International Trade and Capital Flows

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Course TypeCourse CodeNo. Of Credits
Discipline ElectiveSLS2EC1034

Semester and Year Offered:

Course Coordinator and Team: Jyotirmoy Bhattacharya

Email of course coordinator: jyotirmoy[at]aud[dot]ac[dot]in

Pre-requisites: Knowledge of microeocnomics and macroeconomics at the level of core M.A. Economics courses.

Aim: course aims to examine and discuss the significant contemporary features of international economic relations placed within a broader historical and theoretical context by focussing on two pillars of international economic relations – trade and finance. It assumes an intuitive grasp over the dominant theoretical perspectives in macro- and microeconomics. Building on these foundations, the course will familiarise students with different historical perspectives and economic theories on trade and finance that have shaped opinion, policy and outcomes in the contemporary world

Course Outcomes:

At the successful completion of these course students would be able to:

  1. Demonstrate an understanding of the results of and a proficiency in the methods employed in the current theoretical and empirical research literature on the pattern of world trade and gains from trade..
  2. Demonstrate a historically-informed understanding of the structure of the international monetary and financial system.
  3. Demonstrate an understanding of the results of and a proficiency in the methods employed in the current theoretical and empirical research literature on macroeconomic linkages between countries arising from international financial flows.
  4. Demonstrate an awareness of contemporary policy and political debates in international economics and be able to evaluate the different positions in these debates with reference to economic theory and empirical evidence.

Brief description of modules/ Main modules:

  1. Trade under perfect competition and constant returns. The Ricardian and Heckscher-Ohlin models. Extensions to many countries and goods. Empirical performance of these models.
  2. Firms in International Trade. Scale economies and product differentiation. Firm heterogeneity. Multinational enterprises and international trade.
  3. Trade policy. Instruments of trade policy and their welfare impact. Evolution of the world trade system.
  4. Open economy macroeconomics. Extending business cycle models to the open-economy setting. The role of frictions. Exchange-rate determination. Problems specific to developing economies.
  5. Evolution of the international monetary system. The Gold Standard. The Bretton-Woods system. The post-Bretton Woods era. Exchange rate policy, capital controls and crises.

Assessment Details with weights:



Class test: best three of four

In-class examinations with problems, proofs and reflective questions covering modules 1, 2, 3, 4 respectively.

25% each

Term paper

A paper of around 3,000 words on some aspect of international trade or open economy macroeconomics not covered in class. The paper would have to be based on original monographs and journal articles but should show the students’ ability to select material and synthesize and integrate diverse sources.



Reading List:

  • Antràs, P. and Yeaple, S.R. (2014) “Multinational Firms and the Structure of International Trade” in Gopinath, G., Helpman, E. and Rogoff, K. (eds.) Handbook of International Economics, vol. 4, Elsevier.
  • Eichengreen, B. (2008). Globalizing Capital: A History of the International Monetary System. Princeton University Press.
  • Feenstra, R. C. (2015). Advanced International Trade: Theory and Evidence. Princeton University Press.
  • Eaton, J. and Kortum, S. (2002). “Technology, geography, and trade.” Econometrica, 70(5), 1741-1779.
  • Krugman, P. (1980) “Scale Economies, Product Differentiation and the Pattern of Trade”, American Economic Review, 70, 950-59.
  • Krugman, P. (1995) “Increasing Returns, Imperfect Competition and the Positive Theory of International Trade” in Grossman, G and Rogoff, K. (ed). Handbook of International Economics, vol. III, Elsevier.
  • Melitz, M. J. (2003). “The impact of trade on intra‐industry reallocations and aggregate industry productivity.” Econometrica, 71(6), 1695-1725.
  • Uribe, M., & Schmitt-Grohé, S. (2017). Open Economy Macroeconomics. Princeton University Press.


  • Bhagwati, J.N., Panagariya, A. and Srinivasan, T.N. (1998), Lectures on International Trade, 2nd ed., MIT Press
  • Dixit, A. and Norman, V. (1980) Theory of International Trade, Cambridge University Press
  • Kindleberger, C. (1973), The World in Depression 1929-39, Berkeley: University of California Press, pp. 291-308.
  • Kindleberger, C. and Robert Aliber (2005), Manias, Panics and Crashes: A history of financial crises, Palgrave Macmillan.
  • Végh, C. A. (2013). Open Economy Macroeconomics in Developing Countries. MIT Press.