International Economics

Title
Contents
1 International Economics Is Different
	Four Controversies
		Outsourcing
		Immigration
		China’s Exchange Rate
		Sovereign Wealth Funds
	Economics and the Nation-State
		Factor Mobility
		Different Fiscal Policies
		Different Moneys
	The Scheme of This Book
PART ONE THE THEORY OF INTERNATIONAL TRADE
	2 The Basic Theory Using Demand and Supply
		Four Questions about Trade
		A Look Ahead
		Demand and Supply
			Demand
			Consumer Surplus
			Case Study Trade: Increasingly Important
			Supply
			Producer Surplus
			A National Market with No Trade
		Two National Markets and the Opening of Trade
			Free-Trade Equilibrium
			Effects in the Importing Country
			Effects in the Exporting Country
			Which Country Gains More?
		xviii
		Summary: Early Answers to the Four Trade Questions
		Key Terms
		Suggested Reading
		Questions and Problems
	3 Why Everybody Trades: Comparative Advantage
		Adam Smith’s Theory of Absolute Advantage
			Case Study Mercantilism: Older than Smith—and Alive Today
		Ricardo’s Theory of Comparative Advantage
		Ricardo’s Constant Costs and the Production-Possibility Curve
			Focus on Labor Absolute Advantage Does Matter
			Extension What If Trade Doesn’t Balance?
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	4 Trade: Factor Availability and Factor Proportions Are Key
		Production with Increasing Marginal Costs
			What’s Behind the Bowed-Out Production-Possibility Curve?
			What Production Combination Is Actually Chosen?
		Community Indifference Curves
		Production and Consumption Together
			Without Trade
			With Trade
			Focus on China The Opening of Trade and China’s Shift Out of Agriculture
			Demand and Supply Curves Again
		The Gains from Trade
		Trade Affects Production and Consumption
		What Determines the Trade Pattern?
		The Heckscher–Ohlin (H–O) Theory
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	5 Who Gains and Who Loses from Trade?
		Who Gains and Who Loses Within a Country
			Short-Run Effects of Opening Trade
			Long-Run Factor-Price Response
		Three Implications of the H–O Theory
			The Stolper–Samuelson Theorem
			Extension A Factor-Ratio Paradox
			The Specialized-Factor Pattern
			The Factor-Price Equalization Theorem
		Does Heckscher–Ohlin Explain Actual Trade Patterns?
			Factor Endowments
			Case Study The Leontief Paradox
			International Trade
		What Are the Export-Oriented and Import-Competing Factors?
			The U.S. Pattern
			The Canadian Pattern
			Focus on China China’s Exports and Imports
			Patterns in Other Countries
		Do Factor Prices Equalize Internationally?
			Focus on Labor U.S. Jobs and Foreign Trade
		Summary: Fuller Answers to the Four Trade Questions
		Key Terms
		Suggested Reading
		Questions and Problems
	6 Scale Economies, Imperfect Competition, and Trade
		Scale Economies
			Internal Scale Economies
			External Scale Economies
		Intra-Industry Trade
		Monopolistic Competition: The Basics
			The Monopoly Element: Price Setting
			The Competitive Element: Entry and Profit Erosion
		Monopolistic Competition: Opening to Trade
			Basis for Trade
			Gains from Trade
		Oligopoly and International Trade
			Extension The Gravity Model of Trade
			Substantial Scale Economies
			Oligopoly Pricing
		External Scale Economies and Trade
		Summary: How Does Trade Really Work?
		Key Terms
		Suggested Reading
		Questions and Problems
	7 Growth and Trade
		Balanced versus Biased Growth
		Growth in Only One Factor
		Changes in the Country’s Willingness to Trade
			Case Study The Dutch Disease and Deindustrialization
		Effects on the Country’s Terms of Trade
			Small Country
			Large Country
			Immiserizing Growth
		Technology and Trade
			Individual Products and the Product Cycle
			Focus on Labor Trade, Technology, and U.S. Wages
			Openness to Trade Affects Growth
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
PART TWO TRADE POLICY
	8 Analysis of a Tariff
		Global Governance WTO and GATT: Tariff Success
		A Preview of Conclusions
		The Effect of a Tariff on Domestic Producers
		The Effect of a Tariff on Domestic Consumers
		The Tariff as Government Revenue
		The Net National Loss from a Tariff
			Extension The Effective Rate of Protection
		The Terms-of-Trade Effect and a Nationally Optimal Tariff
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	9 Nontariff Barriers to Imports
		Types of Nontariff Barriers to Imports
		The Import Quota
			Quota versus Tariff for a Small Country
			Global Governance The WTO: Beyond Tariffs
			Ways to Allocate Import Licenses
			Extension A Domestic Monopoly Prefers a Quota
			Quota versus Tariff for a Large Country
		Voluntary Export Restraints (VERs)
		Other Nontariff Barriers
			Case Study VERs on Textiles and Clothing
			Product Standards
			Case Study Auto VER: Protection with Integrity?
			Domestic Content Requirements
			Case Study Carrots Are Fruit, Snails Are Fish, and X-Men Are Not Humans
			Government Procurement
		How Big Are the Costs of Protection?
			As a Percentage of GDP
			For Specific Products with High Protection
		International Trade Disputes
			Focus on China China’s First Years in the WTO
			America’s “Section 301”: Unilateral Pressure
			Dispute Settlement in the WTO
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	10 Arguments for and against Protection
		The Ideal World of First Best
		The Realistic World of Second Best
			Government Policies toward Externalities
			The Specificity Rule
		Promoting Domestic Production or Employment
		The Infant Industry Argument
			How It Is Supposed to Work
			How Valid Is It?
			Focus on Labor How Much Does It Cost to Protect a Job?
		The Dying Industry Argument and Adjustment Assistance
			Should the Government Intervene?
			Trade Adjustment Assistance
		The Developing Government (Public Revenue) Argument
		Other Arguments for Protection: Noneconomic Objectives
			National Pride
			National Defense
			Income Redistribution
		The Politics of Protection
			The Basic Elements of the Political-Economic Analysis
			When Are Tariffs Unlikely?
			When Are Tariffs Likely?
			Case Study How Sweet It Is (or Isn’t)
			Applications to Other Trade-Policy Patterns
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	11 Pushing Exports
		Dumping
		Reacting to Dumping: What Should a Dumpee Think?
		Actual Antidumping Policies: What Is Unfair?
			Case Study Antidumping in Action
		Proposals for Reform
		Export Subsidies
			Exportable Product, Small Exporting Country
			Exportable Product, Large Exporting Country
			Switching an Importable Product into an Exportable Product
		WTO Rules on Subsidies
		Should the Importing Country Impose Countervailing Duties?
			Case Study Agriculture Is Amazing
		Strategic Export Subsidies Could Be Good
			Global Governance Dogfight at the WTO
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	12 Trade Blocs and Trade Blocks
		Types of Economic Blocs
		Is Trade Discrimination Good or Bad?
		The Basic Theory of Trade Blocs: Trade Creation and Trade Diversion
		Other Possible Gains from a Trade Bloc
		The EU Experience
			Case Study Postwar Trade Integration in Europe
		North America Becomes a Bloc
			NAFTA: Provisions and Controversies
			NAFTA: Effects
			Rules of Origin
		Trade Blocs among Developing Countries
		Trade Embargoes
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	13 Trade and the Environment
		Is Free Trade Anti-Environment?
		Is the WTO Anti-Environment?
			Global Governance Dolphins, Turtles, and the WTO
		The Specificity Rule Again
		A Preview of Policy Prescriptions
		Trade and Domestic Pollution
		Transborder Pollution
			The Right Solution
			A Next-Best Solution
			NAFTA and the Environment
		Global Environmental Challenges
			Global Problems Need Global Solutions
			Extinction of Species
			Overfishing
			CFCs and Ozone
			Greenhouse Gases and Global Warming
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	14 Trade Policies for Developing Countries
		Which Trade Policy for Developing Countries?
		Are the Long-Run Price Trends against Primary Producers?
			Case Study Special Challenges of Transition
		International Cartels to Raise Primary-Product Prices
			The OPEC Victories
			Classic Monopoly as an Extreme Model for Cartels
			The Limits to and Erosion of Cartel Power
			The Oil Price Increase since 1999
			Other Primary Products
		Import-Substituting Industrialization (ISI)
			ISI at Its Best
			Experience with ISI
		Exports of Manufactures to Industrial Countries
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	15 Multinationals and Migration: International Factor Movements
		Foreign Direct Investment
		Multinational Enterprises
		FDI: History and Current Patterns
		Why Do Multinational Enterprises Exist?
			Inherent Disadvantages
			Firm-Specific Advantages
			Location Factors
			Internalization Advantages
			Oligopolistic Rivalry
		Taxation of Multinational Enterprises’ Profits
			Case Study CEMEX A Model Multinational from an Unusual Place
		MNEs and International Trade
		Should the Home Country Restrict FDI Outflows?
		Should the Host Country Restrict FDI Inflows?
			Focus on China China as a Host Country
		Migration
		How Migration Affects Labor Markets
		Should the Sending Country Restrict Emigration?
		Should the Receiving Country Restrict Immigration?
			Effects on the Government Budget
			External Costs and Benefits
			What Policies to Select Immigrants?
			Case Study Are Immigrants a Fiscal Burden?
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
PART THREE UNDERSTANDING FOREIGN EXCHANGE
	16 Payments among Nations
		Accounting Principles
		A Country’s Balance of Payments
			Current Account
			Financial Account
			Official International Reserves
			Statistical Discrepancy
		The Macro Meaning of the Current Account Balance
			Case Study Planet Earth’s Balance of Payments
		The Macro Meaning of the Overall Balance
		The International Investment Position
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	17 The Foreign Exchange Market
		The Basics Of Currency Trading
			Case Study Brussels Sprouts a New Currency: €
			Using the Foreign Exchange Market
			Case Study Foreign Exchange Trading
			Interbank Foreign Exchange Trading
		Demand and Supply for Foreign Exchange
			Floating Exchange Rates
			Fixed Exchange Rates
			Current Arrangements
		Arbitrage within the Spot Exchange Market
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	18 Forward Exchange and International Financial Investment
		Exchange Rate Risk
		The Market Basics of Forward Foreign Exchange
			Hedging Using Forward Foreign Exchange
			Speculating Using Forward Foreign Exchange
			Extension Futures, Options, and Swaps
		International Financial Investment
		International Investment with Cover
			Covered Interest Arbitrage
			Covered Interest Parity
		International Investment without Cover
			Case Study The World’s Greatest Investor
		Does Interest Parity Really Hold? Empirical Evidence
			Evidence on Covered Interest Parity
			Evidence on Uncovered Interest Parity
			Case Study Eurocurrencies: Not (Just) Euros and Not Regulated
			Evidence on Forward Exchange Rates and Expected Future Spot Exchange Rates
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	19 What Determines Exchange Rates?
		A Road Map
		Exchange Rates in the Short Run
			The Role of Interest Rates
			The Role of the Expected Future Spot Exchange Rate
		The Long Run: Purchasing Power Parity (PPP)
			The Law of One Price
			Absolute Purchasing Power Parity
			Case Study Price Gaps and International Income Comparisons
			Relative Purchasing Power Parity
			Relative PPP: Evidence
			Case Study PPP from Time to Time
		The Long Run: The Monetary Approach
			Money, Price Levels, and Inflation
			Money and PPP Combined
			The Effect of Money Supplies on an Exchange Rate
			The Effect of Real Incomes on an Exchange Rate
		Exchange Rate Overshooting
		How Well Can We Predict Exchange Rates?
			Extension Tracking the Exchange Rate Value of a Currency
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	20 Government Policies toward the Foreign Exchange Market
		Two Aspects: Rate Flexibility and Restrictions on Use
		Floating Exchange Rate
		Fixed Exchange Rate
			What to Fix To?
			When to Change the Fixed Rate?
			Defending a Fixed Exchange Rate
		Defense through Official Intervention
			Defending against Depreciation
			Defending against Appreciation
			Temporary Disequilibrium
			Disequilibrium That Is Not Temporary
		Exchange Control
		International Currency Experience
			The Gold Standard Era, 1870–1914 (One Version of Fixed Rates)
			Interwar Instability
			The Bretton Woods Era, 1944–
			(Adjustable Pegged Rates)
			Global Governance The International Monetary Fund
			The Current System: Limited Anarchy
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	21 International Lending and Financial Crises
		Gains And Losses from Well-Behaved International Lending
		Taxes on International Lending
		International Lending to Developing Countries
			The Surge in International Lending, 1974–1982
			The Debt Crisis of 1982
			The Resurgence of Capital Flows in the 1990s
			The Mexican Crisis, 1994–1995
			The Asian Crisis, 1997
			Global Governance Short of Reserves? Call 1-800-IMF-LOAN
			The Russian Crisis, 1998
			The Brazilian Crisis, 1999
			The Turkish Crisis, 2001
			Argentina’s Crisis, 2001–2002
		Financial Crises: What Can and Does Go Wrong
			Waves of Overlending and Overborrowing
			Extension The Special Case of Sovereign Debt
			Exogenous International Shocks
			Exchange Rate Risk
			Fickle International Short-Term Lending
			Global Contagion
		Resolving Financial Crises
			Rescue Packages
			Debt Restructuring
		Reducing the Frequency of Financial Crises
			Global Governance Mighty Joe Meets the Incredible Monetary Force
			Bank Regulation and Supervision
			Capital Controls
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
PART FOUR MACRO POLICIES FOR OPEN ECONOMIES
	22 How Does the Open Macroeconomy Work?
		The Performance of a National Economy
		A Framework for Macroeconomic Analysis
		Domestic Production Depends on Aggregate Demand
		Trade Depends on Income
		Equilibrium GDP and Spending Multipliers
			Equilibrium GDP
			The Spending Multiplier in a Small Open Economy
			Foreign Spillovers and Foreign-Income Repercussions
		A More Complete Framework: Three Markets
			The Domestic Product Market
			The Money Market
			The Foreign Exchange Market (or Balance of Payments)
			Three Markets Together
		The Price Level Does Change
		Trade Also Depends on Price Competitiveness
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	23 Internal and External Balance with Fixed Exchange Rates
		From the Balance of Payments to the Money Supply
		From the Money Supply Back to the Balance of Payments
		Sterilization
		Monetary Policy with Fixed Exchange Rates
		Fiscal Policy with Fixed Exchange Rates
		Perfect Capital Mobility
		Shocks to The Economy
			Internal Shocks
			International Capital-Flow Shocks
			International Trade Shocks
		Imbalances and Policy Responses
			Internal and External Imbalances
			Case Study A Tale of Three Countries
			A Short-Run Solution: Monetary-Fiscal Mix
		Surrender: Changing the Exchange Rate
		How Well Does the Trade Balance Respond to Changes in the Exchange Rate?
			How the Response Could Be Unstable
			Why the Response Is Probably Stable
			Timing: The J Curve
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	24 Floating Exchange Rates and Internal Balance
		Monetary Policy with Floating Exchange Rates
		Fiscal Policy with Floating Exchange Rates
		Shocks to the Economy
			Internal Shocks
			Case Study Why Are U.S. Trade Deficits So Big?
			International Capital-Flow Shocks
			International Trade Shocks
		Internal Imbalance and Policy Responses
		International Macroeconomic Policy Coordination
			Case Study Can Governments Manage the Float?
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
	25 National and Global Choices: Floating Rates and the Alternatives
		Key Issues in the Choice of Exchange Rate Policy
			Effects of Macroeconomic Shocks
			Case Study What Role for Gold?
			The Effectiveness of Government Policies
			Differences in Macroeconomic Goals, Priorities, and Policies
			Controlling Inflation
			Real Effects of Exchange Rate Variability
		National Choices
		Extreme Fixes
			Currency Board
			“Dollarization”
		The International Fix—Monetary Union
			Exchange Rate Mechanism
			European Monetary Union
		Summary
		Key Terms
		Suggested Reading
		Questions and Problems
APPENDIXES A The Web and the Library: International Numbers and Other Information
B Deriving Production-Possibility Curves
C Offer Curves
D The Nationally Optimal Tariff
E Accounting for International Payments
F Many Parities at Once
G Aggregate Demand and Aggregate Supply in the Open Economy
H Devaluation and the Current Account Balance
Suggested Answers—Questions and Problems
References
Index