the terms of trade be monitored globally so that poor nations
can’t always be disadvantageous? Carbaugh, p 73)

Discussion Topic 1: “The Anxiety behind Globalization and Trade”

..Globalization carries consequences that can generate “winners and losers”.
This phenomenon is particularly visible in the “Dual Economy” of modern
US economy. Do you think this problem is temporary or permanent? Discuss
this issue as detailed in p. 41, Carbaugh, 2004).

Discussion 2. Given that the price of industrial products compared to

agricultural products rise faster, it is known that the developing countries
which have agriculture-based economy will be unhappy about it, but as long
as the need for industrial products are higher than the need for agriculture
products, it looks that he industrial countries will continue to exploit the
developing countries. How can one minimize the existing tension between the
“North” and the “South”? Should a student of global economy worry about
this?

Video: The Battle of Ideas: Commanding Heights

Ch 5 The concept of tariffs

• Critics of globalization believe, that free trade attributes to the exploitation

of children and poor nations as well as to an increase in pollution. Should
international businesses be regulated by an international organizational
body such as WTO, in order to avoid or minimize the above problems?
Discuss.
• Discuss why the theory of Overlapping Demands explains how trade
relationship among nations is shaped.
• 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 above
discussion available is in chapter 4 of Carbaugh
• Who pays for import restrictions and who benefits out of such policy?

Discussion 3: Heckscher-Ohlin’s Theory indicates that comparative

advantage is explained exclusively by differences in relative national supply
conditions. Assuming that the US has the advantage of abundant skilled
human resource, where as China is endowed with abundant unskilled human
resources, does the current Chinese-US import-export reflect this reality? Use
the import-export schedule for China and US provided on page 79 of your text
to support your discussion.

Video: Commanding Heights

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June 30 Midterm chapters 1-5

Ch 7 Trade regulations and industrial policies

• Explain how bonded warehouse and foreign trade zone, are instrumental in
postponing import duties and promote international trade. Who benefits out of
such trade practice? Explain.
• Explain how the tariff welfare affects small nations. Use the model on page
129, Carbaugh to explain.
• Who pays for import restrictions? What are the arguments used by some to
justify import restrictions.
• Distinguish between consumer surplus and producer surplus. Explain how
each of them relates to the economic welfare of a country.
Source: chapter 5 Carbaugh
• Explain how the Japanese voluntary auto export restraint policy helped the
automakers in the U.S.
• Explain how import quota affects the welfare of a country (redistribution
effect, protective effect, consumption effect and revenue effect). Use the
example provided on page 157, Carbaugh, 2004
• Explain how tariff and quota restrictions affect the welfare of a nation

July 07 Ch 8 Trade policies in developing countries

• Who is regulating the international trade? The developing or developed

countries?
• Who sets the price of bananas and jet fighters?
• Do you see the importance of a new economic order?
•
Discussion Topic 4: “WTO Rulings Outrage Environmentalists”
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 196-197, Carbaugh,
2002 for your discussion).

Ch 9 Regional Trading Arrangements

• Who benefits from economic and trading blocs?

• The objectives of regional arrangement for the global economy

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 • Is regional grouping of countries such that of EU, NAFTA
helpful for the global economy? Source, chapter 9, Carbaugh 9,
2004
• What kinds of conflict do exist between multinational firms and
host nations? (Hint: transfer pricing, balance of payment, tax,
national sovereignty)
• Explain how migration of labor from Mexico to the United States
can be perceived as wage equalizing factor. What barriers do you
see that hamper such a process from happening soon? (chapter 10,
2004)
• What are the challenges of the enlargement of EU? E.g. the
accession of new members, mostly Central and East European
countries?

Discussion Topic 5: Fair-Trade Movement Helps Poor Coffee Farmers”

Fair-Trade Movement is trying to help the small and poor coffee farmers by
bypassing the traditional middlemen who take most of the income and selling it
directly to the big coffee roasters. This movement is getting attention from the
world coffee drinkers, however while the movement is getting a strong support in
European countries, the United States is not keen to bring the issue to its coffee
drinkers. What is the significance of such movement to the global economy? Does
it make any difference whether we drink the coffee directly from its source (the
poor small farmers) or from the middlemen? (In order to discuss this issue
effectively, you might need to read the full text in p. 238, Carbaugh, 2004).

Video: East Europe and Western Europe

July 14 Ch 10 International Factor Movements and Multinational Enterprise

• Can multinational firms be a threat to host countries?

• Understand why multinational firms apply transfer pricing?
• Labor mobility can be income equalizer factor. If so, why can’t nations
allow the free movements people from country to country?

Discussion Topic 6: “Boeing Workers Contest Technology Transfer to China”

Sharing the manufacture of a product with foreign workers due to a firm’s drive
hiring low wage employees is popular. It was also with this philosophy that
Boeing in the 1990s intended to subcontract a portion of its jetliner’s components.
While Boeing’s objective was to minimize cost of production, the Chinese interest
was in learning about the technology so that they can produce a Chinese jet in the
future. The workers of Boeing who saw the potential of their jobs being lost to
Chinese went on strike. As a result, Boeing and McDonnell lost to Airbus. Some
American researchers think that the lose was a blessing to the American Aviation

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 industry. Do you think the US aviation industry will better off for having lost this
contents? (Refer to p. 320, Carbaugh, 2004 for detailed information).

Video: “The Commanding Heights” On Economic Reform

July 21 Final Examination Ch 7-10

Project report (20 %) You can earn maximum of 15 % from your paper and project
presentation and 5 % from your group peer evaluation).

Each student will be given a grade based on his/her level of participation within a group
and individual effort. The student’s participation quality will be judged both by the
outcome of the group written paper (7-8) page typed double space with full bibliography)
and by his/her individual contribution to the group paper report. Even though, the whole
class is expected to read the case/s of the day and actively participate in discussion, the
assigned group should play an active role in leading and initiation discussion. There will
be peer evaluation within a group. As the end of the class, the group written report and
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
d) resourcefulness.

Grading System:

Group case report:

-report paper and
presentation 20%
Class participation 10%
Midterm 30%
Final exam 40%

Class participation: class participation is highly encouraged in both lecture time and case
presentation. The instructor will take attendance from time to time. Those who attend
classes and who actively participate during discussion sessions will be securing
themselves few points that can be critical in the case of borderline situation.

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 to a student or the attempt to commit such acts." (Regent's rules and regulations).