International Economics

Cover
Title Page
Copyright Page
Dedication
About the Author
Preface
Acknowledgments
Brief Contents
Contents
Chapter 1 International Economics Is Different
	Four Controversies
		The Trade War of 2018
		Immigration
		Brexit
		China’s Exchange Rate
	Economics and the Nation-State
		Factor Mobility
		Different Fiscal Policies
		Different Moneys
Chapter 2 The Basic Theory Using Demand and Supply
	Four Questions about Trade
	Demand and Supply
		Demand
		Consumer Surplus
		Case Study Trade Is Important
		Global Crisis The Trade Mini-Collapse of 2009
		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?
	Summary: Early Answers to the Four Trade Questions
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 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
Chapter 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
Chapter 5 Who Gains and Who Loses from Trade?
	Who Gains and Who Loses within a Country
		Short-Run Effects of Opening Trade
		The 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?
		Case Study The Leontief Paradox
		Factor Endowments
		International Trade
	What Are the Export-Oriented and Import-Competing Factors?
		The U.S. Pattern
		Focus on China China’s Exports and Imports
		The Canadian Pattern
		Patterns in Other Countries
		Focus on Labor U.S. Jobs and Foreign Trade
	Do Factor Prices Equalize Internationally?
		Summary: Fuller Answers to the Four Trade Questions
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 6 Scale Economies, Imperfect Competition, and Trade
	Scale Economies
		Internal Scale Economies
		External Scale Economies
	Intra-Industry Trade
		How Important Is Intra-Industry Trade?
		What Explains Intra-Industry Trade?
	Monopolistic Competition and Trade
		The Market with No Trade
		Opening to Free Trade
		Basis for Trade
		Extension The Individual Firm in Monopolistic Competition
		Gains from Trade
	Oligopoly and 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
Chapter 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
		Openness to Trade Affects Growth
		Focus on Labor Trade, Technology, and U.S. Wages
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 8 Analysis of a Tariff
	A Preview of Conclusions
	The Effect of a Tariff on Domestic Producers
		Global Governance WTO and GATT: Tariff Success
	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
		Case Study They Tax Exports, Too
	The Terms-of-Trade Effect and a Nationally Optimal Tariff
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 9 Nontariff Barriers to Imports
	Types of Nontariff Barriers to Imports
	The Import Quota
		Quota versus Tariff for a Small Country
		Ways to Allocate Import Licenses
		Global Governance The WTO: Beyond Tariffs
		Global Crisis Dodging Protectionism
		Extension A Domestic Monopoly Prefers a Quota
		Quota versus Tariff for a Large Country
	Voluntary Export Restraints
		Case Study VERs: Two Examples
	Other Nontariff Barriers
		Product Standards
		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
		As the Extra Cost of Helping Domestic Producers
	International Trade Disputes
		America’s “Section 301”: Unilateral Pressure
		Dispute Settlement in the WTO
		Focus on China China in the WTO
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 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?
		Applications to Other Trade-Policy Patterns
		Case Study How Sweet It Is (or Isn’t)
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 11 Pushing Exports
	Dumping
	Reacting to Dumping: What Should a Dumpee Think?
	Actual Antidumping Policies: What Is Unfair?
	Proposals for Reform
		Case Study Antidumping in Action
	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
Chapter 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
		Renegotiation
	Trade Blocs among Developing Countries
	Trade Embargoes
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 13 Trade and the Environment
	Is Free Trade Anti-Environment?
	Is the WTO Anti-Environment?
	The Specificity Rule Again
		Global Governance Dolphins, Turtles, and the WTO
	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
Chapter 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
		Oil Prices since 1999
		Other Primary Products
	Import-Substituting Industrialization
		ISI at Its Best
		Experience with ISI
	Exports of Manufactures to Industrial Countries
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 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
Chapter 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
	The Macro Meaning of the Overall Balance
	The International Investment Position
		Euro Crisis International Indicators Lead the Crisis
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 17 The Foreign Exchange Market
	The Basics of Currency Trading
		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
Chapter 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
		Case Study Eurocurrencies: Not (Just) Euros and Not Regulated
		Evidence on Uncovered Interest Parity
		Evidence on Forward Exchange Rates and Expected Future Spot Exchange Rates
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 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
		Relative Purchasing Power Parity
		Case Study PPP from Time to Time
		Relative PPP: Evidence
		Case Study Price Gaps and International Income Comparisons
	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?
	Four Ways to Measure the Exchange Rate
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 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, 1944–1971 (Adjustable Pegged Rates)
		Global Governance The International Monetary Fund
		The Current System: Limited Anarchy
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 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
		The Russian Crisis, 1998
		Argentina’s Crisis, 2001–2002
		Global Governance Short of Reserves? Call 800-IMF-LOAN
	Financial Crises: What Can and Does Go Wrong
		Waves of Overlending and Overborrowing
		Exogenous International Shocks
		Exchange-Rate Risk
		Fickle International Short-Term Lending
		Extension The Special Case of Sovereign Debt
		Global Contagion
	Resolving Financial Crises
		Rescue Packages
		Debt Restructuring
	Reducing the Frequency of Financial Crises
		Bank Regulation and Supervision
		Capital Controls
	Global Financial and Economic Crisis
		How the Crisis Happened
		Causes and Amplifiers
		Euro Crisis National Crises, Contagion, and Resolution
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 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
Chapter 23 Internal and External Balance with Fixed Exchange Rates
	From the Balance of Payments to the Money Supply
		The Central Bank’s Balance Sheet and the Money Supply
		Official Foreign Exchange Intervention
	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
		A Short-Run Solution: Monetary–Fiscal Mix
	Surrender: Changing the Exchange Rate
		Case Study A Tale of Three Countries
	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
Chapter 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
		International Capital-Flow Shocks
		Case Study Why Are U.S. Trade Deficits So Big?
		International Trade Shocks
	Internal Imbalance and Policy Responses
		Global Crisis Liquidity Trap!
	International Macroeconomic Policy Coordination
		Case Study Can Governments Manage the Float?
		Global Crisis Central Bank Liquidity Swaps
	Summary
	Key Terms
	Suggested Reading
	Questions and Problems
Chapter 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 to Odd-Numbered Questions and Problems
References
Index