International Economics: An Introduction to Theory and Policy

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Contents
Part I Basis and Gains from Inter-industry Trade
	1 Basis of Inter-industry Trade
		1.1 Arbitrage and Inter-industry Trade
		1.2 Comparative Advantage
			1.2.1 Public Policy and Induced Comparative Advantage:Fundamental Sources
			1.2.2 Selective Factor Disadvantage, Innovations, and ShiftingComparative Advantage
			1.2.3 Comparative Advantage in vertical stages of production:Global Value Chain
		1.3 Digital and Virtual Trade
		1.4 Advanced Topic: Revealed Comparative Advantage
	2 Gains from Trade
		2.1 Trade, Gains, and Redistribution
		2.2 Resource Reallocation and Gains from Trade
		2.3 Decomposition of GFT: Specialization and Exchange Gains
			2.3.1 Substitution Possibility in Consumption and the Exchange Gain
			2.3.2 Substitution Possibility in Production and Specialization Gain
		2.4 Sufficient Conditions for GFT
		2.5 Pollution: A Trade-Off between GFT and Environmental Degradation
		2.6 Increasing Returns to Scale (IRS) and GFT
			2.6.1 Case I: GFT under Weak IRS and Violation of Tangency Condition
			2.6.2 Case II: GFT under Strong IRS and Non-convexity
			Appendix A2
			I. Returns to Scale and Convexity of the Production Set
	3 Test of Comparative Advantage andMeasuring GFT
		3.1 Measuring the Welfare Change: Compensating and Equivalent Variations
		3.2 GFT by CV Measure
		3.3 Equivalent Variation and GFT
		3.4 A Test of Comparative Advantage: The Case of Japan
	4 International Equilibrium and theTerms of Trade
		4.1 Offer Curve of the Home Country
		4.2 Backward Bending Offer Curve
		4.3 Offer Curve under Constant Opportunity Cost
		4.4 Foreign Offer Curve and the International Equilibrium
		4.5 Welfare Properties of the International Equilibrium
			4.5.1 Gains from trade revisited
			4.5.2 Global Pareto optimality of free trade bundle
			Appendix A4
			I. Geometric Measurement of the Import Demand Elasticity alongOffer Curve
			II. Existence, Uniqueness, and Stability of International Equilibrium
			III. Trade Indifference Curves and Alternative Derivation of Offer Curves
			IV. Measurement and Trends in Barter TOT
Part II Theories of Comparative Advantage andPattern of Trade
	Chapter 5 Technology and Trade
		5.1 Constant Opportunity Cost, Technology, and Trade
		5.2 Role of Relative Size of Trading Nations and Distribution of GFT
		5.3 Advanced Topics
			5.3.1 Many Commodity Extension
			5.3.2 World Production Possibility Frontier and Many Countries Extension
			5.3.3 Technology for Sale
		5.4 International Trade and Technology Choice
	Chapter 6 Factor Endowment and Trade
		6.1 Assumptions and the Structure of the HOS Model
		6.2 Autarchic Equilibrium and the Pattern of Trade
		6.3 Two Properties of the Model: Output and Price Magnification Effects
			6.3.1 Endowment Shock and Output Changes
			6.3.2 Price Magnification Effect
		6.4 Factor Prices at the Post-trade Equilibrium
			Appendix A6
			I. Full Employment Output Levels and Conditions forIncomplete Specialization
			II. Price Magnification Effect
			III. Algebraic Derivation of the Relative Supply Curve
			IV. Output Magnification Effect or the Rybczynski Theorem
			V. A Fixed Coefficient HOS Model
	Chapter 7 Digressions on Factor Endowment Theory and Trade Empirics
		7.1 Empirical Tests of the HO Theorem: Leontief Paradox
		7.2 Factor Content and the HOV Theorem
		7.3 Price Magnification Effect and FPE Revisited
			7.3.1 Factor Immobility and Specific Factors
			7.3.2 Non-traded Goods
			7.3.3 Advanced Topic: FPE in Higher Dimensions
	7.4 Advanced Topic: Evidence on Within Country Wage Movements and theWage Gap Debate
		Appendix A7
		I. Price Magnification Effect in the SF Model
		II. Growth in Labour Force and Relative Supply
Part III Basis and Gains from Intra-industry Trade
	Chapter 8 Theories of Intra-industry Trade
		8.1 IIT in Identical Products
		8.2 IIT in Horizontally Differentiated Products
			8.2.1 Love for Variety Approach, Monopolistic Competition, and IIT
			8.2.2 Characteristic Approach
		8.3 Product Development and IIT in Vertically Differentiated Products
		8.4 Firm Heterogeneity and Export Decision
		8.5 Advanced Topic: Intra-industry Trade Indices
			8.5.1 The Grubel–Lloyd (GL) Index of Intra-industry Trade
			8.5.2 Other Measures and Refinements of the GL Index ofIntra-industry Trade
			Appendix A8
			I. Algebra of Brander (1981) Model with Transport Cost: LinearMarket Example
			II. Monopolistic Competition and IIT in Differentiated Goods:Krugman (1979)
Part IV Trade Intervention and Coordination
	Chapter 9 Import Tariff and Export Subsidies
		9.1 Economic Effects of an Import Tariff: A Partial Equilibrium Analysis
		9.2 Revenue Motive and Revenue Maximizing Tariff
		9.3 General Equilibrium Analysis: TOT and Volume of Trade (VOT) Effects
			9.3.1 Change in Output, Consumption, and Volume of Trade for aSmall Economy
			9.3.2 TOT Effect, Welfare Change, and the Optimum Tariff for aLarge Country
			9.3.3 Tariff Retaliation and Trade War among Countries
		9.4 Tariffs and Protection of Domestic Industries
			9.4.1 Infant Industry Argument for Protection
			9.4.2 Imported Input and Effective Rate of Protection
			9.4.3 Tariff Protection in a Large Country: The Metzler Paradox
		9.5 Tariff and Income Distribution
		9.6 Export Subsidy, TOT Deterioration, and Welfare Loss
			Appendix A9
			I. Import Demand Elasticity and Its Decomposition
			II. Change in Real Income and the Optimum Tariff
			III. Revenue Maximizing and Optimum Tariffs
			IV. Welfare Reaction Curves
			V. Lerner’s Symmetry Result
			VI. Lerner’s Case: Government Spending and TOT Deterioration
			VII. Symmetry of Lerner’s Case and the Metzler Paradox
	Chapter 10 Quantitative Restrictions, Non-tariff Barriers, and Equivalence
		10.1 Import Quota, Implicit Tariff, and Scarcity Rent
		10.2 Voluntary Export Restraints
		10.3 Other Non-tariff Barriers
	Chapter 11 Market Imperfection and Trade Policy
		11.1 Competitive World Production and Domestic Monopoly
		11.2 Protection of a Domestic Monopoly
			11.2.1 Competitive Foreign Supply: Non-equivalence of Tariff and Quota
			11.2.2 Monopoly Foreign Supplier and Strategic Competition
		11.3 International Price Discrimination and Dumping
		11.4 International Market Share Rivalry and Strategic Trade Policy
			11.4.1 Export Subsidies and Market Share Rivalry
			11.4.2 Tariff as an Export Promotion Strategy
		11.5 Advanced Topic: Monopoly, Pareto Sub-Optimality, and GFT
			Appendix A11
				I. Decomposition of the Change in Real Income in aNon-competitive Economy
	Chapter 12 Political Economy of Trade Policy
		12.1 DUP Lobbying Activities
		12.2 Political Economy of Trade Policy Choice
		12.2.1 Democracy, Political Risk, and Political Support Approach
		12.2.2 Lobbying and Contribution Approaches
			Appendix A12
			I. Comparison of Profits Under Import Quota and Import Tariff
	Chapter 13 Market Failure, Distortions, and Trade Policy
		13.1 Taxonomy of Distortions
			13.1.1 Types of Distortions
			13.1.2 Causes of Distortions
		13.2 Optimal Intervention
			13.2.1 Tariff or Quota as Optimal Policy Intervention for Foreign Distortion
			13.2.2 Optimal Policy Intervention for Production Distortion
			13.2.3 Optimal Policy Intervention for Consumption Distortion
				Appendix A13
				I. Product Distortion under Wage Differential
	Chapter 14 Multilateralism and Regionalism
		14.1 Typology of Regional Trading Agreements (RTAs) andEconomic Cooperation
			14.1.1 Different Stages of Regional Economic Cooperation
			14.1.2 Evolution of the European Union through Successive Stagesof Cooperation
			14.1.3 Open and Unanimous Regionalism
			14.1.4 Scope and Coverage of RTAs
		14.2 Bilateralism and Regionalism: Old and the Contemporary
			14.2.1 Pre–World War I Bilateralism and Regionalism
			14.2.2 Post–World War and Contemporary Regionalism
		14.3 Regional Trading Agreements: Trends, Causes, and Effects
			14.3.1 Growth, Composition, and Distribution of RTAs
			14.3.2 Economic Effects and Gains from Regionalism
			14.3.3 Why are RTAs Formed?
	14.4 Multilateralism in the Post-WTO Era and Global Free Tra
		14.4.1 From Regionalism to Multilateralism?
Part V Input Trade, Services, and Growth
	Chapter 15 Trade, Growth, and Inclusion
		15.1 International Trade and Growth
			15.1.1 Trade as an Engine of Growth
			15.1.2 Trade as Vent for Surplus
			15.1.3 Trade, Redistribution, and Growth
			15.1.4 Trade, Variety, and Growth
			15.1.5 Import-led Growth (ILG)
			15.1.6 Country Experiences
		15.2 Growth, TOT, and Welfare
			15.2.1 Secular Deterioration in TOT for a Primary Good Exporter
			15.2.2 Immiserizing Growth
		15.3 Trade, Growth, and Inclusion
			Appendix A15
			I. Diversification of the Export Basket
			II. Composition of the Export Basket: Manufacturing andHigh-Technology Exports
	Chapter 16 Foreign Capital Inflow, Multinationals, and Migration
		16.1 Factor Flows and the Goods Price Equalization (GPE) Theorem
		16.2 Foreign Capital Inflow: Causes and Consequences
			16.2.1 Growth, Welfare, and Distributional Consequences of ForeignCapital Inflow
			16.2.2 Foreign Capital Inflow and Aggregate Employment in the Host Country
		16.3 Foreign Direct Investment and Multinational Corporations (MNCs)
			16.3.1 Tariff Jumping Theory
			16.3.2 Fragmentation and Economies of Scale
			16.3.3 Fragmentation, Vertical Specialization and Global Value Chain
			16.3.4 Government Policies in Developing Countries: Export ProcessingZones (EPZs)
		16.4 Asymmetry between Labour Migration and Capital Flow
	Chapter 17 Services Trade
		17.1 Conceptual Issues
		17.2 Services Trade: Types and Trends
		17.3 Determinants of Services Trade
		17.4 Services Trade, Welfare Gains, and Growth
			17.4.1 Welfare Gains and Income Distribution
			17.4.2 Services Export-Led Growth
Part VI Standards, Regulations, and MultilateralTrade Agreements
	Chapter 18 Product Standards, Regulations, and Trade
		18.1 Quality Standards, Trade, and Employmen
		18.2 Labour Standards and Trade Sanctions
		18.3 Environmental Standards, Trade, and FDI
			18.3.1 Standards, Comparative Advantage, and Unfair Trade
			18.3.2 Trade, Income Gains, and Demand for Higher Standards
			18.3.3 Capital Flight, Pollution Havens, and Migration of Dirty Industries
		Chapter 19 World Trade Organization and Trade Agreements
			19.1 Structure and Functions of the WTO
				19.1.1 Structure of the WTO
				19.1.2 Functions of the WTO
		19.2 Decision Making
		19.3 WTO Rules and Principles of Trade Policy
		19.4 WTO Agreements
			19.4.1 Multilateral Agreements on Trade in Goods
			19.4.2 Agreement on Trade Related Intellectual Property Rights (TRIPS)
			19.4.3 Plurilateral Trade Agreements: Agreement on GovernmentProcurement (GPA)
			Appendix A19
			I. Tariff Reductions and Market Access for Non-agriculturalProducts (NAMA)
Part VII Theory of Balance of Payments and OpenEconomy Macroeconomics
	Chapter 20 Balance of Payments and National Income Accounting
		20.1 Classification of Transactions and Sub-accounts
		20.2 BOP Accounting: An Example
		20.3 Autonomous and Accommodating Transactions and BOP Equilibrium
		20.4 Basic Identities in BOP and National Income Accounting
	Chapter 21 National Income and Current Account Balance:The Income Approach
		21.1 Effective Demand, National Income, and Trade Balance: Income Approach
		21.2 Expenditure and Foreign Trade Multipliers Without the InternationalTransmission Effect
			21.2.1 Foreign Trade Multipliers
			21.2.2 Expenditure Multipliers
		21.3 International Transmission Mechanism
		21.4 Transfers and Trade Balance: The Transfer Problem
			21.4.1 The Classical Case
			21.4.2 Under-Effected Transfer in a Keynesian World
			Appendix A21
			I. Foreign Trade and Expenditure Multipliers withoutTransmission Mechanism
			II. Expenditure Multiplier with Transmission Mechanism
			III. Transfer, TOT, and Real Income of the Donor
			IV. Under-Effected Transfer in an Effective-Demand Model
	Chapter 22 International Currency Systems and Exchange Rate Regimes
		22.1 The International Monetary System
			22.1.1 Gold Standard
			22.1.2 Bretton Woods and Thereafter
			22.1.3 Different Currency and Exchange Rate Regimes in the Post-BrettonWoods Era
		22.2 Exchange Rate under a Clean Float
		22.3 Interventions in the Foreign Exchange Market
			22.3.1 A Dirty or Managed Float
			22.3.2 Over-Valued Pegged Exchange Rate Regime
			22.3.3 Exchange Control and Black Market for Foreign Exchange
			22.3.4 BOP Crisis under Over-Valued Pegged Exchange Rate Regime
			22.3.5 Target Zone
		22.4 India’s BOP Crisis and Its Exchange Rate Policies
			Appendix A22
			I. Existence, Uniqueness, and Stability in the Foreign Exchange Marketunder Clean Float
			II. The Optimal Under-Invoicing of Exports
			III. Allocation of Expenditure and Black Market Dollar Demand
	Chapter 23 BOP Adjustment Policies in a Pegged Exchange Rate Regime
		23.1 Two Types of Adjustment Policies
			23.1.1 Expenditure Reducing Policies: Absorption Approach
			23.1.2 Expenditure Switching Policy: Elasticity Approach
		23.2 Synthesis Approach
			23.2.1 Expenditure Reducing Policy
			23.2.2 Expenditure Switching Policies
		23.3 Internal and External Balance and the Policy Conflict
		23.4 Advanced Topics on Devaluation
			23.4.1 The Laursen–Metzler Effect
			23.4.2 Non-traded Good, Real Exchange Rate, and Devaluation
			Appendix A23
			I. Elasticity Approach
			II. Synthesis Approach: Slopes of YiYi and TBi = 0 Curves
			III. Devaluation and Trade Balance
			IV. Tariff, National Income, and Trade Balance
			V. Devaluation and the Real Exchange Rate
	Chapter 24 Money, Price, and Exchange Rate
		24.1 The Monetarist Approach to BOP
			24.1.1 Hume’s Price-Specie Flow Mechanism
			24.1.2 Building Blocks of the Monetarist Model
			24.1.3 Monetary Adjustment under Fixed Exchange Rate
			24.1.4 Monetary Adjustment under Flexible Exchange Rate
		24.2 Monetary Adjustment under Keynesian Assumption
			24.2.1 Mundell’s Income-Specie Flow Mechanism
			24.2.2 Capital Mobility and Stabilization Policies under PeggedExchange Rate
			24.2.3 Capital Mobility and Stabilization Policies under Clean Float
		24.3 Asset Market, Portfolio Choice, and the Exchange Rate
		24.4 Purchasing Power Parity and the Exchange Rate
			24.4.1 Wage-Price Flexibility and the Long-Run Exchange Rate
			24.4.2 The Purchasing Power Parity Puzzle
			24.4.3 Exchange Rate Pass-Through
			Appendix A24
			I. Price Changes in Monetarist Model under Flexible Exchange Rate
			II. Mundell–Fleming Model under Flexible Exchange Rate: Shift of theIS Curve and the B = 0 Locu
	Chapter 25 Financial Crises in the Developing World
		25.1 Latin American Debt Crisis of the 1980s
			25.1.1 Austerity measures and management of the Debt Crisis
		25.2 Financial Crisis in Asia in late 1990s
			25.2.1 Nature, Dimension and Cause of the crisis
			25.2.2 Measures to manage the crisis
		25.3 Current Scenario: Another Debt Crisis on the card?
	Chapter 26 Currency Regimes Revisited
		26.1 Policy Targets and Choice of Exchange Rate Regime
			26.1.1 Targeting BOP Equilibrium
			26.1.2 Insulating the Domestic Economy: Inflation and Output
			26.1.3 Uncertainty and Destabilizing Speculative Activity
			26.1.4 Internal Balance and Effectiveness of Domestic Stabilizing Policies
			26.1.5 Autonomy of Domestic Monetary Policy
		26.2 Capital Flows, Money Supply, and Exchange Rate: The Impossible Trinity
		26.3 Optimum Currency Area
	Glossary of International Agencies
	Index
	About the Author