International industrial policy (2020/2021)

Course partially running (all years except the first)

Course code
Name of lecturers
Angelo Zago, Vania Licio
Angelo Zago
Number of ECTS credits allocated
Academic sector
Language of instruction
primo semestre (lauree magistrali) dal Oct 5, 2020 al Dec 23, 2020.

Lesson timetable

Go to lesson schedule

Learning outcomes

Departing from traditional theory of international trade based on comparative advantage, in this course we focus on theories of trade based on the firm. Globalization has substantially changed the world economy and the nature of firms. There has been an increase in Foreign Direct Investments (FDI). Sub-contracting abroad in now a common practice. A third of total trade is intrafirm. Therefore, by acknowledging that firms - not countries - are involved in trade, recent developments have investigated the decisions to export and invest abroad at the firm level. Globalization has substantially changed the world economy and the nature of businesses. There has been an increase in foreign direct investment (FDI), and a third of international trade is now represented by exchanges between different plants of the same firm. The acquisition of intermediate goods from foreign suppliers is now a common practice. Recognizing that companies - not countries - are involved in international trade, the most recent developments in international trade theory investigate the decisions to export and invest abroad made at the firm level. The aim of the course is therefore to provide the analytical and conceptual tools - both theoretical and empirical - to understand the choices of internationalization of firms, whether they are exporting, importing, or foreign direct investing. The course is taught in English. At the end of the course students will be able to: - understand the economic reasons and the effects of the internationalization choices of firms; - have an overview of the problems inherent in internationalization processes; - read and elaborate critically and autonomously the problems and prospects that characterize the firms engaged in foreign markets both for the production and for the marketing of their products. - Finally, the student will also learn some transferable skills, such as autonomy of judgment and critical sense with respect to the topics they are exposed to, plus written communication skills and the ability to learn autonomously.


In this course we will cover the main models that consider the firms' decisions to export and/or invest abroad; we will discuss how trade choices may affect (and are affected by) the organizational form of firms; we will discuss the evolution of global value chains; the main flows of trade in goods and services; the main entry modes into foreign markets. While the focus is on general trends and phenomena, we will also touch on the problems of Italian small and medium enterprises (SMEs) competing in global markets.
- Theory of the firm: Coase, Williamson and the transaction cost theory of the firm. Property rights and the theory of the firm.
The Grossman-Hart model.
Incomplete contracts, specific investments, ownership of the firm.
- Heterogeneous firms and the decision to export. Melitz model. Effects of trade liberalization and reallocation effects.
- Firms and the decision to invest in Foreign Direct Investments (FDI). Horizontal FDI.
The Brainard model. Horizontal FDI and heterogenous firms (Yeaple, Melitz and Helpman 2003).

Vertical FDI and country price differences (Helpmand 1984).
- Outsourcing and internationalization. Monopolistic competition, increasing returns, incomplete contracts (Antràs 2003). Outsourcing and product cycles (Antràs 2004).
Incomplete contracts and heterogeneous firms (Antràs & Helpman 2003).
- Gravity equations.
- Foreign markets entry decisions: foreign distributors, strategic alliances partners, mergers and acquisitions.

During the course, other speakers will intervene:
1. academic colleagues coming from foreign universities to speak about specific topics:
- Prof. Bruce McKern (University of Technology Business School, Sydney), on multinationals business models and entry modes into Chinese market;
- Prof. Raphael Chiappini (University of Bordeaux), on gravity equations;
- Prof. Natalie Chen (Warwick University), on quality and trade;
2. business leaders, to discuss issues related to multinational firms operating in global markets.

Reference books
Author Title Publisher Year ISBN Note
Robert C. FEENSTRA Advanced International Trade. Theory and Evidence (Edizione 2) Princeton University Press 2016 9780691161648
Oliver HART Firms, Contracts and Financial Structure Oxford University Press 1995 0198288816
Pol ANTRAS Global Production. Firms, Contracts, and Trade Structure (Edizione 1) Princeton University Press 2016 9780691168272
Alain VERBEKE International Business Strategy (Edizione 2) Cambridge University Press 2013 9781107683099
Martin RICKETTS The Economics of Business Enterprise. An Introduction to Economic Organization and the Theory of the Firm (Edizione 3) Edward Elgar 2002 1 84376 420 2
Elhanan HELPMAN Understanding Global Trade Belknap 2011 0674060784

Assessment methods and criteria

The content and the examination procedures are the same for students attending and not the course. Consistently with the content of lectures, the examination for the course of International Industrial Policy includes:
I) a WRITTEN EXAM, in which students are asked to:
a) answer some open questions of trade theory and discuss a case, e.g., to comment critically current economic facts related to the course provided during the exam;
b) answer some theory questions in a multiple choice format.
These two parts together determine the grade for the written exam.
II) In addition, students are required to prepare an ESSAY, on a topic chosen by the student, developing an article of about 2000 words that must be handed in at the exam date (printed in front and in the back of white A4 paper, single-spaced, stapled without covers). The essay can be prepared in group, in groups of 3-4 students maximum, where each student has to prepare about 2000 words. The essay may be a critical review of a scientific article; the investigation of a phenomenon through the analysis of data; a discussion of a relevant case-study.
III) Finally, during the course students are given the opportunity to prepare a group presentation (with about 4 students per group).
For the overall grade, therefore, one can add the following BONUS to the written exam:
i) Essay - mandatory. Its assessment is done on a 0-30 scale: if insufficient (<18/30), points -1; if 18-20/30, 0 points; if 21-23/30, 1 point; if 24-26/30, 2 points; if 27-30/30, 3 points.
ii) Presentation - for attending students. It entitles to 0-2 points.
In summary, the FINAL VOTE therefore includes:
1. the grade obtained in the written exam,
2. a possible bonus for the mandatory essay,
3. a possible bonus for the group presentation.

All bonuses are valid for the four exam sessions of the academic year 2020-21, that is, until the Autumn 2021 session included.

Dear Students
due to the Covid19 pandemic, the 2020 summer exam session will be administered online using the Moodle platform, with the ‘Quiz’ and ‘Compito’ tools.
The structure of the exam and the type of questions will be as similar as possible to the written test usually administered in the classroom, even if there will be changes in the way you can provide answers to the questions.
In particular, the written test will include:
- multiple choice questions (without penalties for wrong answers),
- 'open' answer questions, which require a brief explanation through a short text, to be written on the PC or on a sheet of paper to be uploaded later through the camera.
Given the new online administration of the written test, the possibility of taking an optional oral test may also be provided.
However, there are no changes in the rule for determining the final grade.