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International Economics. Edition No. 13

  • Book
  • 720 Pages
  • December 2019
  • Region: Global
  • John Wiley and Sons Ltd
  • ID: 5226486

International Economics, 13th Edition provides students with a comprehensive, up-to-date review of the field’s essential principles and theory. This comprehensive textbook explains the concepts necessary to understand, evaluate, and address the economic problems and issues the nations of the world are currently facing, and are likely to face in the future. Balancing depth and accessibility, the text helps students identify the real-world relevance of the material through extensive practical applications and examples.

The new, thoroughly-updated and expanded edition provides students with a solid knowledgebase in international trade theory and policy, balance of payments, foreign exchange markets and exchange rates, open-economy macroeconomics, and the international monetary system. The text uniquely employs the same graphical and numerical model in chapters that cover the same basic concept, allowing students to recognize the relationship among the different topics without having to start with a new example each time. Clear, straightforward discussions of each key concept and theory are complemented by concrete, accessible, and relatable examples that serve to strengthen student comprehension and retention. Topics include the ‘Great Recession,’ the increase in trade protectionism, excessive volatility and large misalignments of exchange rates, and the impacts of resource scarcity and climate change to continued growth and sustainable development.

Table of Contents

1 Introduction 1

1.1 The Globalization of the World Economy 1

1.2 International Trade and the Nation’s Standard of Living 4

1.3 The International Flow of Goods, Services, Labor, and Capital 8

1.4 International Economic Theories and Policies 12

1.5 Current International Economic Problems and Challenges 14

1.6 Organization and Methodology of the Text 16

Summary 18

Key Terms 19

Questions For Review 19

Problems 19

Appendix 20

A1.1 Basic International Trade Data 20

A1.2 Sources of Additional International Data and Information 24

OC Selected Bibliography

OC INTERNet

Part 1 International Trade Theory

2 The Law of Comparative Advantage 29

2.1 Introduction 29

2.2 The Mercantilists’ Views on Trade 30

2.3 Trade Based on Absolute Advantage: Adam Smith 32

2.4 Trade Based on Comparative Advantage: David Ricardo 33

2.5 Comparative Advantage and Opportunity Costs 38

2.6 The Basis for and the Gains from Trade under Constant Costs 42

2.7 Empirical Tests of the Ricardian Model 44

Summary 47

Key Terms 48

Questions for Review 48

Problems 49

Appendix 50

A2.1 Comparative Advantage with More Than Two Commodities 50

A2.2 Comparative Advantage with More Than Two Nations 52

OC Selected Bibliography

OC INTERNet

3 The Standard Theory of International Trade 53

3.1 Introduction 53

3.2 The Production Frontier with Increasing Costs 53

3.3 Community Indifference Curves 56

3.4 Equilibrium in Isolation 57

3.5 The Basis for and the Gains from Trade with Increasing Costs 60

3.6 Trade Based on Differences in Tastes 67

Summary 68

Key Terms 69

Questions for Review 69

Problems 69

Appendix 70

A3.1 Production Functions, Isoquants, Isocosts, and Equilibrium 71

A3.2 Production Theory with Two Nations, Two Commodities, and Two Factors 72

A3.3 Derivation of the Edgeworth Box Diagram and Production Frontiers 73

A3.4 Some Important Conclusions 76

OC Selected Bibliography

OC INTERNet

4 Demand and Supply, Offer Curves, and the Terms of Trade 77

4.1 Introduction 77

4.2 The Equilibrium-Relative Commodity Price with Trade - Partial Equilibrium Analysis 77

4.3 Offer Curves 80

4.4 The Equilibrium-Relative Commodity Price with Trade - General Equilibrium Analysis 83

4.5 Relationship Between General and Partial Equilibrium Analyses 84

4.6 The Terms of Trade 86

Summary 88

Key Terms 89

Questions for Review 89

Problems 89

Appendix 90

A4.1 Derivation of a Trade Indifference Curve for Nation 1 90

A4.2 Derivation of Nation 1’s Trade Indifference Map 92

A4.3 Formal Derivation of Nation 1’s Offer Curve 92

A4.4 Outline of the Formal Derivation of Nation 2’s Offer Curve 94

A4.5 General Equilibrium of Production, Consumption, and Trade 96

A4.6 Multiple and Unstable Equilibria 96

OC Selected Bibliography

OC INTERNet

5 Factor Endowments and the Heckscher-Ohlin Theory 99

5.1 Introduction 99

5.2 Assumptions of the Theory 100

5.3 Factor Intensity, Factor Abundance, and the Shape of the Production Frontier 101

5.4 Factor Endowments and the Heckscher-Ohlin Theory 107

5.5 Factor-Price Equalization and Income Distribution 112

5.6 Empirical Tests of the Heckscher-Ohlin Model 119

Summary 125

Key Terms 126

Questions for Review 127

Problems 127

Appendix 128

A5.1 The Edgeworth Box Diagram for Nation 1 and Nation 2 129

A5.2 Relative Factor-Price Equalization 130

A5.3 Absolute Factor-Price Equalization 132

A5.4 Effect of Trade on the Short-Run Distribution of Income: The Specific-Factors Model 132

A5.5 Illustration of Factor-Intensity Reversal 134

A5.6 The Elasticity of Substitution and Factor-Intensity Reversal 136

A5.7 Empirical Tests of Factor-Intensity Reversal 137

OC Selected Bibliography

OC INTERNet

6 Economies of Scale, Imperfect Competition, and International Trade 138

6.1 Introduction 138

6.2 The Heckscher-Ohlin Model and New Trade Theories 138

6.3 Economies of Scale and International Trade 140

6.4 Imperfect Competition and International Trade 143

6.5 Trade Based on Dynamic Technological Differences 152

6.6 Costs of Transportation, Environmental Standards, and International Trade 156

Summary 160

Key Terms 161

Questions for Review 161

Problems 162

Appendix 162

A6.1 External Economies and the Pattern of Trade 162

A6.2 Dynamic External Economies and Specialization 164

OC Selected Bibliography

OC INTERNet

7 Economic Growth and International Trade 166

7.1 Introduction 166

7.2 Growth of Factors of Production 167

7.3 Technical Progress 169

7.4 Growth and Trade: The Small-Country Case 172

7.5 Growth and Trade: The Large-Country Case 177

7.6 Growth, Change in Tastes, and Trade in Both Nations 182

Summary 184

Key Terms 185

Questions for Review 185

Problems 186

Appendix 187

A7.1 Formal Proof of the Rybczynski Theorem 187

A7.2 Growth with Factor Immobility 189

A7.3 Graphical Analysis of Hicksian Technical Progress 190

OC Selected Bibliography

OC INTERNet

Part 2 International Trade Policy

8 Trade Restrictions: Tariffs 195

8.1 Introduction 195

8.2 Partial Equilibrium Analysis of a Tariff 197

8.3 The Theory of Tariff Structure 203

8.4 General Equilibrium Analysis of a Tariff in a Small Country 207

8.5 General Equilibrium Analysis of a Tariff in a Large Country 210

8.6 The Optimum Tariff 212

Summary 213

Key Terms 214

Questions for Review 214

Problems 215

Appendix 216

A8.1 Partial Equilibrium Effects of a Tariff in a Large Nation 216

A8.2 Derivation of the Formula for the Rate of Effective Protection 218

A8.3 The Stolper-Samuelson Theorem Graphically 219

A8.4 Exception to the Stolper-Samuelson Theorem - The Metzler Paradox 221

A8.5 Short-Run Effect of a Tariff on Factors’ Income 222

A8.6 Measurement of the Optimum Tariff 224

OC Selected Bibliography

OC INTERNet

9 Nontariff Trade Barriers and the New Protectionism 226

9.1 Introduction 226

9.2 Import Quotas 226

9.3 Other Nontariff Barriers and the New Protectionism 229

9.4 The Political Economy of Protectionism 238

9.5 Strategic Trade and Industrial Policies 242

9.6 History of U.S. Commercial Policy 246

9.7 The Uruguay Round, the Failed Doha Round, and the Outstanding Trade Problems 250

Summary 255

Key Terms 256

Questions for Review 257

Problems 257

Appendix 258

A9.1 Centralized Cartels 258

A9.2 International Price Discrimination 259

A9.3 Tariffs, Subsidies, and Domestic Goals 260

OC Selected Bibliography

OC INTERNet

10 Economic Integration: Customs Unions and Free Trade Areas 262

10.1 Introduction 262

10.2 Trade-Creating Customs Union 263

10.3 Trade-Diverting Customs Unions 264

10.4 The Theory of the Second Best and Other Static Welfare Effects of Customs Unions 266

10.5 Dynamic Benefits from Customs Unions 268

10.6 History of Attempts at Economic Integration 269

Summary 280

Key Terms 281

Questions for Review 281

Problems 281

Appendix 282

A10.1 General Equilibrium Analysis of the Static Effects of a Trade-Diverting Customs Union 282

A10.2 Regional Trade Agreements and Other Groups Around the World in June 2018 284

OC Selected Bibliography

OC INTERNet

11 International Trade and Economic Development 289

11.1 Introduction 289

11.2 The Importance of Trade to Development 290

11.3 The Terms of Trade and Economic Development 295

11.4 Export Instability and Economic Development 300

11.5 Import Substitution versus Export Orientation 303

11.6 Current Problems Facing Developing Countries 307

Summary 313

Key Terms 313

Questions for Review 314

Problems 314

Appendix 315

A11.1 Income Inequalities by Traditional and Purchasing-Power Parity (PPP) Measures 315

A11.2 The World by Income 316

OC Selected Bibliography

OC INTERNet

12 International Resource Movements and Multinational Corporations 319

12.1 Introduction 319

12.2 Some Data on International Capital Flows 320

12.3 Motives for International Capital Flows 323

12.4 Welfare Effects of International Capital Flows 326

12.5 Multinational Corporations 329

12.6 Motives for and Welfare Effects of International Labor Migration 334

Summary 338

Key Terms 339

Questions for Review 339

Problems 339

Appendix 340

A12.1 The Transfer Problem 340

A12.2 International Trade, Financial and Aid Flows, and Migration 341

OC Selected Bibliography

OC INTERNet

Part 3 The Balance of Payments, Foreign Exchange Markets, and Exchange Rates

13 Balance of Payments 347

13.1 Introduction 347

13.2 Balance of Payments Accounting 348

13.3 The International Transactions of the United States 350

13.4 Accounting Balances and the U.S. Balance of Payments 353

13.5 The Postwar Balance of Payments of the United States 353

13.6 The Importance of the Current Account 356

13.7 The International Investment Position of the United States 357

Summary 360

Key Terms 361

Questions for Review 361

Problems 362

Appendix 362

A13.1 The IMF Method of Reporting International Transactions 362

OC Selected Bibliography

OC INTERNet

14 Foreign Exchange Markets and Exchange Rates 366

14.1 Introduction 366

14.2 Functions of the Foreign Exchange Markets 366

14.3 Foreign Exchange Rates 370

14.4 Spot and Forward Rates, Currency Swaps, Futures, and Options 376

14.5 Foreign Exchange Risks, Hedging, and Speculation 379

14.6 Interest Arbitrage and the Efficiency of Foreign Exchange Markets 385

14.7 Eurocurrency or Offshore Financial Markets 392

Summary 396

Key Terms 397

Questions for Review 398

Problems 398

Appendix 399

A14.1 Derivation of the Formula for the Covered Interest Arbitrage Margin 399

OC Selected Bibliography

OC INTERNet

15 Exchange Rate Determination 401

15.1 Introduction 401

15.2 Purchasing-Power Parity Theory 402

15.3 Monetary Approach to the Balance of Payments and Exchange Rates 407

15.4 Portfolio Balance Model and Exchange Rates 416

15.5 Exchange Rate Dynamics 421

15.6 Empirical Tests of the Monetary and Portfolio Balance Models and Exchange Rate Forecasting 425

Summary 428

Key Terms 429

Questions for Review 429

Problems 429

Appendix 431

A15.1 Formal Monetary Approach Model 431

A15.2 Formal Portfolio Balance Model and Exchange Rates 433

OC Selected Bibliography

OC INTERNet

Part 4 Open-Economy Macroeconomics and the International Monetary System

16 The Price Adjustment Mechanism with Flexible and Fixed Exchange Rates 437

16.1 Introduction 437

16.2 Adjustment with Flexible Exchange Rates 438

16.3 Effect of Exchange Rate Changes on Domestic Prices and the Terms of Trade 441

16.4 Stability of Foreign Exchange Markets 443

16.5 Elasticities in the Real World 445

16.6 Adjustment under the Gold Standard 454

Summary 456

Key Terms 457

Questions for Review 457

Problems 458

Appendix 458

A16.1 The Effect of Exchange Rate Changes on Domestic Prices 458

A16.2 Derivation of the Marshall-Lerner Condition 460

A16.3 Derivation of the Gold Points and Gold Flows Under the Gold Standard 462

OC Selected Bibliography

OC INTERNet

17 The Income Adjustment Mechanism and Synthesis of Automatic Adjustments 464

17.1 Introduction 464

17.2 Income Determination in a Closed Economy 465

17.3 Income Determination in a Small Open Economy 468

17.4 Foreign Repercussions 476

17.5 Absorption Approach 479

17.6 Monetary Adjustments and Synthesis of the Automatic Adjustments 481

Summary 484

Key Terms 485

Questions for Review 485

Problems 486

Appendix 487

A17.1 Derivation of Foreign Trade Multipliers with Foreign Repercussions 487

A17.2 The Transfer Problem Once Again 489

OC Selected Bibliography

OC INTERNet

18 Open-Economy Macroeconomics: Adjustment Policies 491

18.1 Introduction 491

18.2 Internal and External Balance with Expenditure-Changing and Expenditure-Switching Policies 494

18.3 Equilibrium in the Goods Market, in the Money Market, and in the Balance of Payments 496

18.4 Fiscal and Monetary Policies for Internal and External Balance with Fixed Exchange Rates 498

18.5 The IS-LM-BP Model with Flexible Exchange Rates 506

18.6 Policy Mix and Price Changes 510

18.7 Direct Controls 516

Summary 519

Key Terms 520

Questions for Review 520

Problems 521

Appendix 522

A18.1 Derivation of the IS Curve 522

A18.2 Derivation of the LM Curve 524

A18.3 Derivation of the BP Curve 525

A18.4 Mathematical Summary 527

OC Selected Bibliography

OC INTERNet

19 Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply 528

19.1 Introduction 528

19.2 Aggregate Demand, Aggregate Supply, and Equilibrium in a Closed Economy 528

19.3 Aggregate Demand in an Open Economy Under Fixed and Flexible Exchange Rates 534

19.4 Effect of Economic Shocks and Macroeconomic Policies on Aggregate Demand in Open Economies with Flexible Prices 536

19.5 Effect of Fiscal and Monetary Policies in Open Economies with Flexible Prices 539

19.6 Macroeconomic Policies to Stimulate Growth and Adjust to Supply Shocks 544

Summary 549

Key Terms 550

Questions for Review 550

Problems 551

OC Selected Bibliography

OC INTERNet

20 Flexible Versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination 552

20.1 Introduction 552

20.2 The Case for Flexible Exchange Rates 553

20.3 The Case for Fixed Exchange Rates 555

20.4 Optimum Currency Areas, the European Monetary System, and the European Monetary Union 562

20.5 Currency Boards Arrangements and Dollarization 571

20.6 Exchange Rate Bands, Adjustable Pegs, Crawling Pegs, and Managed Floating 573

20.7 International Macroeconomic Policy Coordination 578

Summary 580

Key Terms 581

Questions for Review 581

Problems 581

Appendix 582

A20.1 Exchange Rate Arrangements 582

OC Selected Bibliography

OC INTERNet

21 The International Monetary System: Past, Present, and Future 586

21.1 Introduction 586

21.2 The Gold Standard and the Interwar Experience 587

21.3 The Bretton Woods System 590

21.4 Operation and Evolution of the Bretton Woods System 592

21.5 U.S. Balance-of-Payments Deficits and Collapse of the Bretton Woods System 596

21.6 The International Monetary System: Present and Future 599

Summary 615

Key Terms 616

Questions for Review 617

Problems 617

Appendix 618

A21.1 International Reserves: 1950-2018 618

OC Selected Bibliography

OC INTERNet

Glossary of Key Terms G-1

Name Index I-1

Subject Index I-5

Authors

Dominick Salvatore Fordham University.