Applied International Economics, 5th Edition
By W Charles Sawyer and Richard L. Sprinkle
Contents:
List of figures xv
List of boxes xx
Preface xxii
Acknowledgments xxviii
List of tables xviii
CHAPTER 1 Introduction: an overview of the world economy 1
Introduction 1
The scope of international economics 2
The output of the world economy 3
Imports and exports of goods in the world economy 4
International trade in services 6
Capital fows in the world economy 10
Trends in international production and trade 12
Globalization 14
Summary 17
Key concepts and terms 17
Problems and questions for review 18
Notes 18
References 19
CHAPTER 2 Why countries trade 20
Introduction 20
International trade versus interregional trade 21
Trade in an individual product 21
Trade based on absolute advantage 26
Absolute advantage 26
The gains from specialization and trade with absolute advantage 27
Trade based on comparative advantage 28
Comparative advantage 29
The gains from specialization and trade with comparative advantage 30
Trade based on opportunity costs 32
Opportunity costs 33
The gains from specialization and trade with opportunity costs 33
Dynamic gains from trade 34
Summary 35
Key concepts and terms 36
Problems and questions for review 36
Notes 37
References 37
CHAPTER 3 Comparative advantage and the production possibilities frontier 39
Introduction 39
The production possibilities frontier and constant costs 40
The production possibilities frontier 40
Production and consumption without specialization and trade 42
Production and consumption with specialization and trade 42
The terms of trade 47
Changes in the gains from specialization and trade 47
Demand conditions and the terms of trade 48
Distribution of the gains from trade 49
Trade under increasing opportunity costs 51
Increasing costs and the production possibilities frontier 51
Production and consumption without specialization and trade 54
Production and consumption with specialization and trade 54
International trade under increasing costs: an advanced analysis 58
Summary 64
Key concepts and terms 64
Problems and questions for review 64
Notes 65
References 66
CHAPTER 4 Factor endowments and the commodity composition of trade 67
Introduction 67
The factor-proportions theory 68
Assumptions of the factor-proportions theory 68
The factor-proportions theory 70
Factor-price equalization and the distribution of income 73
Factor-price equalization 73
Trade and the distribution of income 76
Trade and income inequality 78
The specifc-factors model 80
Empirical evidence concerning the factor-proportions theory 82
The Leontief paradox 82
Explanations of the Leontief paradox 83
International trade not explained by the factor-proportions theory 85
Summary 86
Key concepts and terms 86
Problems and questions for review 87
Notes 88
References 89
Appendix 4.1: Factor-proportions theory: an advanced analysis 90
CHAPTER 5 Intra-industry trade 93
Introduction 93
Defning intra-industry trade 93
The increasing importance of intra-industry trade 96
Intra-industry trade in homogeneous products 98
Intra-industry trade in differentiated products 98
Economies of scale 100
The product cycle 104
Overlapping demands 106
Empirical evidence on intra-industry trade 109
The welfare implications of intra-industry trade 110
Summary 113
Key concepts and terms 114
Problems and questions for review 114
Notes 115
References 115
CHAPTER 6 THE FIRM IN THE WORLD ECONOMY 117
Introduction 117
The frm in international trade 118
Firm heterogeneity 118
The multinational corporation 123
The importance of MNCs 123
Reasons for the existence of MNCs 127
Offshoring and MNCs 129
Global value chains 130
Public policy toward MNCs 131
Summary 133
Key concepts and terms 133
Problems and questions for review 133
Notes 134
References 134
CHAPTER 7 International factor movements 136
Introduction 136
International trade versus international factor movements 137
International movements of capital 138
Reasons for the international movement of capital 139
Welfare effects of international capital movements 140
Capital movements and public policy 142
International movements of labor 143
Reasons for the international movement of labor 144
Welfare effects of the international movement of labor 146
Immigration and public policy 149
Summary 150
Key concepts and terms 151
Problems and questions for review 151
Notes 152
References 152
CHAPTER 8 Tariffs 153
Introduction 153
Tariffs: some preliminary details 153
Types of tariffs 154
Methods of valuing imports 155
Welfare effects of trade in an individual product 156
Consumer and producer surplus: a review 156
The effects of free trade 158
The economic effects of tariffs 161
The effects of a tariff for a small country 161
The effects of a tariff for a large country 163
The effective rate of protection 166
Arguments for tariffs 168
Infant government 169
National defense 169
Infant industries 171
Senile industry protection 171
Tariffs, trade, and jobs 173
Summary 174
Key concepts and terms 175
Problems and questions for review 175
Notes 176
References 176
CHAPTER 9 Nontariff distortions to trade 177
Introduction 177
Nontariff barriers to trade 178
Quotas 179
The economic effects of a quota 182
Other nontariff distortions 185
Industrial policy 186
Technical barriers to trade 187
Subsidies 189
Government procurement 189
Corruption and international trade 190
Economic sanctions 192
Labor and environmental standards 193
Transportation costs and trade 196
The gravity equation and international trade 199
Summary 200
Key concepts and terms 201
Problems and questions for review 201
Notes 202
References 202
CHAPTER 10 International trade policy 204
Introduction 204
The political economy of protectionism 205
Protectionism and public choice 205
The structure of protection 210
The evolution of U.S. trade policy 212
The formulation of U.S. trade policy 214
Antidumping, countervailing duties, and safeguards 215
Antidumping 216
Types of dumping 216
History of antidumping law in the United States 217
Countervailing duties 218
Safeguards 219
The General Agreement on Tariffs and Trade (GATT) 220
GATT and multilateral trade negotiations 220
The World Trade Organization (WTO) 223
The future of international trade negotiations 223
Summary 226
Key concepts and terms 227
Problems and questions for review 227
Notes 227
References 229
Appendix 10.1: Price discrimination 230
CHAPTER 11 Regional economic arrangements 231
Introduction 231
Degrees of economic integration 232
Rules of origin in international trade 235
Trade effects of economic integration 236
The static effects of a customs union 238
The European Union 241
NAFTA and other U.S. trade agreements 244
NAFTA 245
Other U.S. trade agreements 246
Multilateralism versus regional trade agreements 248
Summary 251
Key concepts and terms 252
Problems and questions for review 252
Notes 253
References 253
CHAPTER 12 International trade and economic growth 255
Introduction 255
The developing countries 256
Economic development 256
GDP of developing countries 256
Economic growth 258
Preconditions for growth 258
Economic growth and the factors of production 260
Basic growth theory 261
Changes in capital stock and technology 262
International trade and economic growth 263
Openness and growth 263
Capital fows, technology transfers, and economic growth 265
Economic development strategies 266
Primary products 267
Import substitution 271
Export promotion 273
Offcial development assistance 277
The role of offcial development assistance 277
Flows of offcial development assistance 278
Multilateral development organizations 279
The World Bank and regional development banks 280
The United Nations agencies 281
Summary 281
Key concepts and terms 282
Problems and questions for review 282
Notes 282
References 283
CHAPTER 13 National income accounting and the balance of payments 284
Introduction 284
National income accounting 285
The measurement of GDP 285
Items excluded from GDP 285
GDP and changes in prices 286
The components of GDP 286
GDP and the trade balance 288
GDP in a closed economy 288
GDP in an open economy 289
Imports, exports, and GDP 289
Intertemporal trade 290
Saving, investment, the government budget, and the trade balance 291
Adjustments to trade imbalances 292
The balance of payments accounts 295
The balance on current account 295
The balance on capital and fnancial accounts 301
Summary 304
Key concepts and terms 304
Problems and questions for review 305
Notes 305
References 306
CHAPTER 14 Exchange rates and their determination: a basic model 307
Introduction 307
Exchange rates 307
The demand for foreign exchange 310
Shifts in the demand for foreign exchange 311
Changes in domestic income 311
Changes in relative prices 313
The supply of foreign exchange 314
Shifts in the supply of foreign exchange 315
Changes in foreign income 315
Changes in relative prices 316
Equilibrium in the foreign exchange market 317
Changes in the equilibrium exchange rate 318
Exchange rate volatility and international trade 321
Exchange rate pass through 321
Price levels and the exchange rate in the long run 324
The law of one price 324
Purchasing power parity 328
Absolute purchasing power parity 329
Relative purchasing power parity 329
Purchasing power parity in the short run and the long run 330
The real exchange rate 334
Changes in the real exchange rate 338
Summary 341
Key concepts and terms 342
Problems and questions for review 342
Notes 343
References 344
CHAPTER 15 Money, interest rates, and the exchange rate 345
Introduction 345 The equilibrium interest rate: the interaction of money Appendix
15.1:The relationship between the monetary base and
Money defned: a review 346
The supply of money 347
The demand for money 350
supply and demand 351
The interest rate and the exchange rate in the short run 356
Interest rates, the exchange rate, and the balance of payments 362
Summary 366
Key concepts and terms 366
Problems and questions for review 366
Notes 367
References 368
the money supply 368
Appendix 15.2: Interest parity and covered interest arbitrage 369
CHAPTER 16 Open economy macroeconomics 371
Introduction 371
Aggregate demand and aggregate supply: a review 372
Aggregate demand 372
Changes in aggregate demand 373
Aggregate supply 377
Changes in aggregate supply 378
Aggregate equilibrium 382
Determinants of the current account 383
Exports 383
Imports 384
Exchange rate changes and equilibrium output in an open economy 386
Exchange rate appreciation 387
Exchange rate depreciation 390
Exchange rate shocks 392
Summary 396
Key concepts and terms 397
Problems and questions for review 397
Notes 398
References 399
CHAPTER 17 Macroeconomic policy and foating exchange rates 400
Introduction 400
Fiscal and monetary policy 400
Changes in fscal policy 401
Expansionary fscal policy 401
Contractionary fscal policy 406
Changes in monetary policy 409
Expansionary monetary policy 410
Contractionary monetary policy 414
Monetary and fscal policy in an open economy 418
Consistent policy mixes 420
Inconsistent policy mixes 421
Trade fow adjustment and current account dynamics 424
Summary 425
Key concepts and terms 426
Problems and questions for review 427
Notes 427
References 428
CHAPTER 18 Fixed exchange rates and currency unions 430
Introduction 430
Inconvertible currencies 431
Diffculties associated with exchange controls 433
Intervention in the foreign exchange market 437
Macroeconomic adjustment under fxed exchange rates: Part I 440
Macroeconomic adjustment under fxed exchange rates: Part II 442
Fiscal policy and internal balance 444
The effects of expansionary and contractionary fscal policy 446
Sterilization 450
Pegging the exchange rate with monetary policy 452
Currency unions 453
The trilemma 454
The European Monetary Union 455
Summary 458
Key concepts and terms 459
Problems and questions for review 459
Notes 460
References 460
CHAPTER 19 International monetary arrangements 461
Introduction 461
The gold standard 462
The gold standard and monetary policy 462
The macroeconomics of the gold standard 463
Costs and benefts of the gold standard 465
The Bretton Woods system and the International Monetary Fund 466
The Bretton Woods System 467
The International Monetary Fund 468
The demise of the Bretton Woods System 469
The post-Bretton Woods era 470
Clean foats 470
Fixing the exchange rate 471
Options for international monetary reform 473
Summary 476
Key concepts and terms 477
Problems and questions for review 477
Notes 478
References 478
CHAPTER 20 Capital fows and the developing countries 479
Introduction 479
Capital fows to developing countries 480
Debt versus equity 480
Servicing foreign debt 482
Exchange rate shocks 483
Macroeconomic consequences of exchange rate shocks 484
Sources of exchange rate shocks 486
Commodity price shocks 486
Exchange controls 488
Intervention, capital fights, and defaults 490
The IMF and developing countries 494
IMF conditionality 494
The future of the IMF 496
Summary 498
Key concepts and terms 499
Problems and questions for review 499
Note 500
References 500
Appendix: GDP, population, and exports for U.S. regions and states, 2018 501
Glossary 509
Index 518