lOMoARcPSD|3013804
Chapter 2 World Trade: An Overview 1
Contents
Chapter 1 Introduction.........................................................................................................................1
Overview of Section I: International Trade Theory..............................................................3
Chapter 2 World Trade: An Overview.................................................................................................5
Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model.............................8
Chapter 4 Resources, Comparative Advantage, and Income Distribution..........................................12
Chapter 5 The Standard Trade Model................................................................................................16
Chapter 6 Economies of Scale, Imperfect Competition, and International Trade...............................21
Chapter 7 International Factor Movements........................................................................................26
Overview of Section II: International Trade Policy.............................................................30
Chapter 8 The Instruments of Trade Policy.......................................................................................32
Chapter 9 The Political Economy of Trade Policy.............................................................................37
Chapter 10 Trade Policy in Developing Countries...............................................................................42
Chapter 11 Controversies in Trade Policy............................................................................................45
Overview of Section III: Exchange Rates and Open-Economy
Macroeconomics......................................................................................................................49
Chapter 12 National Income Accounting and the Balance of Payments..............................................51
Chapter 13 Exchange Rates and the Foreign-Exchange Market: An Asset Approach..........................57
Chapter 14 Money, Interest Rates, and Exchange Rates.......................................................................64
Chapter 15 Price Levels and the Exchange Rate in the Long Run.......................................................70
Chapter 16 Output and the Exchange Rate in the Short Run................................................................76
Chapter 17 Fixed Exchange Rates and Foreign-Exchange Intervention...............................................84
Overview of Section IV: International Macroeconomic Policy...........................................92
Chapter 18 The International Monetary System, 1870–1973...............................................................94
Chapter 19 Macroeconomic Policy and Coordination Under Floating Exchange Rates.......................99
Chapter 20 Optimum Currency Areas and the European Experience.................................................107
Chapter 21 The Global Capital Market: Performance and Policy Problems.......................................112
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Chapter 2 World Trade: An Overview 2
Chapter 22 Developing Countries: Growth, Crisis, and Reform........................................................117
, lOMoARcPSD|3013804
Chapter 2 World Trade: An Overview 3
Chapter 1
Introduction
Chapter Organization
What is International Economics About?
The Gains from Trade
The Pattern of Trade
How Much Trade
Balance of Payments
Exchange-Rate Determination
International Policy Coordination
The International Capital Market
International Economics: Trade and Money
Chapter Overview
The intent of this chapter is to provide both an overview of the subject matter of international
economics and to provide a guide to the organization of the text. It is relatively easy for an
instructor to motivate the study of international trade and finance. The front pages of
newspapers, the covers of magazines, and
the lead reports on television news broadcasts herald the interdependence of the U.S.
economy with the rest of the world. This interdependence may also be recognized by students
through their purchases of imports of all sorts of goods, their personal observations of the
effects of dislocations due to international competition, and their experience through travel
abroad.
The study of the theory of international economics generates an understanding of many key
events that shape our domestic and international environment. In recent history, these events
include the causes and consequences of the large current account deficits of the United States;
the dramatic appreciation of the dollar during the first half of the 1980s followed by its rapid
depreciation in the second half of the 1980s; the Latin American debt crisis of the 1980s and
the Mexican crisis in late 1994; and the increased pressures for industry protection against
foreign competition broadly voiced in the late 1980s and more vocally espoused in the first
half of the 1990s. More recently, the financial crisis that began in East Asia in 1997 and
spread to many countries around the globe and the Economic and Monetary Union in Europe
have highlighted the way in which various national economies are linked and how important
it is for us to understand these connections. At the same time, protests at global economic
meetings have highlighted opposition to globalization. The text material will enable students
, lOMoARcPSD|3013804
Chapter 2 World Trade: An Overview 4
to understand the economic context in which such events occur.
Chapter 2 World Trade: An Overview 1
Contents
Chapter 1 Introduction.........................................................................................................................1
Overview of Section I: International Trade Theory..............................................................3
Chapter 2 World Trade: An Overview.................................................................................................5
Chapter 3 Labor Productivity and Comparative Advantage: The Ricardian Model.............................8
Chapter 4 Resources, Comparative Advantage, and Income Distribution..........................................12
Chapter 5 The Standard Trade Model................................................................................................16
Chapter 6 Economies of Scale, Imperfect Competition, and International Trade...............................21
Chapter 7 International Factor Movements........................................................................................26
Overview of Section II: International Trade Policy.............................................................30
Chapter 8 The Instruments of Trade Policy.......................................................................................32
Chapter 9 The Political Economy of Trade Policy.............................................................................37
Chapter 10 Trade Policy in Developing Countries...............................................................................42
Chapter 11 Controversies in Trade Policy............................................................................................45
Overview of Section III: Exchange Rates and Open-Economy
Macroeconomics......................................................................................................................49
Chapter 12 National Income Accounting and the Balance of Payments..............................................51
Chapter 13 Exchange Rates and the Foreign-Exchange Market: An Asset Approach..........................57
Chapter 14 Money, Interest Rates, and Exchange Rates.......................................................................64
Chapter 15 Price Levels and the Exchange Rate in the Long Run.......................................................70
Chapter 16 Output and the Exchange Rate in the Short Run................................................................76
Chapter 17 Fixed Exchange Rates and Foreign-Exchange Intervention...............................................84
Overview of Section IV: International Macroeconomic Policy...........................................92
Chapter 18 The International Monetary System, 1870–1973...............................................................94
Chapter 19 Macroeconomic Policy and Coordination Under Floating Exchange Rates.......................99
Chapter 20 Optimum Currency Areas and the European Experience.................................................107
Chapter 21 The Global Capital Market: Performance and Policy Problems.......................................112
, lOMoARcPSD|3013804
Chapter 2 World Trade: An Overview 2
Chapter 22 Developing Countries: Growth, Crisis, and Reform........................................................117
, lOMoARcPSD|3013804
Chapter 2 World Trade: An Overview 3
Chapter 1
Introduction
Chapter Organization
What is International Economics About?
The Gains from Trade
The Pattern of Trade
How Much Trade
Balance of Payments
Exchange-Rate Determination
International Policy Coordination
The International Capital Market
International Economics: Trade and Money
Chapter Overview
The intent of this chapter is to provide both an overview of the subject matter of international
economics and to provide a guide to the organization of the text. It is relatively easy for an
instructor to motivate the study of international trade and finance. The front pages of
newspapers, the covers of magazines, and
the lead reports on television news broadcasts herald the interdependence of the U.S.
economy with the rest of the world. This interdependence may also be recognized by students
through their purchases of imports of all sorts of goods, their personal observations of the
effects of dislocations due to international competition, and their experience through travel
abroad.
The study of the theory of international economics generates an understanding of many key
events that shape our domestic and international environment. In recent history, these events
include the causes and consequences of the large current account deficits of the United States;
the dramatic appreciation of the dollar during the first half of the 1980s followed by its rapid
depreciation in the second half of the 1980s; the Latin American debt crisis of the 1980s and
the Mexican crisis in late 1994; and the increased pressures for industry protection against
foreign competition broadly voiced in the late 1980s and more vocally espoused in the first
half of the 1990s. More recently, the financial crisis that began in East Asia in 1997 and
spread to many countries around the globe and the Economic and Monetary Union in Europe
have highlighted the way in which various national economies are linked and how important
it is for us to understand these connections. At the same time, protests at global economic
meetings have highlighted opposition to globalization. The text material will enable students
, lOMoARcPSD|3013804
Chapter 2 World Trade: An Overview 4
to understand the economic context in which such events occur.
