INTERNATIONAL ECONOMICS ‘24-25
INHOUDSOPGAVE
LECTURE 1: GLOBALIZATION (STYLIZED FACTS)............................................................................................. 3
THIS COURSE............................................................................................................................................................. 3
ROADMAP ................................................................................................................................................................ 4
GLOBALIZATION STYLIZED FACTS ................................................................................................................................... 5
WRAP UP ............................................................................................................................................................... 10
GOING FURTHER ...................................................................................................................................................... 11
LECTURE 2: GLOBALIZATION (GRAVITY) ..................................................................................................... 12
MEASURING OPENNESS............................................................................................................................................. 12
THE FORCE OF GRAVITY ............................................................................................................................................. 15
WRAP UP (CONCLUSION) .......................................................................................................................................... 18
OVERVIEW LECTURE 1/2........................................................................................................................................... 19
GOING FURTHER ...................................................................................................................................................... 22
LECTURE 3: RICARDO ................................................................................................................................ 23
WHAT GOODS DO COUNTRIES TRADE? ......................................................................................................................... 23
REVEALED COMPARATIVE ADVANTAGE ......................................................................................................................... 24
RICARDO (RICARDIAN MODEL) .................................................................................................................................... 26
AUTARKY................................................................................................................................................................ 27
OPEN ECONOMY ...................................................................................................................................................... 29
EMPIRICAL TESTS ..................................................................................................................................................... 31
WRAP UP ............................................................................................................................................................... 32
OVERVIEW LECTURE 3 .............................................................................................................................................. 33
GOING FURTHER ...................................................................................................................................................... 36
LECTURE 4: HECKSHER-OHLIN.................................................................................................................... 38
HECKSCHER OHLIN ................................................................................................................................................... 38
AUTARKY................................................................................................................................................................ 40
OPEN ECONOMY ...................................................................................................................................................... 42
EMPIRICS ............................................................................................................................................................... 43
WRAP UP ............................................................................................................................................................... 44
OVERVIEW LECTURE 4 .............................................................................................................................................. 45
LECTURE 5: TRADE POLICY ........................................................................................................................ 47
TRADE POLICY ......................................................................................................................................................... 47
IMPACT OF TARIFFS .................................................................................................................................................. 50
TRUMP TRADE WAR (FIRST WAVE)............................................................................................................................... 54
OTHER POLICY TOOLS ............................................................................................................................................... 55
WRAP UP ............................................................................................................................................................... 58
LECTURE 6: TRADE AND GROWTH ............................................................................................................. 59
DOES TRADE SPUR GROWTH? ..................................................................................................................................... 59
1
, WHICH TRADE MATTERS? .......................................................................................................................................... 63
DOWNSIDE OF SPECIALIZING? .................................................................................................................................... 65
WRAP UP ............................................................................................................................................................... 66
LECTURE 7: NEW TRADE THEORY............................................................................................................... 67
INTRA-INDUSTRY TRADE ............................................................................................................................................ 67
RETURNS TO SCALE................................................................................................................................................... 70
MONOPOLISTIC COMPETITION.................................................................................................................................... 71
WRAP UP ............................................................................................................................................................... 77
LECTURE 8: GLOBAL VALUE CHAINS ........................................................................................................... 78
GLOBAL VALUE CHAINS ............................................................................................................................................. 78
MEASURING GVCS .................................................................................................................................................. 80
PROPAGATION OF SHOCKS ......................................................................................................................................... 84
WRAP UP ............................................................................................................................................................... 89
LECTURE 9: EXCHANGE RATES/PRICES ....................................................................................................... 90
EXCHANGE RATE ...................................................................................................................................................... 90
LAW OF ONE PRICE ................................................................................................................................................... 93
PURCHASING POWER PARITY ...................................................................................................................................... 95
WRAP UP ............................................................................................................................................................... 99
LECTURE 10: PRICES ................................................................................................................................ 100
EXCHANGE RATE PASS-THROUGH .............................................................................................................................. 100
THE BREXIT REFERENDUM DEPRECIATION ................................................................................................................... 103
THE SWISS APPRECIATION ....................................................................................................................................... 107
WRAP UP ............................................................................................................................................................. 110
2
,LECTURE 1: GLOBALIZATION (STYLIZED FACTS)
THIS COURSE
➢ Apple products are complex: they are international because:
o Extensive global supply chain (from all over the world) = design (US) + screens (SK) + software
(Japan, US) + batteries and microchips (China, Taiwan) + logistics
o Every country has a different policy that you need to take into account
➢ Price at which apple product is sold (why is there so much divergence in price?)
o Market price is different everywhere
o Import duties (tariffs)
o Logistics
o Legal constraints (privacy laws in Europe)
→ US cheapest (they sell everything ‘pre’ taxes, in other countries it is often already included)
→ Prices are heterogenous across countries, how come?
➢ Tariffs (Trump) = trade politics
o Tariffs are now commonly used to pressure other countries or gain political leverage—for
example, against China or the EU
o Europe benefited from a stable international trade system
based on clear rules and cooperation (mainly through the
WTO), but when powerful countries like the U.S. start
acting unilaterally—using tariffs or breaking trade
agreements—it weakens that system. This shift is called
trade politics, where trade is influenced more by national
interests and power plays rather than global cooperation.
o If more countries follow this path, the rules-based system
(cooperative trade framework) Europe depends on may collapse. That could lead to more
trade conflicts, uncertainty for European exporters, and less influence for Europe in shaping
global trade norms.
3
, ROADMAP
Topics:
➢ Lecture 1-2: globalization: stylized facts and gravity
➢ Lecture 2-5: why countries trade: trade theory
➢ Lecture 6: does trade foster growth
➢ Lecture 7: what is trade policy?
➢ Lecture 8: what are global value chains
➢ Lecture 9: what are exchange rates?
➢ Lecture 10: how are international prices set?
Tutorials:
➢ Solve problem sets in advance!!!
➢ If you want to work less, read the slides in advance
➢ Solving problem sets with Stata
Material:
➢ Reading academic papers is not compulsary, but useful for further interaction with the material
➢ Textbook: you do not have to buy it, but you can go to the library or online (not compulsary)
Evaluation
➢ Final exam (June 11th): 70%
➢ Midterm exam (April 25th): 30%
➢ Participation for both is mandatory
Final competences
➢ Understand key concepts in international economics
➢ Be able to reflect on topical issues
➢ Look for data
➢ Use data to guide your reasoning
4
INHOUDSOPGAVE
LECTURE 1: GLOBALIZATION (STYLIZED FACTS)............................................................................................. 3
THIS COURSE............................................................................................................................................................. 3
ROADMAP ................................................................................................................................................................ 4
GLOBALIZATION STYLIZED FACTS ................................................................................................................................... 5
WRAP UP ............................................................................................................................................................... 10
GOING FURTHER ...................................................................................................................................................... 11
LECTURE 2: GLOBALIZATION (GRAVITY) ..................................................................................................... 12
MEASURING OPENNESS............................................................................................................................................. 12
THE FORCE OF GRAVITY ............................................................................................................................................. 15
WRAP UP (CONCLUSION) .......................................................................................................................................... 18
OVERVIEW LECTURE 1/2........................................................................................................................................... 19
GOING FURTHER ...................................................................................................................................................... 22
LECTURE 3: RICARDO ................................................................................................................................ 23
WHAT GOODS DO COUNTRIES TRADE? ......................................................................................................................... 23
REVEALED COMPARATIVE ADVANTAGE ......................................................................................................................... 24
RICARDO (RICARDIAN MODEL) .................................................................................................................................... 26
AUTARKY................................................................................................................................................................ 27
OPEN ECONOMY ...................................................................................................................................................... 29
EMPIRICAL TESTS ..................................................................................................................................................... 31
WRAP UP ............................................................................................................................................................... 32
OVERVIEW LECTURE 3 .............................................................................................................................................. 33
GOING FURTHER ...................................................................................................................................................... 36
LECTURE 4: HECKSHER-OHLIN.................................................................................................................... 38
HECKSCHER OHLIN ................................................................................................................................................... 38
AUTARKY................................................................................................................................................................ 40
OPEN ECONOMY ...................................................................................................................................................... 42
EMPIRICS ............................................................................................................................................................... 43
WRAP UP ............................................................................................................................................................... 44
OVERVIEW LECTURE 4 .............................................................................................................................................. 45
LECTURE 5: TRADE POLICY ........................................................................................................................ 47
TRADE POLICY ......................................................................................................................................................... 47
IMPACT OF TARIFFS .................................................................................................................................................. 50
TRUMP TRADE WAR (FIRST WAVE)............................................................................................................................... 54
OTHER POLICY TOOLS ............................................................................................................................................... 55
WRAP UP ............................................................................................................................................................... 58
LECTURE 6: TRADE AND GROWTH ............................................................................................................. 59
DOES TRADE SPUR GROWTH? ..................................................................................................................................... 59
1
, WHICH TRADE MATTERS? .......................................................................................................................................... 63
DOWNSIDE OF SPECIALIZING? .................................................................................................................................... 65
WRAP UP ............................................................................................................................................................... 66
LECTURE 7: NEW TRADE THEORY............................................................................................................... 67
INTRA-INDUSTRY TRADE ............................................................................................................................................ 67
RETURNS TO SCALE................................................................................................................................................... 70
MONOPOLISTIC COMPETITION.................................................................................................................................... 71
WRAP UP ............................................................................................................................................................... 77
LECTURE 8: GLOBAL VALUE CHAINS ........................................................................................................... 78
GLOBAL VALUE CHAINS ............................................................................................................................................. 78
MEASURING GVCS .................................................................................................................................................. 80
PROPAGATION OF SHOCKS ......................................................................................................................................... 84
WRAP UP ............................................................................................................................................................... 89
LECTURE 9: EXCHANGE RATES/PRICES ....................................................................................................... 90
EXCHANGE RATE ...................................................................................................................................................... 90
LAW OF ONE PRICE ................................................................................................................................................... 93
PURCHASING POWER PARITY ...................................................................................................................................... 95
WRAP UP ............................................................................................................................................................... 99
LECTURE 10: PRICES ................................................................................................................................ 100
EXCHANGE RATE PASS-THROUGH .............................................................................................................................. 100
THE BREXIT REFERENDUM DEPRECIATION ................................................................................................................... 103
THE SWISS APPRECIATION ....................................................................................................................................... 107
WRAP UP ............................................................................................................................................................. 110
2
,LECTURE 1: GLOBALIZATION (STYLIZED FACTS)
THIS COURSE
➢ Apple products are complex: they are international because:
o Extensive global supply chain (from all over the world) = design (US) + screens (SK) + software
(Japan, US) + batteries and microchips (China, Taiwan) + logistics
o Every country has a different policy that you need to take into account
➢ Price at which apple product is sold (why is there so much divergence in price?)
o Market price is different everywhere
o Import duties (tariffs)
o Logistics
o Legal constraints (privacy laws in Europe)
→ US cheapest (they sell everything ‘pre’ taxes, in other countries it is often already included)
→ Prices are heterogenous across countries, how come?
➢ Tariffs (Trump) = trade politics
o Tariffs are now commonly used to pressure other countries or gain political leverage—for
example, against China or the EU
o Europe benefited from a stable international trade system
based on clear rules and cooperation (mainly through the
WTO), but when powerful countries like the U.S. start
acting unilaterally—using tariffs or breaking trade
agreements—it weakens that system. This shift is called
trade politics, where trade is influenced more by national
interests and power plays rather than global cooperation.
o If more countries follow this path, the rules-based system
(cooperative trade framework) Europe depends on may collapse. That could lead to more
trade conflicts, uncertainty for European exporters, and less influence for Europe in shaping
global trade norms.
3
, ROADMAP
Topics:
➢ Lecture 1-2: globalization: stylized facts and gravity
➢ Lecture 2-5: why countries trade: trade theory
➢ Lecture 6: does trade foster growth
➢ Lecture 7: what is trade policy?
➢ Lecture 8: what are global value chains
➢ Lecture 9: what are exchange rates?
➢ Lecture 10: how are international prices set?
Tutorials:
➢ Solve problem sets in advance!!!
➢ If you want to work less, read the slides in advance
➢ Solving problem sets with Stata
Material:
➢ Reading academic papers is not compulsary, but useful for further interaction with the material
➢ Textbook: you do not have to buy it, but you can go to the library or online (not compulsary)
Evaluation
➢ Final exam (June 11th): 70%
➢ Midterm exam (April 25th): 30%
➢ Participation for both is mandatory
Final competences
➢ Understand key concepts in international economics
➢ Be able to reflect on topical issues
➢ Look for data
➢ Use data to guide your reasoning
4
