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International Economics

by: Kreinin, Mordechai E.

International Economics

by: Kreinin, Mordechai E.

ISBN 13:
9780558588830
ISBN 10:
0558588832
Edition: 1st
Format: Paperback
Copyright: 04/28/2010
Publisher: Pearson Learning Solutions
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International Economics > ISBN13: 9780558588830

Summary

International Economics: A Policy Approachprovides a simplified yet comprehensive analysis of international economic relations, with the objective of extracting maximum policy insight from a minimum number of theoretical constructs. Written for students with only one or two previous courses in the principles of economics, it is designed primarily as a basic text for a one- or two-term undergraduate sequence in international economics. However, the material is also arranged so that the theoretical sections may be omitted and the main text used as supplementary reading in policy-oriented non-economics courses, such as international relations or business administration. As domestic and global economies become ever more closely intertwined, world markets are an increasingly appropriate focus of study.International Economics: A Policy Approachgives students the conceptual tools they need to understand global economic relations.

CHAPTER 1 WORLD TRADE AND THE NATIONAL ECONOMY 1

DEFINITION 1

WHAT IS UNIQUE ABOUT INTERNATIONAL ECONOMICS? 1

INTERNATIONAL TRANSACTIONS–AN EMPIRICAL GLIMPSE 4

FOREIGN TRADE IN THE NATIONAL ECONOMY 6

Aggregate Measures 6

Disaggregation 7

Qualitative Considerations 9

Summary 9

FORUMS FOR TRADE AND MONETARY ISSUES 10

Summary 11

Important Concepts 11

Review Questions 11

ORGANIZATION OF THIS BOOK 12

PART I INTERNATIONAL TRADE RELATIONS 14

INTRODUCTION 15

Review Question 16

CHAPTER 2 WHY NATIONS TRADE 17

THE PRINCIPLE OF COMPARATIVE ADVANTAGE 17

The Gains from Trade 17

Demand Considerations 21

COMPARATIVE OPPORTUNITY COST 24

Who Exports What? 24

The Limits to Mutually Beneficial Exchange 26

Examples from U.S. Trade 29

ABSOLUTE ADVANTAGE AND WAGE RATES 30

SUMMARY OF POLICY IMPLICATIONS 32

DYNAMIC GAINS FROM INTERNATIONAL TRADE 33

Summary 36

Important Concepts 36

Review Questions 37

APPENDIX 2—1 39

More Advanced Analysis of the

Static Gains from Trade 39

CHAPTER 3 THE COMMODITY COMPOSITION OF TRADE 49

THE FACTOR PROPORTIONS THEORY 49

Empirical Testing 54

ALTERNATIVE THEORIES 56

AN EMERGING CONSENSUS? 61

ECONOMIC ADJUSTMENT TO CHANGING

CIRCUMSTANCES 62

Summary 65

Important Concepts 65

Review Questions 66

APPENDIX 3—1 67

Formal Presentation of the Ricardian Model–

The Case of a One-Factor Economy 67

APPENDIX 3—2 71

The Factor Proportions Theory 71

APPENDIX 3—3 74

The Mobile Factor in a Sector-Specific Model 74

CHAPTER 4 PROTECTION OF DOMESTIC INDUSTRIES:

THE TARIFF 76

SOME INSTITUTIONAL CONSIDERATIONS 76

Export versus Import Duty 76

Protection versus Revenue 77

Types of Tariff 77

ECONOMIC EFFECTS OF THE TARIFF 79

Who Pays the Tariff? 79

Graphic Exposition 80

Domestic Effects 83

Effect on Real Income 87

Other Effects 89

Some Empirical Estimates 89

HOW PROTECTIVE IS THE TARIFF? 91

Ad Valorem and Specific Duty 91

Nominal versus Effective Tariff Rates 91

Aggregation Problems 97

ARGUMENTS FOR PROTECTION 98

APPROACHES TO FREE TRADE 102

The International Approach 103

The Regional Approach 103

Summary 108

Important Concepts 109

Review Questions 110

APPENDIX 4—1 112

Effect of the Tariff in the Large Country Case 112

APPENDIX 4—2 115

Economic Cost of the Tariff 115

APPENDIX 4—3 116

Static Effects of a Customs Union on

World’s Welfare 116

CHAPTER 5 NONTARIFF BARRIERS (NTBS) TO TRADE 119

IMPORT QUOTAS 119

How Common Are Import Quotas 119

Economic Effects of Quotas 120

VOLUNTARY EXPORT RESTRAINTS 125

INTERNATIONAL COMMODITY AGREEMENTS 127

INTERNATIONAL CARTELS 130

LOCAL CONTENT REQUIREMENT 131

BORDER TAX ADJUSTMENTS 131

DUMPING 133

EXPORT SUBSIDIES 136

NTBS VERSUS TARIFFS 138

STRATEGIC TRADE POLICY? 139

Summary 141

Important Concepts 143

Review Questions 144

APPENDIX 5—1 145

A Domestic Monopolist Under a Tariff and a Quota 145

CHAPTER 6 U.S. COMMERCIAL POLICY 147

THE RECIPROCAL TRADE AGREEMENTS LEGISLATION 147

The 1958 Extension and the Safeguard Provisions 148

Trade-Adjustment Assistance 149

THE TRADE EXPANSION ACT OF 1962 149

THE TRADE REFORM ACT OF 1974 150

THE TRADE AND COMPETITIVENESS ACT OF 1988 151

REGIONAL AND BILATERAL RELATIONS 151

Trade Promotion Authority 152

THE POLITICAL ECONOMY OF PROTECTIONISM 152

INDUSTRIAL POLICY? 153

Summary 154

Important Concepts 155

Review Questions 155

CHAPTER 7 INTERNATIONAL AND REGIONAL TRADE

ORGANIZATIONS AMONG DEVELOPED

COUNTRIES 156

Regionalism 157

THE EUROPEAN UNION 157

Forerunners 158

Internal Restrictions 158

Agricultural Policy 159

Political Institutions 160

Special Trading Arrangements between the EU and

Developing Countries 161

THE U.S.—CANADA FREE TRADE AGREEMENT 162

NAFTA 163

THE WORLD TRADE ORGANIZATION (WTO) 163

Fundamental Principles 164

The Uruguay Round 165

THE WTO AND THE ENVIRONMENT 167

ECONOMIC REFORMS IN EASTERN EUROPE (TRANSITION

ECONOMIES) 169

Summary 171

Important Concepts 171

Review Questions 172

CHAPTER 8 TRADE AND DEVELOPMENT 173

ALTERNATIVE TRADE APPROACHES TO DEVELOPMENT 173

China and India 175

THE U.N. CONFERENCE ON TRADE

AND DEVELOPMENT 176

Demands Concerning Primary Products 176

Manufactured Products 178

THE GENERALIZED SYSTEM OF PREFERENCES 179

The U.S. Scheme 180

The EU Scheme 181

The Japanese Scheme 181

Effect of the Tokyo and Uruguay Rounds on the GSP 182

REGIONAL INTEGRATION AMONG

DEVELOPING NATIONS 182

Summary 183

Important Concepts 184

Review Questions 184

CHAPTER 9 INTERNATIONAL MOBILITY

OF PRODUCTIVE FACTORS 185

MOTIVES FOR DIRECT INVESTMENTS ABROAD 187

Cost Considerations 188

Marketing Considerations 190

FOREIGN INVESTMENT AND ECONOMIC WELFARE

(REAL INCOME) 190

World Welfare 190

Host Country 190

Source (Investing) Country 192

INTERNATIONAL TRADE THEORY AND THE MULTINATIONAL

CORPORATION 194

The Phenomenon of Transfer Pricing 194

The Commodity Composition of Trade 195

INTERNATIONAL MIGRATION OF LABOR 196

GLOBALIZATION AND THE

OUTSOURCING CONTROVERSY 197

Summary 200

Important Concepts 201

Review Questions 201

PART II INTERNATIONAL FINANCIAL RELATIONS 204

THE NATURE OF FINANCIAL RELATIONS 205

Review Questions 206

CHAPTER 10 STATEMENT OF INTERNATIONAL

TRANSACTIONS 207

MAIN ITEMS IN THE STATEMENT OF INTERNATIONAL

TRANSACTIONS 207

The Current Account 207

The Financial Account 211

Autonomous and Accommodating Items 212

Changes in Official Reserves 213

The Balance of Payments in the National Economy 214

USES AND MISUSES OF INTERNATIONAL TRANSACTIONS

STATISTICS 215

Long-Run Shifts in the Balance on Merchandise Trade 216

Placing Balance-of-Payments Considerations

in Proper Perspective 216

Limitations of Balance-of-Payments Information 217

A Nation versus a State 217

Summary 219

Important Concepts 220

Review Questions 220

CHAPTER 11 MARKET-DETERMINED EXCHANGE RATES 222

DEMAND AND SUPPLY OF FOREIGN CURRENCIES 223

SHIFTS IN THE DEMAND AND SUPPLY CURVES 226

Relative Interest Rates 227

Relative Price Change 228

Expectations 233

Other Factors 233

Summary 233

THE FOREIGN EXCHANGE MARKET 235

Market Organization 235

The Forward Exchange Market 237

Speculation 240

Summary 241

Important Concepts 242

Review Questions 243

APPENDIX 11—1 245

Exchange Rates for January 7, 2010 245

APPENDIX 11—2 246

The Relationship Between Demand for a Foreign

Currency (Dollar) and Supply for Domestic

Currency (Euro) 246

APPENDIX 11—3 247

Exchange Rate Determination 247

CHAPTER 12 THE INTERNATIONAL CURRENCY SYSTEM 248

FIXED EXCHANGE RATES 248

History of Fixed Exchange Rates 252

THE CONTEMPORARY INTERNATIONAL

CURRENCY SYSTEM 253

Fluctuating Currencies 253

The Euro–A Currency of 16 Countries 255

Fixed Exchange Rates 256

Summary of Exchange Regimes 257

The Role of the U.S. Dollar 257

THE INCOMPATIBLE TRINITY 259

INDICES OF TRADE-WEIGHTED (EFFECTIVE)

EXCHANGE RATES 260

THE INTERNATIONAL MONETARY FUND (IMF) 262

Regular International Monetary Fund Procedures 262

Special Drawing Rights 263

Special Facilities 263

International Reserves 264

Summary 265

Important Concepts 266

Review Questions 267

CHAPTER 13 DOMESTIC POLICIES TO ADJUST THE BALANCE

OF PAYMENTS 269

“AUTOMATIC” PROCESSES 269

The Monetary Mechanism 269

Direct Effect on Private Expenditures 273

SUMMARY OF THE “AUTOMATIC” BALANCE-OF-PAYMENTS

ADJUSTMENT 279

GOVERNMENT POLICY 280

Domestic Policy Measures and the Current Account 280

Effect on Direct Investment Capital 282

Effect on Other Capital Movements 283

FOREIGN REPERCUSSIONS 284

THE BALANCE OF PAYMENTS IN THE CONTEXT OF GENERAL

POLICY OBJECTIVES 286

SOME UNANSWERED QUESTIONS 288

The Degree of Impact 288

Time Lags 289

Summary 290

Important Concepts 291

Review Questions 292

APPENDIX 13—1 294

The Foreign Trade Multiplier in a Small Country 294

APPENDIX 13—2 301

Foreign-Trade Multiplier with Foreign Repercussions 301

CHAPTER 14 EFFECTS OF EXCHANGE-RATE ADJUSTMENTS

ON THE CURRENT ACCOUNT AND THE DOMESTIC

ECONOMY 304

RELATIVE PRICE EFFECT 305

Effect on Dollar Outpayments 309

Effect on Dollar Inpayments 312

Outpayments and Inpayments Combined 316

Domestic Income Effect 317

Domestic Price Effect 318

Redistribution of Domestic Resources 319

Cost of Depreciation 320

ANOTHER VIEW OF DEPRECIATION: THE ABSORPTION

APPROACH 321

SUMMARY OF POLICY ANALYSIS 323

The Need for Policy Mixes 323

Effectiveness of Policy 324

Foreign Retaliation 325

What Governs Exchange Variations? 326

The Role of Fluctuating Exchange Rates 327

SOME UNANSWERED QUESTIONS 330

The Degree of Impact 331

Time Path 334

Summary 336

Important Concepts 338

Review Questions 338

APPENDIX 14—1 340

Stability of the Foreign-Exchange Market 340

APPENDIX 14—2 343

Equilibrium Exchange Rate and Output 343

APPENDIX 14—3 346

Policies to Attain Internal and External Balance 346

APPENDIX 14—4 349

On the Relative Effectiveness (for Domestic Purposes)

of Fiscal and Monetary Policy under Alternative

Exchange-Rate Regimes 349

CHAPTER 15 THE MONETARY APPROACH TO THE BALANCE

OF PAYMENTS (OPTIONAL) 352

THE UNDERLYING CAUSE OF EXTERNAL IMBALANCES

(UNDER FIXED EXCHANGE RATES) 353

Demand and Supply of Money 353

External Surplus 354

External Deficit 355

Role of Money 356

Monetary Policy 356

POLICY IMPLICATIONS 357

Devaluation 357

Tariffs, Quotas, and Exchange Control 358

Economic Growth 358

Change in the Rate of Interest 358

FLUCTUATING EXCHANGE RATES 359

EVALUATION 360

Summary 361

Important Concepts 362

Review Questions 362

CHAPTER 16 ALTERNATIVE EXCHANGE-RATE REGIMENS 364

FIXED VERSUS FLOATING EXCHANGE RATES 364

The Record of 1973—2008 368

Wider Bands and Crawling Pegs 369

Target Zones 370

Optimum Currency Areas 370

THE EURO–A CURRENCY OF 16 CONTINENTAL

COUNTRIES 372

EXCHANGE CONTROL 374

BILATERAL CLEARING AGREEMENTS 379

Summary 380

Important Concepts 382

Review Questions 382

CHAPTER 17 HISTORICAL SURVEY 383

THE GOLD STANDARD (1870—1914) 383

FLUCTUATING EXCHANGE RATES AND

CURRENCY STABILIZATION 383

THE DEVALUATION CYCLE (1930—1939) 384

BRETTON WOODS (JULY 1944) 384

EUROPEAN RECONSTRUCTION (1945—1958) 385

THE DOLLAR GLUT (1959—1970) 385

THE SMITHSONIAN AGREEMENT 386

MARCH 1973–THE COLLAPSE OF BRETTON WOODS 387

THE 1974—1975 WORLD RECESSION AND

ITS AFTERMATH 387

THE RISE OF THE DOLLAR EXCHANGE RATE,

1981—1985 388

THE DOLLAR’S DECLINE, 1985—1989 390

THE 1990S 391

THE LDC DEBT PROBLEM OF THE 1980S 391

THE MEXICAN CURRENCY CRISIS OF DECEMBER 1994 393

THE ASIAN FINANCIAL CRISIS OF 1997—1999 394

THE NEW CENTURY 396

THE GLOBAL RECESSION OF 2008—2009 398

Summary 402

Important Concepts 403

Review Questions 494

BIBLIOGRAPHY 405

INDEX 409

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