INTERNATIONAL ECONOMICSSEVENTH EDITION DENNIS R. APPLEYARD DAVIDSON COLLEGE ALFRED J. FIELD, JR. UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL STEVEN L. COBB UNIVERSITY OF NORTH TEXAS I McGraw-Hill I Irwln BRIEF CONTENTS CHAPTER 1 The World of International Economics. 1 PART 3 ADDITIONAL THEORIES AND EXTENSIONS 173 CHAPTER 10 Post-Heckscher-Ohlin Theories of Trade and IntraIndustry Trade. 226 PARTI THE CLASSICAL THEORY OF TRADE 15 CHAPTER 2 Early Trade Theories: Mercantilism and the Transition to the Classical World of David Ricardo. 259 CHAPTER 14 The Impact of Trade Policies. 87 CHAPTER 7 Offer Curves and the Terms of Trade. Trade Policy. 358 CHAPTER 17 Economic Integration.S. 42 PART 2 PART 4 TRADE POLICY 257 63 CHAPTER 13 The Instruments of Trade Policy. 125 CHAPTER 9 Empirical Tests of the Factor Endowments Approach. 65 CHAPTER 6 Gains from Trade in Neoclassical Theory. 28 CHAPTER 4 Extensions and Tests of the Classical Model of Trade. 17 CHAPTER 3 The Classical World of David Ricardo and Comparative Advantage. 103 CHAPTER 8 The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model. 418 NEOCLASSICAL TRADE THEORY CHAPTER 5 Introduction to Neoclassical Trade Theory: Tools to Be Employed. 280 CHAPTER 15 Arguments for Interventionist Trade Policies. 204 CHAPTER 12 International Factor Movements. 319 CHAPTER 16 Political Economy and U. 392 CHAPTER 18 International Trade and the Developing Countries. 175 CHAPTER 11 Economic Growth and International Trade. 153 xv . 662 CHAPTER 27 Prices and Output in the Open Economy: Aggregate Supply and Demand.XVI BRIEF CONTENTS PART 5 FUNDAMENTALS OF INTERNATIONAL MONETARY ECONOMICS 451 CHAPTER 19 The Balance-of-Payments Accounts. 573 CHAPTER 24 National Income and the Current Account. 794 Index. 602 CHAPTER26 Economic Policy in the Open Economy under Flexible Exchange Rates. and Future. 453 CHAPTER20 The Foreign Exchange Market. Present. 541 CHAPTER 23 Price Adjustments and Balance-of-Payments Disequilibrium. 476 CHAPTER21 International Financial Markets and Instruments: An Introduction. 739 References for Further Reading. 775 Photo Credits. 795 PART 6 to) MACROECONOMIC POLICY IN THE OPEN ECONOMY 629 CHAPTER25 Economic Policy in the Open Economy under Fixed Exchange Rates. 507 CHAPTER 22 The Monetary and Portfolio Balance Approaches to External Balance. 631 . 683 PART 7 ISSUES IN WORLD MONETARY ARRANGEMENTS 711 CHAPTER28 Fixed or Flexible Exchange Rates? 713 CHAPTER 29 The International Monetary System: Past. 52 xvii Adam Smith and the Invisible Hand. 30 IN THE REAL WORLD: EXPORT CONCENTRATION OF SELECTED COUNTRIES. 3 The Commodity Composition of Trade. International Trade. 26 . 29 ASSUMPTIONS OF THE BASIC RICARDIAN MODEL. 43 WAGE RATE LIMITS AND EXCHANGE RATE LIMITS. 6 U. 3 j v CHAPTER 3 The Classical World of David Ricardo and Comparative Advantage. 35 REPRESENTING THE RICARDIAN MODEL WITH PRODUCTION-POSSIBILITIES FRONTIERS. 47 David Hume—The Price-Specie-Flow Mechanism. 30 DAVID Appendix: A General Reference List in International Economics. 48 The Effect of Exchange Rate Changes. 23 CONCEPT BOX 2: The Effect of Wage Rate Changes.CONTENTS CHAPTER 1 The World of International Economics. 34 Complete Specialization. 22 CHAPTER4 Extensions and Tests of the Classical Model of Trade. 18 MERCANTILISM. 50 IN THE REAL WORLD: THE SIZE OF TRANSPORTATION COSTS. 18 The Oracle in the 21st Century. 1 INTRODUCTION. 40 Early Trade Theories: Mercantilism and the Transition to the Classical World of David Ricardo. 19 Mercantilism and Domestic Economic Policy. 17 INTRODUCTION. 43 Trade Complexities in the Real World. 42 INTRODUCTION. 36 Production Possibilities—An Example. 29 TITANS OF INTERNATIONAL ECONOMICS: RICARDO (1772-1823). 29 The Geographical Composition of Trade. 34 PARTI THE CLASSICAL THEORY OF TRADE 15 CHAPTER 2 Resource Constraints. 11 SUMMARY. 20 IN THE REAL WORLD: MERCANTILISM IS STILL ALIVE 21 THE CHALLENGE TO MERCANTILISM BY EARLY CLASSICAL WRITERS. 9 THE CHANGING DEGREE OF ECONOMIC INTERDEPENDENCE. 49 TRANSPORTATION COSTS. 12 Some Common Myths. 39 SUMMARY. 22 CONCEPT BOX 1: CAPSULE SUMMARY OF THE PRICE-SPECIE-FLOW MECHANISM. 38 COMPARATIVE ADVANTAGE—SOME CONCLUDING OBSERVATIONS. 43 THE CLASSICAL MODEL IN MONEY TERMS. 22 CONCEPT REVIEW—PRICE ELASTICITY AND TOTAL EXPENDITURES. 51 MULTIPLE COUNTRIES. 25 SUMMARY. 28 INTRODUCTION. 33 COMPARATIVE ADVANTAGE AND THE TOTAL GAINS FROM TRADE. 18 The Role of Government. 1 THE NATURE OF MERCHANDISE TRADE. 44 CONCEPT BOX 1: WAGE RATE LIMITS AND EXCHANGE RATE LIMITS IN THE MONETIZED RICARDIAN FRAMEWORK. 46 MULTIPLE COMMODITIES. 36 Maximum Gains from Trade. 12 RICARDIAN COMPARATIVE ADVANTAGE.S. 24 TITANS OF INTERNATIONAL ECONOMICS: ADAM SMITH (1723-1790). 18 The Mercantilist Economic System. 7 WORLD TRADE IN SERVICES. 115 OTHER CONCEPTS OF THE TERMS OF TRADE. 85 CHAPTER 6 Gains from Trade in Neoclassical Theory. 107 TRADING EQUILIBRIUM. 87 INTRODUCTION. 66 THE THEORY OF CONSUMER BEHAVIOR. 98 Appendix: The Dornbusch. 128 . 78 The Production-Possibilities Frontier. 74 THE EDGEWORTH BOX DIAGRAM AND THE PRODUCTION-POSSIBILITIES FRONTIER. Trade. 125 INTRODUCTION. 73 IN THE REAL WORLD: CONSUMER Isocost Lines. 127 FACTOR ENDOWMENTS AND THE HECKSCHEROHLIN THEOREM. 108 SHIFTS OF OFFER CURVES. 66 Terms-of-Trade Shocks. 92 Trade in the Partner Country. 94 MINIMUM CONDITIONS FOR TRADE.S. 103 INTRODUCTION. 88 Appendix A: Derivation of Import-Demand Elasticity on an Offer Curve. 88 INTRODUCTION OF INTERNATIONAL TRADE. 1973-2007.XV111 CONTENTS EVALUATING THE CLASSICAL MODEL. 90 The Consumption and Production Gains from Trade. 113 ELASTICITY AND THE OFFER CURVE. 119 Single Factoral Terms of Trade. 119 IN THE REAL WORLD: INCOME TERMS 1973-2007. 100 SUMMARY. 65 INTRODUCTION. 98 Factor Abundance and Heckscher-Ohlin. The Edgeworth Box Diagram. 101 PART 2 NEOCLASSICAL TRADE THEORY 63 CHAPTER 5 Appendix: "Actual" versus "Potential" Gains from Trade. 95 Trade between Countries with Identical Demand Conditions. 81 SUMMARY. 55 SUMMARY.S. and Samuelson Model. 88 AUTARKY EQUILIBRIUM. 59 Costless Factor Mobility. AND AUTARKY PRICES. 127 Trade between Countries with Identical PPFs. Fischer. 104 A COUNTRY'S OFFER CURVE. 66 TITANS OF INTERNATIONAL ECONOMICS: FRANCIS YSIDRO EDGEWORTH (1845-1926). STEEL INDUSTRY. 73 Isoquants. 104 CONCEPT BOX 1: THE TABULAR APPROACH TO DERIVING AN OFFER CURVE. 76 Producer Equilibrium. 120 SUMMARY. 72 PRODUCTION THEORY. 102 CHAPTER 7 Offer Curves and the Terms of Trade. 114 IN THE REAL WORLD: TERMS OF TRADE FOR MAJOR GROUPS OF COUNTRIES. 78 EXPENDITURE PATTERNS IN THE UNITED STATES. 97 Conclusions. 99 IN THE REAL WORLD: CHANGES IN INCOME DISTRIBUTION WITH INCREASED TRADE. 120 Double Factoral Terms of Trade. 53 IN THE REAL WORLD: LABOR PRODUCTIVITY IMPORT PENETRATION IN THE U. 98 Full Employment of Factors of Production. 95 Do Labor Standards Affect Comparative Advantage? 126 SUPPLY. 122 Appendix B: Elasticity and Instability of Offer Curve Equilibria. 99 The Indifference Curve Map Can Show Welfare Changes. 67 The Budget Constraint. 57 AND SOME IMPORTANT ASSUMPTIONS IN THE ANALYSIS. 119 Consumer Indifference Curves. 121 OF TRADE OF MAJOR GROUPS OF COUNTRIES. 78 Income Terms of Trade. DEMAND. 104 Introduction to Neoclassical Trade Theory: Tools to Be Employed. 126 The Effects of Restrictions on U. 123 CHAPTER 8 The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model. 110 CONCEPT BOX 2: MEASUREMENT OF THE TERMS OF TRADE. 71 Consumer Equilibrium. 166 HECKSCHER-OHLIN AND INCOME INEQUALITY. 175 INTRODUCTION. 163 Appendix A: Economies of Scale.CONTENTS XIX Commodity Factor Intensity and HeckscherOhlin. 192 INTRA-INDUSTRY TRADE. Tariff Structure. LINDER HYPOTHESIS. 176 Other Considerations. 177 Vertical Specialization-Based Trade. 144 Immobile or Commodity-Specific Factors. 134 The Factor Price Equalization Theorem. 141 Transportation Costs. 129 IN THE REAL WORLD: RELATIVE FACTOR INTENSITIES IN SELECTED INDUSTRIES. 161 Comparisons of Calculated and Actual Abundances. 149 CONCEPT BOX 1: THE SPECIFIC-FACTORS AND THE REAL WAGE OF WORKERS. 160 193 Reasons for Intra-Industry Trade in a Product Category. 151 149 CHAPTER 9 Empirical Tests of the Factor Endowments Approach. 154 THE LEONTIEF PARADOX. 139 IN THE REAL WORLD: OUTSOURCING AND WAGE INEQUALITY IN THE UNITED STATES. IN THE REAL WORLD: A Theories. 159 The Role of Natural Resources. 202 Appendix D: Measurement of Intra-Industry Trade. 176 A Trade Myth. 131 Productivity Differences and "Home Bias. 158 Different Skill Levels of Labor. Assumptions. 194 The Level of a Country's Intra-Industry Trade. 171 SUMMARY. 138 Conclusions. 176 The Product Cycle Theory. 203 . 199 Appendix B: Monopolistic Competition and Price Elasticity of Demand in the Krugman Model. 140 Factor-Intensity Reversal. 172 . 190 Concluding Comments on Post-Heckscher-Ohlin Trade Theories. 154 The Imitation Lag Hypothesis. SUMMARY. 153 INTRODUCTION. RATIOS IN U. 2006." 163 IN THE REAL WORLD: CASE OF THE MISSING TRADE AND OTHER MYSTERIES. and the Role of Empirical Work. 157 Economies of Scale. 187 Other Post-Heckscher-Ohlin Theories. PART 3 ADDITIONAL THEORIES AND EXTENSIONS 173 CHAPTER 10 Demand Reversal. 159 OTHER TESTS OF THE HECKSCHER-OHLIN THEOREM. 142 Imperfect Competition. 145 IN THE REAL WORLD: THE EFFECTS OF INTERNATIONAL CARTELS. 176 POST-HECKSCHER-OHLIN THEORIES OF TRADE. 182 IN THE REAL WORLD: NEW VENTURE INTERNATIONALIZATION. 135 { The Stolper-Samuelson Theorem and Income Distribution Effects of Trade in the Heckscher-Ohlin Model. 196 SUMMARY. 139 THEORETICAL QUALIFICATIONS TO HECKSCHER-OHLIN. 146 MODEL Post-Heckscher-Ohlin Theories of Trade and Intra-Industry Trade. 155 184 REEXAMINATION OF THE 185 Demand Reversal. 198 Factor Content Approach with Many Factors. 154 SUGGESTED EXPLANATIONS FOR THE LEONTIEF PARADOX. 186 The Krugman Model. 181 The Linder Theory. 128 IN THE REAL WORLD: RELATIVE FACTOR ENDOWMENTS IN SELECTED COUNTRIES. 192 IN THE REAL WORLD: GEOGRAPHY AND TRADE. 131 TITANS OF INTERNATIONAL ECONOMICS: PAUL ANTHONY SAM UELSON (BORN 1915). 201 Appendix C: Differentiating among Alternative Trade Theories Using the Gravity Equation.S. 169 The Heckscher-Ohlin Theorem. 166 IN THE REAL WORLD: TRADE AND INCOME INEQUALITY IN A LESS DEVELOPED COUNTRY: THE CASE OF MOZAMBIQUE. 181 Firm-Focused Theories. 156 IN THE REAL WORLD: CAPITAL/LABOR LEADING EXPORT AND IMPORT INDUSTRIES—LEONTIEF TEST. 155 Factor-Intensity Reversal. 265 Foreign Investors in China: "Good" or "Bad" from the Chinese Perspective? 227 Definitions. 249 Immigration and the United States—Recent Perspectives. 227 Specific Tariffs. 206 Trade Effects of Consumption Growth. AND WELFARE IN THE SMALL-COUNTRY CASE.S. 261 Other Features of Tariff Schedules. 263 IN THE REAL WORLD: THE U. 239 LABOR MOVEMENTS BETWEEN COUNTRIES. 226 INTRODUCTION. MOROCCO. 209 IN THE REAL WORLD: LABOR AND CAPITAL IN THE REAL WORLD: REQUIREMENTS PER UNIT OF OUTPUT. 270 EXPORT TAXES AND SUBSIDIES. 272 Government Procurement Provisions. 227 INTERNATIONAL CAPITAL MOVEMENTS THROUGH FOREIGN DIRECT INVESTMENT AND MULTINATIONAL CORPORATIONS. 229 Some Data on Foreign Direct Investment and Multinational Corporations. GENERALIZED SYSTEM OF PREFERENCES. 252 IN THE REAL WORLD: Is THERE A LICENSING BIAS IN THE REAL WORLD: AGAINST FOREIGN MEDICAL GRADUATES? 253 IMMIGRATION INTO THE UNITED STATES AND THE BRAIN DRAIN FROM DEVELOPING COUNTRIES. AND WELFARE: THE LARGECOUNTRY CASE. TRADE. 220 GROWTH AND THE TERMS OF TRADE: A DEVELOPING-COUNTRY PERSPECTIVE. 274 Restrictions on Services Trade. 272 Domestic Content Provisions. 234 Measurement of Tariffs. 205 Potential Benefits and Costs of Foreign Direct Investment to a Host Country. 272 "Voluntary" Export Restraints (VERs). 207 SOURCES OF GROWTH AND THE PRODUCTIONPOSSIBILITIES FRONTIER. 255 The Effects of Factor Growth. 223 SUMMARY. 242 China—A Regional Growth Pole. 254 SUMMARY. 274 . PART 4 TRADE POLICY 257 CHAPTER 13 The Instruments of Trade Policy.XX CONTENTS CHAPTER 11 Economic Growth and International Trade. 232 IN THE REAL WORLD: DETERMINANTS OF FOREIGN DIRECT INVESTMENT. 218 CONCEPT BOX 2: ECONOMIC GROWTH AND THE OFFER CURVE. 224 In What Ways Can I Interfere with Trade? 260 IMPORT TARIFFS. 205 CLASSIFYING THE TRADE EFFECTS OF ECONOMIC GROWTH. 269 IN THE REAL WORLD: EFFECTIVE TARIFF RATES IN BANGLADESH. 235 IN THE REAL WORLD: HOST-COUNTRY DETERMINANTS INFLOWS.S. 213 FACTOR GROWTH. 260 1980-2007. 216 GROWTH. 266 IN THE REAL WORLD: NOMINAL AND EFFECTIVE TARIFFS IN THE UNITED STATES AND JAPAN. 222 IN THE REAL WORLD: TERMS OF TRADE OF BRAZIL. 245 Additional Considerations Pertaining to International Migration. 272 Analytical Effects of International Capital Movements. 273 Administrative Classification. 248 IN THE REAL WORLD: IMMIGRANT REMITTANCES. TRADE. 259 INTRODUCTION. AND THAILAND. 205 Seasonal Workers in Germany. 244 Trade Effects of Production Growth. 237 OF FOREIGN DIRECT INVESTMENT Import Quotas. 242 IN THE REAL WORLD: MIGRATION FLOWS INTO THE UNITED STATES. 271 NONTARIFF BARRIERS TO FREE TRADE. 209 The Effects of Technological Change. 261 CHAPTER 12 International Factor Movements. TARIFF RATES. 1986 AND 2006. 213 s - Economic Effects of Labor Movements. 242 Permanent Migration: A Greek in Germany. 261 IN THE REAL WORLD: U. 273 European Border Taxes. 217 CONCEPT BOX 1: LABOR FORCE GROWTH AND PER CAPITA INCOME. 204 INTRODUCTION. 229 Reasons for International Movement of Capital. 210 "SPILLOVERS " AS A CONTRIBUTOR TO ECONOMIC GROWTH. 261 Ad Valorem Tariffs. JORDAN. 281 Gainers and Losers from Steel Tariffs. 314 Economies of Scale in a Duopoly Framework. 301 The Presence of Externalities as an Argument for Protection. 320 TRADE POLICY AS A PART OF BROADER SOCIAL POLICY OBJECTIVES FOR A NATION. 329 PROTECTION TO OFFSET MARKET IMPERFECTIONS. 278 ': — Trade Taxes as a Source of Government Revenue. 311 The Infant Industry Argument for Protection. 322 CHAPTER 14 The Impact of Trade Policies. 343 Research and Development and Sales of a Home Firm. 309 IN THE REAL WORLD: DOMESTIC EFFECTS OF THE SUGAR QUOTA SYSTEM. 303 Tariff to Offset Foreign Dumping. 328 327 IN THE REAL WORLD: COSTS OF PROTECTING Tariff to Benefit a Scarce Factor of Production. 312 Appendix B: The Impact of Trade Policy in the Large-Country Setting Using Export Supply and Import Demand Curves. 327 IN THE REAL WORLD: INDUSTRY EMPLOYMENT EFFECTS OF TRADE LIBERALIZATION. 333 PROTECTION AS A RESPONSE TO INTERNATIONAL POLICY DISTORTIONS. 324 Tariff to Reduce Aggregate Unemployment. 330 Tariff to Extract Foreign Monopoly Profit. 288 IN THE REAL WORLD: REAL INCOME GAINS FROM TRADE LIBERALIZATION IN AGRICULTURE. 329 Differential Protection as a Component of a Foreign Policy/Aid Package.S. 341 IN THE REAL WORLD: U. 321 National Defense Argument for a Tariff. 297 The Impact of an Export Tax. 274 IN THE REAL WORLD: Is IT A CAR? IS IT A TRUCK?275 Arguments for Interventionist Trade Policies. 277 SUMMARY. EXPORT ENHANCEMENT PROGRAM FOR WHEAT. 334 Tariff to Offset a Foreign Subsidy. 340 Protection in the Large-Country Case. 346 Export Subsidy in Duopoly. 328 Fostering "National Pride" in Key Industries. INVALID ARGUMENTS. 340 STRATEGIC TRADE POLICY: FOSTERING COMPARATIVE ADVANTAGE. 306 OTHER EFFECTS OF PROTECTION. 304 IN THE REAL WORLD: COUNTERVAILING DUTIES IN THE UNITED STATES. INDUSTRY EMPLOYMENT. 291 The Impact of an Import Tariff. 276 IN THE REAL WORLD: THE EFFECT OF PROTECTION INSTRUMENTS ON DOMESTIC PRICES. 332 The Use of an Export Tax to Redistribute Profit from a Domestic Monopolist. 336 Protection in the Small-Country Case. 320 Additional Domestic Policies That Affect Trade.S. 275 IN THE REAL WORLD: EXAMPLES OF CONTROL OVER TRADE. S. 280 INTRODUCTION.CONTENTS xxi CHAPTER 15 Trade-Related Investment Measures. 294 The Impact of an Import Quota. 303 IN THE REAL WORLD: THE U. 330 The Impact of an Import Tariff. 282 Tariff to Improve the Balance of Trade. 348 . 335 IN THE REAL WORLD: ANTIDUMPING ACTIONS IN THE UNITED STATES. 319 INTRODUCTION. IMPORT QUOTAS AND VERS. 282 The Impact of an Import Quota and a Subsidy to Import-Competing Production. MOTORCYCLES—A SUCCESSFUL INFANT INDUSTRY? 342 Appendix A: The Impact of Protection in a Market with Nonhomogeneous Goods. 285 The Impact of Export Policies. 310 SUMMARY. 338 MISCELLANEOUS. 291 Framework for Analysis. 323 The Terms-of-Trade Argument for Protection. 334 The Impact of an Export Subsidy. 326 Tariff to Increase Employment in a Particular Industry. 321 IN THE REAL WORLD: THE RELATIVE IMPORTANCE OF TRADE TAXES AS A SOURCE OF GOVERNMENT REVENUE. 289 TRADE RESTRICTIONS IN A PARTIAL EQUILIBRIUM SETTING: T H E LARGE-COUNTRY CASE. 299 IN THE REAL WORLD: WELFARE COSTS OF U. 274 Additional Restrictions. 281 TRADE RESTRICTIONS IN A PARTIAL EQUILIBRIUM SETTING: THE SMALL-COUNTRY CASE. 302 TRADE RESTRICTIONS IN A GENERAL EQUILIBRIUM SETTING. xxn Strategic Government Interaction and World Welfare. 406 IN THE REAL WORLD: CANADIAN REGIONAL TRADE AGREEMENTS—Is THE EU NEXT?. 370 Growth and Disappointments. 414 IN THE REAL WORLD: ASIAN ECONOMIC INTERDEPENDENCE LEADS TO GREATER INTEGRATION. 410 NAFTA and Recent U. 419 Strong Recovery in East Asia. OR PROTECTIONISM?. 359 THE POLITICAL ECONOMY OF TRADE POLICY. 418 INTRODUCTION. 366 Baldwin's Integrative Framework for Analyzing Trade Policy.S. 396 IN THE REAL WORLD: TRADE CREATION AND TRADE DIVERSION IN THE EARLY STAGES OF EUROPEAN ECONOMIC INTEGRATION. 386 MERCOSUR. 413 The Doha Development Agenda. 367 The Kennedy Round of Trade Negotiations. 362 IN THE REAL WORLD: POLITICS PUTS THE SQUEEZE ON TOMATO IMPORTS. 400 CONCEPT BOX 1: TRADE DIVERSION IN GENERAL EQUILIBRIUM. 402 THE EUROPEAN UNION. 397 Contrasting Vignettes on Trade Policy. 416 SUMMARY. 409 Worries over NAFTA. 367 History and Structure. 394 Economic Union. 373 IN THE REAL WORLD: TARIFF REDUCTIONS RESULTING FROM THE URUGUAY ROUND. Free-Trade Agreements. 387 Empirical Work on Political Economy. 408 NORTH AMERICAN ECONOMIC INTEGRATION. 377 Greater Integration. 364 General Conclusions on Trade Creation/Trade Diversion. 394 IN THE REAL WORLD: ECONOMIC INTEGRATION UNITS. 380 IN THE REAL WORLD: HEALTH. 404 Reciprocal Trade Agreements and Early GATT Rounds. 366 A REVIEW OF U. SAFETY. 393 CHAPTER 18 International Trade and the Developing Countries. 402 Summary of Economic Integration. 359 Static Effects of Economic Integration. 403 The Social Objectives Approach. 412 OTHER MAJOR ECONOMIC INTEGRATION EFFORTS.S. 416 Appendix: A WTO Statement on Its Aims and Functions. Trade Policy. 415 The Conduct of Trade Policy. 419 An Expanded European Union. Actions. 406 Prospects. 414 FTAA. 371 Trade Policy Issues after the Uruguay Round. 364 An Overview of the Political Science Take on Trade Policy. 377 Recent U.S. 413 CAFTA-DR. 393 A Closer Look at the Least Developed Countries. 394 Common Market. 401 Dynamic Effects of Economic Integration. 361 IN THE REAL WORLD: CHANGING U. 419 AN OVERVIEW OF THE DEVELOPING COUNTRIES. 360 IN THE REAL WORLD: WORLD ATTITUDES TOWARD FOREIGN TRADE. TRADE POLICY. 1992-2009. 352 Concluding Observations on Strategic Trade Policy. 405 Completing the Internal Market. 359 The Self-interest Approach to Trade Policy. 394 CHAPTER 16 Political Economy and U. 394 THE STATIC AND DYNAMIC EFFECTS OF ECONOMIC INTEGRATION. ATTITUDES TOWARD INTERNATIONAL TRADE. 355 CONTENTS Free-Trade Area. 368 The Tokyo Round of Trade Negotiations. 393 TYPES OF ECONOMIC INTEGRATION. 393 Customs Union.S. 392 INTRODUCTION. 358 INTRODUCTION. 389 APEC.S. 387 SUMMARY. 354 SUMMARY. 351 IN THE REAL WORLD: AIRBUS INDUSTRIE.414 Chilean Trade Agreements. 409 The Uruguay Round of Trade Negotiations. 403 IN THE REAL WORLD: THE EAST AFRICAN COMMUNITY. 374 IN THE REAL WORLD: NATIONAL SOVEREIGNTY AND THE WORLD TRADE ORGANIZATION. 368 IN THE REAL WORLD: THE DETERMINANTS OF TRADE ADJUSTMENT ASSISTANCE. 411 IN THE REAL WORLD: NAFTA—MYTHS VERSUS FACTS. 385 CONCLUDING OBSERVATIONS ON TRADE POLICY. 420 . 390 CHAPTER 17 Economic Integration. TRADE DEFICITS WITH JAPAN. 466 IN THE REAL WORLD: U. 476 INTRODUCTION. 454 The Basis for International Financial Flows. 427 TRADE. 481 The Role of Arbitrage. 481 Different Measures of the Spot Rate. 481 Principal Actors. 436 IN THE REAL WORLD: TERRORISM AND ITS EFFECT ON DEVELOPING COUNTRIES. 455 CREDITS AND DEBITS IN BALANCE-OF-PAYMENTS ACCOUNTING. 435 TRADE CHAPTER20 The Foreign Exchange Market. INTERNATIONAL INVESTMENT POSITION. Causes of the Developing Countries' Debt Problem. 423 Export Instability. 478 Supply Side. 503 SUMMARY.CONTENTS THE ROLE OF TRADE IN FOSTERING ECONOMIC DEVELOPMENT. 458 ASSEMBLING A BALANCE-OF-PAYMENTS SUMMARY STATEMENT. 430 Problems with International Commodity Agreements. 490 CURRENCY FUTURES 495 CONCEPT BOX 2: CURRENCY FUTURES OPTION QUOTATIONS. 489 IN THE REAL WORLD: SPOT AND PPP EXCHANGE RATES. 497 QUOTATIONS. 433 IN THE REAL WORLD: COMECON FOREIGN PRICING STRATEGIES. 467 INTERNATIONAL INVESTMENT POSITION OF THE UNITED STATES. 475 Suggested Policies to Combat a Long-Run Deterioration in the Terms of Trade. 496 THE LINK BETWEEN THE FOREIGN EXCHANGE MARKETS AND THE FINANCIAL MARKETS. 441 THE EXTERNAL DEBT PROBLEM OF THE DEVELOPING COUNTRIES. 441 Demand Side. SUMMARY. ECONOMIC GROWTH. 477 THE FOREIGN EXCHANGE RATE AND THE MARKET FOR FOREIGN EXCHANGE. 454 . 482 IN THE REAL WORLD: NOMINAL AND REAL EXCHANGE RATES OF THE U. 426 TITANS OF INTERNATIONAL ECONOMICS: RAUL PREBISCH (1901-1986) AND HANS WOLFGANG" SINGER (1910-2006). 471 IN THE REAL WORLD: TRENDS IN THE U. Dollar. 477 Inward-Looking versus Outward-Looking Trade Strategies. 433 IN THE REAL WORLD: THE LENGTH OF COMMODITY PRICE SHOCKS. 421 XXI11 The Static Effects of Trade on Economic Development. 424 Potential Causes of Export Instability. 479 THE SPOT MARKET. 453 INTRODUCTION. 486 THE FORWARD MARKET. 444 IN THE REAL WORLD: THE MULTILATERAL DEBT RELIEF INITIATIVE. 431 IN THE REAL WORLD: MANAGING PRICE INSTABILITY. 464 BALANCE-OF-PAYMENTS SUMMARY STATEMENT FOR THE UNITED STATES. CHINA. 473 SUMMARY. 460 IN THE REAL WORLD: CURRENT ACCOUNT Policies to Stabilize Export Prices or Earnings. 450 446 CONCEPT BOX 1: PARTS FUNDAMENTALS OF INTERNATIONAL MONETARY ECONOMICS 451 CHAPTER 19 The Balance-of-Payments Accounts.S. 497 Covered Interest Parity and Financial Market Equilibrium. 499 Simultaneous Adjustment of the Foreign Exchange Markets and the Financial Markets.S. AND DEVELOPMENT: THE EMPIRICAL EVIDENCE. 432 DEFICITS. 439 IN THE REAL WORLD: EMERGING CONNECTIONS BETWEEN ASIA AND AFRICA. DOLLAR. 505 China's Trade Surpluses and Deficits. 430 RECENT GROWTH OF TRADE AND CAPITAL MOVEMENTS. 421 The Dynamic Effects of Trade on Economic Development. AND CANADA. 477 The Case of the Wayward U.S. OPEC. 478 The Market. 424 Long-Run Terms-of-Trade Deterioration. 442 Possible Solutions to the Debt Problem.S. 457 SAMPLE ENTRIES IN THE BALANCE-OF-PAYMENTS ACCOUNTS. 429 TRADE POLICY AND THE DEVELOPING COUNTRIES. Price Adjustment: The Exchange Rate Question. 573 INTRODUCTION. 553 THE PORTFOLIO BALANCE APPROACH TO THE BALANCE OF PAYMENTS AND THE EXCHANGE RATE. 517 } INTERNATIONAL STOCK MARKETS. 599 CHAPTER 24 National Income and the Current Account. 552 Gold Standard. 588 IN THE REAL WORLD: JAPANESE EXPORT PRICING AND PASS-THROUGH IN THE 1990S. 585 IN THE REAL WORLD: ESTIMATES OF IMPORT AND EXPORT DEMAND ELASTICITIES. 596 SUMMARY. DOMESTIC AND EURODOLLAR DEPOSIT AND LENDING RATES. 508 Portfolio Balance. AGRICULTURAL EXPORTS AND EXCHANGE RATE CHANGES. 557 EXCHANGE RATE OVERSHOOTING. 551 IN THE REAL WORLD: MONEY GROWTH AND EXCHANGE RATES IN THE RUSSIAN TRANSITION. 602 INTRODUCTION. 593 CHAPTER 22 The Monetary and Portfolio Balance Approaches to External Balance. 528 CONCEPT BOX 1: EURODOLLAR INTEREST RATE FUTURES MARKET QUOTATIONS. 507 INTRODUCTION. 556 Portfolio Adjustments. 519 FINANCIAL LINKAGES AND EUROCURRENCY DERIVATIVES. 603 A Two-Country Framework. 578 CONCEPT BOX 1: ELASTICITY OF IMPORT DEMAND AND THE SUPPLY CURVE OF FOREIGN WHEN DEMAND IS LINEAR. 536 SUMMARY. 593 THE PRICE ADJUSTMENT MECHANISM IN A FIXED EXCHANGE RATE SYSTEM. 521 International Financial Linkages and the Eurodollar Market. 575 Market Stability and the Price Adjustment Mechanism. 542 THE MONETARY APPROACH TO THE BALANCE OF PAYMENTS. 544 IN THE REAL WORLD: RELATIONSHIPS BETWEEN MONETARY CONCEPTS IN THE UNITED STATES. 554 Asset Demands. 589 IN THE REAL WORLD: U. 574 1989-2008. 574 Basic International Financial Linkages: A Review.S.XXIV CONTENTS CHAPTER 21 International Financial Markets and Instruments: An Introduction. 542 The Supply of Money. 525 Hedging Eurodollar Interest Rate Risk. 596 IN THE REAL WORLD: EXCHANGE RATE REGIMES IN TRANSITION ECONOMIES. 568 CHAPTER 23 Price Adjustments and Balance-of-Payments Disequilibrium. 555 Does GDP Growth Cause Trade Deficits? 603 . 542 IN THE REAL WORLD: The New Globalized Capital. 574 THE PRICE ADJUSTMENT PROCESS AND THE CURRENT ACCOUNT UNDER A FLEXIBLE-RATE SYSTEM. 523 IN THE REAL WORLD: U. 582 EXCHANGE CONCEPT BOX 2: EURODOLLAR The Price Adjustment Process: Short Run versus Long Run. 534 THE CURRENT GLOBAL DERIVATIVES MARKET. 541 INTRODUCTION. 539 The Demand for Foreign Goods and Services and the Foreign Exchange Market. 548 THE MONETARY APPROACH TO THE EXCHANGE RATE. 567 Financial Globalization: A Recent Phenomenon? 508 INTERNATIONAL BANK LENDING. 586 EXCHANGE RATE PASSTHROUGH OF FOREIGN EXPORTS TO THE UNITED STATES. 508 THE INTERNATIONAL BOND MARKET (DEBT SECURITIES). 543 The Demand for Money.S. 521 Appendix: A Brief Look at Empirical Work on the Monetary and Portfolio Balance Approaches. 598 Appendix: Derivation of the Marshall-Lerner Condition. 532 INTEREST OPTION QUOTATIONS. 514 IN THE REAL WORLD: INTEREST RATES ACROSS COUNTRIES. 561 SUMMARY. 593 The Price Adjustment Mechanism and the Pegged Rate System. 560 TITANS OF INTERNATIONAL ECONOMICS: RUDIGER DORNBUSCH (1942-2002). 545 Monetary Equilibrium and the Balance of Payments. 632 TARGETS. 620 IN THE REAL WORLD: SYNCHRONIZATION OF GDP MOVEMENTS ACROSS COUNTRIES. 673 General Equilibrium in the Money Market: The LM Curve.CONTENTS THE CURRENT ACCOUNT AND NATIONAL INCOME. AND ECONOMIC POLICY IN A TWO-INSTRUMENT. 617 Equilibrium in the Open Economy: The Simultaneous Use of the LM. 631 INTRODUCTION.S. 657 SUMMARY. INSTRUMENTS. 647 The Autonomous Spending Multiplier. 618 Foreign Repercussions and the Multiplier Process. and BP Curves. IS. 651 THE EFFECTS OF MONETARY POLICY UNDER FIXED EXCHANGE RATES. 637 U. 665 Economic Policy in the Open Economy under Fixed Exchange Rates. REAL GDP. 640 Simultaneous Equilibrium in the Monetary and Real Sectors. 660 CHAPTER 26 Economic Policy in the Open Economy under Flexible Exchange Rates. 663 Appendix A: The Multiplier When Taxes Depend on Income. 615 ! IN THE REAL WORLD: MULTIPLIER ESTIMATES FOR INDIA. 642 IN THE REAL WORLD: THE PRESENCE OF EXCHANGE CONTROLS IN THE CURRENT FINANCIAL SYSTEM. 654 THE EFFECTS OF OFFICIAL CHANGES IN THE EXCHANGE RATE. 632 7 J V THE REAL WORLD: EXCHANGE RATE ARRANGEMENTS. 677 . 670 THE EFFECTS OF EXOGENOUS SHOCKS IN THE IS/LM/BP MODEL WITH IMPERFECT MOBILITY OF CAPITAL. 610 General Equilibrium in the Real Sector: The IS Curve. 622 SUMMARY. 632 The Case of the Chinese Renminbi Yuan. 668 Policy Coordination under Flexible Exchange Rates. SELECTED COUNTRIES. 634 GENERAL EQUILIBRIUM IN THE OPEN ECONOMY MODEL: THE IS/LM/BP MODEL. 625 Appendix B: Derivation of the Multiplier with Foreign Repercussions. 626 PART 6 MACROECONOMIC POLICY IN THE OPEN ECONOMY 629 CHAPTER 25 Is There a Case for Flexible Rates? 663 THE EFFECTS OF FISCAL AND MONETARY POLICY UNDER FLEXIBLE EXCHANGE RATES WITH DIFFERENT CAPITAL MOBILITY ASSUMPTIONS. 604 Determining the Equilibrium Level of National Income. MUNDELL (BORN 1932). 649 THE EFFECTS OF FISCAL POLICY UNDER FIXED EXCHANGE RATES. 633 The Effects of Fiscal Policy under Different Capital Mobility Assumptions. 609 IN THE REAL WORLD: AVERAGE PROPENSITIES TO IMPORT. 672 IN THE REAL WORLD: COMMODITY PRICES AND TITANS OF INTERNATIONAL ECONOMICS: ROBERTA. 603 TITANS OF INTERNATIONAL ECONOMICS: JOHN MAYNARD KEYNES (1883-1946). 603 XXV The Keynesian Income Model. 655 IN THE REAL WORLD: THE RISE AND FALL OF A CURRENCY BOARD—THE CASE OF ARGENTINA. 619 IN THE REAL WORLD: CORRELATIONS OF MACROECONOMIC VARIABLES ACROSS COUNTRIES. 659 The Current Account and the Multiplier. 1972-2008. 642 Equilibrium in the Balance of Payments: The BP Curve. 663 CONCEPT BOX 1: REAL AND FINANCIAL FACTORS THAT INFLUENCE THE BP CURVE. 665 The Effects of Monetary Policy under Different Capital Mobility Assumptions. TWO-TARGET MODEL. 623 Appendix: The Relationship between the Exchange Rate and Income in Equilibrium. 637 IN THE REAL WORLD: POLICY FRICTIONS IN AN INTERDEPENDENT WORLD. 621 AN OVERVIEW OF PRICE AND INCOME ADJUSTMENTS AND SIMULTANEOUS EXTERNAL AND INTERNAL BALANCE. 662 INTRODUCTION. IN THE REAL WORLD: POLICY COORDINATION. 717 The Effect of Exogenous Shocks on the Aggregate Demand Curve under Fixed and Flexible Rates. 680 IN THE REAL WORLD: INFLATION AND UNEMPLOYMENT IN THE UNITED STATES. 683 INTRODUCTION. 694 Do Fixed or Flexible Exchange Rates Provide for Greater "Discipline" on the Part of Policymakers? 714 Would Fixed or Flexible Exchange Rates Provide for Greater Growth in International Trade and Investment? 716 IN THE REAL WORLD: EXCHANGE RISK AND INTERNATIONAL TRADE. 697 MONETARY AND FISCAL POLICY IN THE OPEN ECONOMY WITH FLEXIBLE PRICES. 704 EXTERNAL SHOCKS AND THE OPEN ECONOMY. 1970-2007. 701 Economic Policy and Supply Considerations. 691 AGGREGATE DEMAND AND SUPPLY IN THE OPEN ECONOMY. 706 SUMMARY. and the Exchange Rate under Flexible Rates. 728 IN THE REAL WORLD: CURRENCY BOARDS IN ESTONIA AND LITHUANIA. 702 IN THE REAL WORLD: ECONOMIC PROGRESS IN SUB-SAHARAN AFRICA. 728 Advantages of a Currency Board. 697 Currency Adjustments under Fixed Rates. 704 TITANS OF INTERNATIONAL ECONOMICS: MILTON FRIEDMAN (1912-2006). 692 Aggregate Demand in the Open Economy under Flexible Rates. ACTUAL AND NATURAL INCOME AND UNEMPLOYMENT. Open-Economy Equilibrium. 685 Aggregate Supply in the Closed Economy. 684 PART 7 ISSUES IN WORLD MONETARY ARRANGEMENTS 711 CHAPTER 28 Crisis in Argentina. 714 Aggregate Demand in the Closed Economy. 697 Would Fixed or Flexible Exchange Rates Provide for Greater Efficiency in Resource Allocation? 718 Is Macroeconomic Policy More Effective in Influencing National Income under Fixed or Flexible Exchange Rates? 720 Will Destabilizing Speculation in Exchange Markets Be Greater under Fixed or Flexible Exchange Rates? 721 IN THE REAL WORLD: RESERVE HOLDINGS UNDER FIXED AND FLEXIBLE RATES. 721 EXCHANGE Monetary Policy. 709 Appendix: Policy Effects. 684 AGGREGATE DEMAND AND SUPPLY IN THE CLOSED ECONOMY. 680 CHAPTER 27 Prices and Output in the Open Economy: Aggregate v Supply and Demand. 686 Equilibrium in the Closed Economy. 730 . 714 CENTRAL ISSUES IN THE FIXED-FLEXIBLE EXCHANGE RATE DEBATE. 727 CURRENCY BOARDS. 725 Will Countries Be Better Protected from External Shocks under a Fixed or a Flexible Exchange Rate System? 726 IN THE REAL WORLD: "INSULATION" WITH FLEXIBLE RATES—THE CASE OF JAPAN. 694 THE NATURE OF ECONOMIC ADJUSTMENT AND MACROECONOMIC POLICY IN THE OPEN-ECONOMY AGGREGATE SUPPLY AND DEMAND FRAMEWORK. 678 SUMMARY. 696 Summary. 690 IN THE REAL WORLD: U. 694 The Effect of Monetary and Fiscal Policy on the Aggregate Demand Curve under Fixed and Flexible Rates. 729 Disadvantages of a Currency Board.S. 685 Fixed or Flexible Exchange Rates? 713 INTRODUCTION. AND THE G-7. 701 Fiscal Policy.XXVI CONTENTS MACROECONOMIC THE IMF. 692 Slovenia's Changeover to the Euro—A Clear Success. 714 Aggregate Demand in the Open Economy under Fixed Rates. 746 GRADUAL EVOLUTION OF A N E W INTERNATIONAL MONETARY SYSTEM. 756 EXPERIENCE UNDER THE CURRENT INTERNATIONAL MONETARY SYSTEM. 765 CONCEPT BOX 1: A WORLD CENTRAL A THREE-CURRENCY MONETARY Global Crisis Requires a Global Solution. 736 SUMMARY. 733 XXV11 Exchange Rate Variations. 755 CURRENT EXCHANGE RATE ARRANGEMENTS. 743 The Bretton Woods System in Retrospect. 772 SUMMARY.The International Monetary System: Past. 747 The Target Zone Proposal. 767 Controls on Capital Flows. 740 IN THE REAL WORLD: FLEXIBLE EXCHANGE RATES IN POST-WORLD WAR I EUROPE: THE UNITED KINGDOM.CONTENTS OPTIMUM CURRENCY AREAS. 795 . 749 The Jamaica Accords. 733 Crawling Pegs. 731 HYBRID SYSTEMS COMBINING FIXED AND FLEXIBLE EXCHANGE RATES. 754 Short-Run Fluctuations in the 1990s and 2000s. Present. 748 The Breaking of the Gold-Dollar Link and the Smithsonian Agreement. 754 IN THE REAL WORLD: ADOPTING THE EURO IN THE NEW MEMBER STATES. 747 Special Drawing Rights. 759 Wider Bands. 734 Managed Floating. 764 v CHAPTER 29 . and Future. 775 Photo Credits. AND NORWAY. 766 The Goals of the IMF. 750 References for Further Reading. 741 THE BRETTON WOODS SYSTEM. 768 Greater Stability and Coordination of Macroeconomic Policies across Countries. 770 IN THE REAL WORLD: POLICY COORDINATION AND THE G-20. 773 Early Disruptions. 763 SUGGESTIONS FOR REFORM OF THE INTERNATIONAL MONETARY SYSTEM. 750 The European Monetary System. FRANCE. 771 THE INTERNATIONAL MONETARY SYSTEM AND THE DEVELOPING COUNTRIES. 794 Index. 737 CRAWLING PEG IN The Global Financial Crisis and Recession of 2007-. 743 BANK WITHIN UNION. 735 IN THE REAL WORLD: A COLOMBIA. 764 A World Central Bank. 740 A Return to the Gold Standard. 739 INTRODUCTION.