Elective course: International Trade and Investment

Elective course: International Trade and Investment

Christiaan Cakici
21 januari 2019

Students of the bachelor Econometrics & Operations Research and the bachelor Actuarial Sciences can choose electives from a preapproved list of courses. One of the courses on that list is International Trade and Investment. Although this course is not new, it is today more relevant than it has ever been, now that America decided to exit free trade agreements and impose tariffs.

In the beginning of the course students are introduced to a very simplistic yet powerful model, called the Ricardian model. In the context of this model, students are commonly asked to compare the economy without trade (in economics referred to as autarky) and the situation in which trade does occur, and to determine the winners and losers of trade. For example, trade can be beneficial to both countries involved, but might be more beneficial to one of the countries. It could also be the case that employees in a certain industry gain from trade and other employees lose from trade. Finally, trade also has an effect on consumers and firms (consumer and producer surplus). Another important application of trade models is to overcome common misconceptions.

Students then proceed to expand upon this initial model. The specific factors model, Heckscher-Ohlin model and the standard trade model are discussed and are part of the midterm. After the midterm the subject of the course changes. In the last three weeks of this course, students will no longer be introduced to new models, but empirical evidence will be used to understand the topics and answer questions to which the models did not provide a (realistic) insight. Furthermore, students learn what policies can be established such that money flows from the winners of trade to the losers of trade, until both parties gain from trade. The course then proceeds to focus on how a trade agreement is established in practice and why optimal agreements are not always being made. For example, the book briefly mentions game theory in the context of politics and tries to explain non-optimal behaviour of politicians.

Overall, the course International Trade and Investment strikes a nice balance between models and theory, such that the course does not become boring quickly. Students in the bachelor Econometrics & Operations Research and the bachelor Actuarial Sciences will probably not use any of the learned concepts later in their lives, but the course does provide an understanding of the world economy and interpreting economic news will be easier.