Economics and Development International Economics 2 Lecture 1 Giorgia Giovannetti Professor of Economics, University of Firenze

Introduction The timetable Course presentation, slides in Moodle after the lecture What about this course? lectures, students’ involvement, choice of specific topics. Important part of work is reading articles, commenting data, with the objective to understand, synthesize, discuss and judge articles, to get insights from data and link data and theory.

Plan of the course/lectures Lectures (tentative) Students presentations 13/9 Introduction:globalization and separation 14/9 No class 20/9 Measuring globalization, 1 21/9 Measuring Globalization, 2, Indicators 27/9 Overview trade models (Bernard et al 2007; 2011) 28/9 Exercises on indicators, data etc 4/10 The concept of Comparative advantage: the model of Ricardo 5/10 Ricardo and comparative advantage, 2 /H-O, intro 11/10 Trade models: H-O 12/10 Trade models: H-O,2 18/10 Exercises on Ricardo & H-O 19/10 Trade and Imperfect competition, 1 25/10 Trade and imperfect competition, 2 26/10 Geography models/gravity 2/11 Hysteresis, Heterogeneous firms 8/11 The Melitz model 9/11 Exercises on imperfect competition & Melitz model 15/11 Trade policy 16/11 Trade Policy: TTIP 22/11 FDI and Multinationals: OLI theory 23/11 FDI and Multinationals Offshoring/trade in tasks 29/11 China and India (BRICS) 30/11 Granularity and aggregate shocks 6/12 Brexit: discussion 7/12 exercices

The first two weeks Introduction to topics and issues (today). Data on globalization, world GDP and trade, answers to some basic Q, China and India (sketch) Data & history; introduction to statistical indicators used to measure international integration, specialization and competitiveness Overview of trade models

Main References (first two weeks) FT chapter 1 Slides GG (in Moodle) Further readings (if interested) –Badwin, 2006, the great unbundling(s) –Havik and Morrow, 2006, global trade integration and outsourcing, how well is EU coping with these challenges –OECD (2005)Handbook of Economic Globalisation Indicators –Love P. and Lattimore R. (2009) International Trade: Free, fair, open? OECD –Bernard A. J Bradford Jensen, Redding SA & P. Schott, 2007, Firms in International Trade, Journal of Economic Perspectives, vol 21 n.3 –Andrew B. Bernard, J. Bradford Jensen, Stephen J. Redding and Peter K. Schott (2011) The Empirics of Firm Heterogeneity and International Trade, CEP Discussion Paper No 1084, October

Objectives Provide –a picture of historical trends –some conceptual basis for understanding the major international economic questions We deal with both theory and empirics For data: IMF, Worldbank, WTO, ITC, Unctad, OECD, ILO i.e. international Organisations

Examples of questions we address Are existing trade models (developed for the “North”) able to explain trade in the “South”? Is globalization a new phenomenon? How do we measure it? Is rising North-South trade responsible for rising inequalities in the North? What are the causes and consequences of changes in terms of trade for developing countries? What are the effects of quotas on textiles? Or other tariffs? What is the EU development policy? Has it changed in the last 20 years? if so, how? Where are we in the negotiation at WTO? And TTIP? What is the effect of offshoring on employment? How does migration fit into this picture?

Info, exams, participation etc etc Exam: written exam (three random tests? Or final?) Your role: ppt on two articles of your choice in a list that I provide or group work with theory and empirics? Participation: important….you can volunteer to lead discussion on «hot topics» (EU crisis, TTIP etc)

Globalization: definition (economists): increase in international trade of both financial assets and goods that comes from a decrease in transaction costs, increase of movement of workers and ideas Two main point: Globalization is non an (entirely) new phenomenon and is not irreversible Last 15 years (India): unbundling of the production process: production is split and diced into separate fragment, spread around the world IMPORTANT: also services and high skill jobs Trade of tasks rather than goods

Recap: Trade in the Global Economy Imports are the purchase of goods or services from another country. Exports are the sale of goods or services to other countries. –Germany had the largest exports of goods in 2008 with the U.S. and China coming in second and third. In 2009 China became first, Germany 2 nd, US 3 rd. In 2010, China first (10.4), US 2 nd (8.4), Germany 3 rd (8.3)

Recap: Trade in the Global Economy Merchandise goods: includes manufacturing, mining, and agricultural products. Service exports: includes business services like eBay, travel, insurance, and transportation. –In combining all goods and services, the U.S. is the world’s largest exporter followed by Germany and China.

13 Last ten years: world trade and GDP 2012 and 2013 well below 10 years average GDP TRADE

Annual Growth of Merchandise Exports

Recap: Trade in the Global Economy Migration is the flow of people across borders as they move from one country to another. Foreign Direct Investment is the flow of capital across borders when a firm owns a company in another country (above 10%, a priori threshold).

16 Population Population in millions, 2011 EU-27 Population Pyramid, 2008, 2060

Foreign Direct Investments