International Economics and Trade Olivier Bertrand Graduate School

International Economics and Trade Olivier Bertrand Graduate School of Management - St. Petersburg State University

Objective of the course

The objective of this course is to provide conceptual basis for understanding international key issues and analyzing firm decisions in an international context. This course will offer you the opportunity to think about different aspects of globalization. Using the framework of economics, we will investigate 1. how business across borders offers both challenges and opportunities. 2. the implications for policy makers of globalized markets.

The course will consist in exposing the main theoretical arguments and concepts from the field of international economics. It remains extremely important to go beyond anecdotal evidence and to understand the complexity of globalization. However, we will relate them as far as possible to empirical facts and real-world examples. Moreover, we will particularly focus when possible on European countries (especially Eastern countries) and also emerging countries (BRIC countries).

Content of the course

I. Introduction on Globalisation II. Trade III. Foreign Direct Investments (FDI) and Multinational Enterprises (MNE) IV. Cross-border Mergers and Acquisitions (M&A) V. Competition Policy in International Markets

I. Introduction on Globalisation. Definition. Old and New Phases of Globalization. Business Opportunities and Costs from Separation

II. Trade. Some Stylised Facts. Main Theories of Trade (Ricardo, HOS, Imperfect Competition, Firm Heterogeneity and Gravity Equation). Trade Policy. Trade Agreement (GATT and WTO, RTA, EU)

III. Foreign Direct Investments (FDI) and Multinational Enterprises (MNE). Definitions, Facts and Issues. Determinants of FDI. Internalisation and the Boundary of MNE. Effects of FDI and MNE. FDI and Economic Policy

IV. Cross-border Mergers and Acquisitions (M&A). Definitions. History of Merger Waves. Determinants of Mergers. Empirical Evidence on Mergers. Specificities of International Mergers and Entry Mode of FDI. European Economic Integration and International Mergers

V. Competition Policy (CP) in International Markets. Foundation of Competition Regulation . General Content of European Competition Law. Horizontal and Vertical Agreements . Abuse of Dominance. Merger Control. State Aid. Implications of International Markets for Competition Policy.

Literature and references

We will examine very different topics. As a result, there is no unique book, but several references that I could advise you to use depending on your background. However, the slides that I will present you during the course should be in itself enough. Note that this course could require very basic knowledge in microeconomics, industrial organization and econometrics.

Some references (not exhaustive) which could help you: Krugman and Obstfeld, International Economics: Theory and Policy (section Trade) Navaretti and Venables, Multinational Firms in the World Economy (section FDI) Spulber, Global Competitive Strategy (section FDI) Baldwin and Wyplosz, The Economics of European Integration (section Trade) Motta, Competition Policy: Theory and Practice (section M&A and Competition) Cabral, Introduction to Industrial Organization (section Trade, M&A and Competition) Pepall, Richards and Norman, Industrial Organization: Contemporary Theory and Practice (section Trade, M&A and Competition)

In addition to slides and this optional list of books, you will have to read some articles that I will provide you for each section. Some of them are compulsory, that says, you need to know them for examination. Others are optional, that says, you can read it if you are curious, looking for additional information or if you want to present them for extra-points.

Compulsory articles: Introduction: “Distance still matters: the hard reality of global expansion”, Ghemawat, Harvard Business Review, Sep. 2001. “The forgotten strategy”, Ghemawat, Harvard Business Review, Nov. 2003.

Trade: “European industrial policy: the Airbus case”, Neven, Seabright and Grossman, Economic Policy, Vol. 10, 1995. “The last days of cheap chinese”, Harney, Slate, 2008. “Lobbying in Brussels: interest representation and need for information”, Marziali, CEIS Working Paper, 2006. “Anti-dumping: a growing problem in international trade”, Prusa, World Economy, Vol. 28, 2005. “Building the firm's political (lobbying) strategy”, Vining, Shapiro and Borges, Journal of Public Affairs, N° 5, 2005.

FDI: “Emerging giants: building world-class companies in developing countries”, Khanna and Palepu, Harvard Business Review, Oct. 2006. “How local companies keep multinationals at bay”, Bhattacharya and Michael, Harvard Business Review, March 2008. “Smarter offshoring”, Farrell, Harvard Business Review, June 2006. “Strategies that fit emerging markets”, Khanna, Palepu and Sinha, Harvard Business Review, June 2005. “Perspectives on multinational enterprises in emerging economies”, Meyer, Journal of International Business Studies, Vol. 34, 2004. “The Russians are coming: understanding emerging multinationals”, RUSAL - EIU documents, 2006.

MA: “Deals without delusions”, Lovallo, Viguerie and Uhla, Harvard Business Review, Dec. 2007. “A survey of corporate governance in Russia”, Lazareva, Rachinsky and Stepanov, CEFR New Economic School, 2007. “Managing acquisitions to change and survive”, Mitchell and Capron, EBF N° 9, spring 2002. “Are you paying too much for that acquisition”, Eccles, Lanes and Wilson, Harvard Business Review, Aug. 1999. “Effect of organizational cultures on mergers and acquisitions: the case of Daimler Chrysler”, Badrtalei and Bates, International Journal of Management, Vol. 24, 2007. “The dubious logic of global megamergers”, Ghemawat and Ghadar, Harvard Business Review, Aug. 2000.

Competition Policy: “Competition policy: Europe in international markets”, Bertrand Ivaldi, in Fragmented Power: Europe and the Global Economy, edited by Sapir, Bruegel, 2007. “Integrated strategy, trade policy, and global competition”, Baron, California Management Review, Vol. 39, 1997. “Transatlantic divergence: GE–Honeywell and the EU’s merger policy”, Morgan and Mc. Guire, Journal of European Public Policy, vol. 11, 2004. “Fighting cartels: economic analysis and European Union experiences”, Motta, CPRC Discussion Paper Series, Jan. 2006. “European state aid control: an economic framework”, Friederiszick Röller and Verouden, mimeo, 2007.

Evaluation system

1 - Group project: 25% of assessment. By group of 3 students (minimum). Students who are not in a team will have to join an existing team. . In each group, one leader should be assigned. In two weeks, the leader will send me an email indicating the definitive list of group members.

Objective of this project: . You will write and expose a joint but original work on a chosen subject. . You can choose to do a country analysis, an industry analysis, a company analysis, or simply focus on a topic that you think will be of interest. No limitation, except one: the international economic dimension. If you are afraid of being wrong, please ask me. The leader needs to give me the title of the project in three weeks.

Examples (year 2007): “FDI Flows from Developing Countries with focus on Russia“ “Russia’s accession to WTO: Consequences for FDI in Russia” “Corporate Strategy and the Effectiveness of Government Promotion and Facilitation” “Outward FDI from Russia to Europe: the case of Germany” “Reorganization of the international automobile industry due to globalization. M&As as one of the strategies to achieve global success in the industry” “FDI Policy in Brazil” “FDI in Ireland – History, Growth, Decline and Threats” “Cross-border technology trade : the Case of Russia and Finland” “ Developing countries’ MNCs’ investments into developed countries: a critical comparative analysis of Indian and Russian Steel Companies”

First part: Oral presentation: 12, 5%. 15 -30 minutes for each presentation. . Before the presentation, the leader will send me and all students by email the power point presentation. The first presentation will start after the middle/end of October.

Second part: Written dissertation: 12, 5% One week after the end of the course, the leader will send me the written document (in Word format). Please check that I receive it. In this written document, you need to go one step further in your research and to take into account feedbacks from the oral presentation.

What I will expect: 1. Business and/or policy implications. 2. For most topic, you will need to link theory and facts: Use for instance Google Scholar or Business Source Complete. 3. Do not use concepts that you do not fully understand. 4. Quality (and not quantity) matters. 20 pages are enough.

Evaluation: Basic rule: zero tolerance. Late submission or presentation gets 0%.

Dissertation Structure Introduction: . Define key terms and outline structure. . Why this subject is important and how you will deal with it. Main body: . Tell key arguments. Evaluate competing theories and perspectives. Offer supporting evidence Conclusion: . What is your answer to the question? References: . Everything you have cited in the dissertation (articles, data, citations etc. )

2. Mid-term examination: 10% of assessment Date of examination: end of October.

3. Final examination: 60% of assessment It could consist in short questions (from the slides and/or compulsory articles), numerical exercises, multiple choice questions tests or e. g. commenting one paper. Please … 1. Do not try to anticipate the form of the examination. 2. Two basic rules for success: What to know for the examination ? Everything. How to get an excellent grade ? Learn and think.

Examination (year 2007) – examples of questions Ex. 1 What are the rules of origin? To which form of economic integration is it associated? Why? Ex. 2 Explain the merger paradox and how it can be solved. Ex. 3 What is the ICN? Explain the main principles of this new institution. Ex. 4 What is the Hubris hypothesis?

Ex. 5 Suppose a small country. Assume also that all very basic and traditional assumptions are respected. In particular, markets are competitive. The supply (respectively the demand) of goods (Q) is a positive (respectively negative) function of the price level. In autarky, the price is equal to P 1 in this small economy. The international price is lower and denoted P 2 (P 2<P 1). - What is the implication of the hypothesis of a small country? Draw the graphic representing the good market (Q in X axis, P in Y axis) and indicate on it the surplus of producer and consumer in the case of free trade. - Suppose now that this small country decides to impose a tariff t on each imported good. With the help of the graphic again, explain if this policy is good or not for the country in terms of social welfare. - Is this conclusion always right?

4. Class participation and attendance: 5% or more of assessment Attendance: At least ¾ of all lectures. Participation: Participation to class discussion: - by answering questions that I ask. - by raising questions and sharing useful information.

Please. . . a. No MSN, ICQ, or any emails during the lecture. b. Be in time at the lecture: 10 minutes at most. Very occasionally. Disruptive behavior will reduce your participation mark. You can get bonus. . . On a voluntary basis, you can do alone or with another student a short presentation (15 minutes) on a compulsory/optional article or any other issues. If so, write me before the lecture.

About cheating. . . or plagiarism. Free-riding behaviour. . . write me.

How to contact me

E-mail address olivier. bertrand@univ-tlse 1. fr olivier. bertrand@som. pu. ru Office No official hours – feel free to disturb me Second floor of this building (research) Mobile phone + 7 911 959 3982