Economics of Globalization: A Transaction Cost Perspective

URL study guide

https://studiegids.vu.nl/en/courses/2025-2026/E_HP1_EGTC

Course Objective

After successfully completing this course, you will:be familiar with the concept of transaction costs (Bridging Theory and Practice
- Knowledge)be able to show the relevance of transaction costs for understanding several of the empirical phenomena (Bridging Theory and Practice
- Application) be able to apply the insights in a paper on a topic of your own choice that links to the broad topic of transaction costs (Academic and Research Skills)will be able to present your paper and contribute to discussion on the papers of others (Academic and Research Skills)

Course Content

Globalization is an important source of welfare, but at the same time heavily contested in modern societies. This course elaborates on the costs and benefits of globalization introducing modern non-mainstream theories that at points challenge the traditional wisdom regarding the benefits of globalization and helps to understand the prevailing sentiments against globalization. We will heavily rely on insights from transaction cost theory which challenges the neglect in traditional neoclassical theory of transaction costs. The (oftentimes implicit) reliance in mainstream trade theory on frictionless trade is surprising for theories in which exchange is at the heart of the matter. This course aims to familiarize you with the concept of transaction costs and to show the relevance of transaction costs for understanding several of the empirical phenomena that are impossible to understand without relying on such costs. Insights are particularly relevant to appreciate current discussions on the impact of globalization on a small open economy such as the Netherlands. Think, for example, about recent discussions on reshoring and the impact of globalization on wage inequality and unemployment. The course will focus on four main areas of research in which transaction costs are dominant, viz. (i) international trade with a focus on the multiple dimensions of transaction costs distinguishing between transport costs, institutional costs and cultural costs of exchange, (ii) foreign direct investments with a focus on outsourcing and the organization of the firm in a globalizing world, (iii) industrial organization with a focus on the determinants of the boundaries of the firm, and (iv) networks with a focus on the role of social and regional networks, and on standards as institutionalized settings that facilitate exchange of goods, ideas, etc.

Teaching Methods

Interactive lectures.

Method of Assessment

Individual paper and presentation, and optional assignments.

Literature

An extensive reading list is made available at the start of the course.

Target Audience

Second and third year participants in the honours program.

Custom Course Registration

SBE rules and dates apply for this SBE HP course.

Recommended background knowledge

Basic familiarity with the principles of economics and statistics.