Economics 565: North American Economic Relations (Spring 2010)

Course objective

This course is an examination of Canada, Mexico and the United States in the context of North American economic relations. It is a mixture of international economics (theory and policy), economic geography, political economy, and economic history. We will examine the relations between countries but also the interaction of countries within the wider world economy.

After taking this class, you will be able to

Required Texts

  1. Sen, Amartya, Development as Freedom.
  2. Folsom, Ralph, NAFTA and Free Trade in the Americas.
  3. Moreno-Brid, Juan Carlos, and Ros, Jaime, Development and Growth in the Mexican Economy: A Historical Perspective.
  4. Lawrence, Robert, Blue Collar Blues: Is Trade to Blame for Rising US Income Inequality?
  5. Pastor, Robert, Toward a North American Community: Lessons from the Old World for the New.

Grading:

Short papers and quizzes

The short papers are 2-4 pages and are designed to give you practice writing economics. There are two kinds of short papers. In the first kind, I will provide a data set or send you to a website where a data set is available and ask you to analyze some aspect of one or more economies. In the second kind, I will ask you to review a reading or to give your own analysis of an issue. In total, there are 5 of these papers.

I prefer not to give quizzes, but reserve the possibility in the event that the class is not keeping up on the reading. I will let you know ahead of time and they will be short answers to basic questions about the assigned readings. If everyone keeps up on the readings, I will not assign these. In that case, the short papers will weigh more heavily as they will count for the entire 35%.

Late assignments

Better late than never. I take off points, but you will still get some points if it is late. If you do not turn it in, you get no points.

Midterms and final

Exams are drawn from lectures, assignments, and the reading—that is, I test on everything. I do not lecture on all the readings, but I test on them. Throughout the course, I will post sets of study questions on the Blackboard course site. These are intended to indicate the material you should concentrate on as you prepare for the exam. The exams will be 5-6 essay questions, drawn from the material in the study questions. There are also short, 1-2 sentence answers which are a check on key vocabulary terms.

Course notes

Everyone is strongly encouraged to take notes on the assigned readings and class lecture and discussion. Note taking on readings is a more active form of learning and has been shown to raise grades and increase retention. It also cuts down on the amount of time you have to study for the midterms and final (by providing you with a summary of each of the readings so you don’t have to re-visit the assigned reading).

My expectations

I know that many of you work long hours and take a full course load. The vast majority of students at SDSU cannot do this and be successful in my class. I expect you to attend class, to do the reading, and to be prepared to discuss the reading.

I have at least one other idiosyncratic preference: Please no laptops during class.

Furloughs

No furlough days on class meeting days.

Course outline

1. Introduction.

The syllabus, the class, your instructor, your fellow students. A few comments, time permitting.

2. Development.

Was NAFTA good or bad for its 3 members? It depends on what you think it should have done. Many people argue that it should have led to more development in Mexico and more jobs in the US and Canada. This raises a set of questions: Did it create development? What is development? Did it create or destroy jobs? How do you measure that? We will begin by looking at development as defined by Nobel Prize winning economist, Amartya Sen. The purpose is to define a common vocabulary so that we each mean the same thing when we use the word “development.” at two, beginning with the World Trade Organization.

Reading: Sen, Amartya, Development as Freedom. Introduction and Chapters 1, 2, 4, 6, 7, 8, 9 ,10, and 12; pp 13-53, 87-110, 146-248, and 282-298.

Assignment: Using the HDI trend data, write 2-4 pages in which you discuss (1) the level of the HDI in the 3 NAFTA countries, (2) the trend over time of the HDI in each of the countries, and (3) the differences during the most recent year among the countries’ education indexes, GDP indexes and longevity indexes. Go to the United Nations Development Program website, at http://www.undp.org. Select Human Development Reports in the left frame. Select Statistics from the top menu, and then click on Getting and Using Data in the left frame. Select Data by Indicator.

3. Before NAFTA there was CUSTA and before CUSTA there was the Auto Pact.

In 1989, at about the same time that Mexican president Carlos Salinas de Gotari announced Mexico would seek a free trade agreement with the United States, the US and Canada began implementation of a free trade agreement. The Canada-US Trade Agreement was not our first trade deal. In 1965, the two signed the Canada-US Auto Pact, so that in some respects, NAFTA was a direct descendent of a trade deal on cars and cars parts that the US and Canada put in place in the mid-1960s.

Reading: Folsom, Ralph, NAFTA and Free Trade in the Americas. Chapters 1 and 2; pp. 1-67.

4. What NAFTA says it does.

The agreement is contentious but as you evaluate its components, keep in mind Sen’s idea of development. It is not always possible to know if a particular part of the agreement enhances or subtracts from human freedom, but it is still a useful measuring rod for evaluating the agreement.

Reading: Folsom, Ralph, NAFTA and Free Trade in the Americas. Chapters 3, 4, 5, 6, 7, 8; pp. 68-213.

Assignment: Using World Trade Organization data, write 2-4 pages comparing (1) the openness of each country; (2) their trading partners; (3) the importance of each NAFTA partner; (4) the relative importance of services to merchandise goods; and (5) the general level of tariffs. Go to http://www.wto.org. Under Resources in the pull down menu across the top, click on Trade and Tariff Statistics. Select Statistics Database. Select Trade Profile, then click on Selection in the left frame. Under Available Profiles, add Canada, Mexico, and the United States to the Selected Profiles box. Select continue, or View Profiles

5. The environmental and labor side agreements.

NAFTA was the first agreement to incorporate rules on the environment and labor. These were controversial at the time and continue to be so. The difficulty of adding them to the agreement at the last minute (mostly in order to assure the US Congress), led to two separate side agreements.

Reading: Folsom, Ralph, NAFTA and Free Trade in the Americas. Chapters 9 and 10; pp. 214-248.

6. Background on Mexico.

Mexico’s early development after independence put it significantly behind the US. This reading is designed to give you historical perspective on the current state of things, and to help you understand why many Mexicans are not too keen on closer relations with the US.

Reading: Moreno-Brid, Juan Carlos, and Ros, Jaime, Development and Growth in the Mexican Economy: A Historical Perspective. Chapters 1, 2, 3, 4; pp. 3-92.

7. Mexico since World War II.

Mexico’s growth and development moved forward rapidly after its revolution and until the debt crisis of the 1980s. But then again, all countries grew fast from the 1950s until the mid-1970s, and some argue that Mexico and the rest of Latin America followed inward-looking policies that left their economies unable to compete effectively when they were forced to engage more broadly with the global economy.

Reading: Moreno-Brid, Juan Carlos, and Ros, Jaime, Development and Growth in the Mexican Economy: A Historical Perspective. Chapters 5, 6, 7, 8; pp. 93-205.

Assignment: Write a 2-4 page paper with (1) a graph showing the growth rates of all three countries since 1950, and (2) a discussion comparing the growth rates. Go to the Penn World Table at http://pwt.econ.upenn.edu/. Select Penn World Table in the left frame. Under PWT 6.3 select Data Download. Select Canada, Mexico, and the United States in Step 1. They should be moved to the box in Step 2. In Step 3, Real GDP, Chain Series (rgdpch). In Step 4, select the years ending in 0 and the last year (2007). That means you have 1950, 1960, 1970, 1980, 1990, 2000, and 2007. In Step 5, select comma separated value (.csv). Note that you can copy and paste the data into an Excel file. Calculate the compound annual growth rate for each country between each successive set of years. I will show you all this in class. In your paper, provide a table of data, a graph of the growth rates, and a narrative explaining what that data say.

8. Neoliberalism’s aftermath.

Between the mid-1980s and the mid-1990s, the world experienced a strong move in the direction of economic reform with freer markets and less regulation. In the UK they had Margaret Thatcher, in the US we had Ronald Reagan. But in addition, China began its reforms (1978), India moved towards greater openness (1991), the Berlin Wall fell and Central Europe joined the world economy (1989), the Soviet Union disbanded into many states (1991), growth in the East Asian Tigers surged, and most of Latin America implemented economic reforms that opened their economies to world trade and finance. These reforms have been welcomed by some and lamented by others.

Reading: Moreno-Brid, Juan Carlos, and Ros, Jaime, Development and Growth in the Mexican Economy: A Historical Perspective. Chapters 9 10, and 11; pp. 206-261.

9. Rising Inequality.

In the US and Canada, one of the most disturbing aspects of recent trends is the rise in inequality that has occurred since the mid-1970s. Because rising inequality began around the same time as an intensification of trade, it is often viewed as a causal effect of growing trade. The reasoning is as follows: More trade means more imports and fewer goods made at home, hence fewer good paying jobs and more inequality. The alternative, which is presented in Lawrence’s work, is that trade and inequality are correlated, but correlation is not causation. Lawrence takes a position that is widely supported by economists (a consensus but not an unanimous view) that inequality is due to other factors at work, in particular, technological change. His position is supported by rigorous analysis and data.

Reading: Lawrence, Robert, Blue Collar Blues: Is Trade to Blame for Rising US Income Inequality? Read the whole book.

Assignment: Write a 2-3 page summary of Lawrence’s argument.

10. What is next for North America?

It seems unlikely that the US or Mexico or Canada have the political will or the economic resources to continue the integration process. We signed a FTA with Central America and the Dominican Republic (DR-CAFTA), with Chile and Peru, and agreements are awaiting ratification with Panama and Colombia, but for better or worse, the dream of a Free Trade Area of the Americas seems dead for now. What if we wanted to integrate deeper, though? How would we do it? Where might we turn for some lessons about the costs and benefits?

Reading: Pastor, Robert, Toward A North American Community: Lessons from the Old World for the New. Chapters 1, 2, 3, 4; pp. 1-94.

11. Is deeper integration inevitable?If not, then what?

Robert Pastor was one of the first scholars to call for deeper integration with Mexico after the signing of NAFTA. In the second part of his book, he lays out his proposal. Written before 9/11, it is dated in some respects, but the main issues he identifies are still current, plus security.

Reading: Pastor, Robert, Toward A North American Community: Lessons from the Old World for the New. Chapters 5, 6, 7, 8, 9; pp. 95-end.

Assignment: Go to the Wikipedia entry for NAFTA (http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement) and read the whole section. Write a 2-3 page essay in which you critique the Wikipedia article. You may agree, disagree, agree with modifications, or take any position, but you must defend your position. That is, if you agree, site sources saying why. If you disagree, likewise. Make a case, provide evidence, defend your position.

Last Update: 9/23/14