dEnnIs R ApplEyARd AlfREd J fIEld, JR Comprehensive International Analysis Updated discussion and data on wide-ranging issues such as growth in income inequality, multiproduct exporting firms, foreign direct investment in China, free-trade agreements around the world, foreign exchange restrictions, and current euro zone difficulties Many new and updated pedagogical boxes on trade and monetary issues worldwide Discussion of latest research results and updated literature review To learn more about this book and the resources available to you, please visit www.mhhe.com/appleyard8e EIghth EdItIon International Economics E I g h t h E dI t I o n MD DALIM #1216888 11/27/12 CYAN MAG YELO BLK CourseSmart enables access to a printable e-book and mirrors the traditional textbook experience with the ability to highlight and take notes in the text Curious? Go to www.coursesmart.com to try one chapter of the e-book, free of charge, before purchase International Economics International Economics, eighth edition, offers extensive, up-to-date discussion of international trade and monetary issues This coverage is vital to students searching for tools to understand an increasingly interrelated world Appleyard and Field provide those tools through rigorous analysis and real-world applications By studying theories, solving problems, and examining current international topics, students will be well equipped to recognize and interpret the economic issues linking countries around the world The eighth edition includes: Confirming Pages INTERNATIONAL ECONOMICS EIGHTH EDITION DENNIS R APPLEYARD DAVIDSON COLLEGE ALFRED J FIELD, JR UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL app21677_fm_i-xxiv.indd i 23/11/12 2:10 PM Confirming Pages INTERNATIONAL ECONOMICS, EIGHTH EDITION Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020 Copyright © 2014 by The McGraw-Hill Companies, Inc All rights reserved Printed in the United States of America Previous editions © 2010, 2008, and 2006 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper DOW/DOW ISBN 978-0-07-802167-1 MHID 0-07-802167-7 Senior Vice President, Products & Markets: Kurt L Strand Vice President, General Manager: Brent Gordon Vice President, Content Production & Technology Services: Kimberly Meriwether David Publisher: Douglas Reiner Brand Manager: Michele Janicek Managing Development Editor: Christina Kouvelis Marketing Coordinator: Jennifer M Jelinski Director, Content Production: Terri Schiesl Project Manager: Mary Jane Lampe Buyer: Jennifer Pickel Media Project Manager: Prashanthi Nadipalli Cover Designer: Studio Montage, St Louis, MO Cover Image: Brand X Pictures/Getty Images Typeface: 10/12 Times LT Std Roman Compositor: Laserwords Private Limited Printer: R R Donnelley All credits appearing on page or at the end of the book are considered to be an extension of the copyright page The authors dedicate this book to parents, family, and friends whose love and support have sustained us in the writing process over the past 25 years Library of Congress Cataloging-in-Publication Data Appleyard, Dennis R International economics / Dennis R Appleyard, Alfred J Field, Jr — 8th ed p cm — (The McGraw-Hill series economics) ISBN 978-0-07-802167-1 (alk paper) ISBN 0-07-802167-7 International economic relations International trade International finance I Field, Alfred J II Title HF1359.A77 2014 337—dc23 2012036158 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill, and McGraw-Hill does not guarantee the accuracy of the information presented at these sites www.mhhe.com app21677_fm_i-xxiv.indd ii 23/11/12 2:10 PM Confirming Pages The McGraw-Hill Series Economics Essentials of Economics Economics of Social Issues Urban Economics Brue, McConnell, and Flynn Essentials of Economics Second Edition Guell Issues in Economics Today Fifth Edition O’Sullivan Urban Economics Seventh Edition Mandel Economics: The Basics First Edition Sharp, Register, and Grimes Economics of Social Issues Nineteenth Edition Labor Economics Schiller Essentials of Economics Seventh Edition Econometrics Borjas Labor Economics Fifth Edition Gujarati and Porter Basic Econometrics Fifth Edition McConnell, Brue, and Macpherson Contemporary Labor 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Economics and Business Strategy Seventh Edition Brickley, Smith, and Zimmerman Managerial Economics and Organizational Architecture Fifth Edition Thomas and Maurice Managerial Economics Tenth Edition Intermediate Economics Bernheim and Whinston Microeconomics First Edition Dornbusch, Fischer, and Startz Macroeconomics Tenth Edition Frank Microeconomics and Behavior Eighth Edition Rosen and Gayer Public Finance Ninth Edition Seidman Public Finance First Edition Environmental Economics Field and Field Environmental Economics: An Introduction Fifth Edition International Economics Appleyard and Field International Economics Eighth Edition King and King International Economics, Globalization, and Policy: A Reader Fifth Edition Pugel International Economics Fourteenth Edition Advanced Economics Romer Advanced Macroeconomics Third Edition Money and Banking Cecchetti Money, Banking, and Financial Markets Second Edition 23/11/12 2:10 PM Confirming Pages ABOUT THE AUTHORS Dennis R Appleyard Dennis R Appleyard is James B Duke Professor of International Studies and Professor of Economics, Emeritus, Davidson College, Davidson, North Carolina, and Professor of Economics, Emeritus, University of North Carolina at Chapel Hill He attended Ohio Wesleyan University for his undergraduate work and the University of Michigan for his Master’s and Ph.D work He joined the economics faculty at the University of North Carolina at Chapel Hill in 1966 and received the universitywide Tanner Award for “Excellence in Inspirational Teaching of Undergraduate Students” in 1983 He moved to his position at Davidson College in 1990 and retired in 2010 At Davidson, he was Chair of the Department of Economics for seven years and was Director of the college’s Semester-in-India Program in fall 1996 and fall 2008, and the Semester-in-India and Nepal Program in fall 2000 In 2004 he received Davidson’s Thomas Jefferson Award for teaching and service Professor Appleyard has taught economic principles, intermediate microeconomics, intermediate macroeconomics, money and banking, international economics, and economic development His research interests lie in international trade theory and policy and in the Indian economy Published work, much of it done in conjunction with Professor Field, has appeared in the American Economic Review, Economic Development and Cultural Change, History of Political Economy, Indian Economic Journal, International Economic Review, Journal of Economic Education, and Journal of International Economics, among others He has also done consulting work for the World Bank, the U.S Department of the Treasury, and the Food and Agriculture Organization of the United Nations (in Islamabad, Pakistan) Professor Appleyard always derived genuine pleasure from working with students, and he thinks that teaching kept him young in spirit, since his students were always the same age! He is also firmly convinced that having the opportunity to teach others about international economics in this age of growing globalization is a rare privilege and an enviable challenge Alfred J Field, Jr Alfred J Field is a Professor of Economics, Emeritus, at the University of North Carolina at Chapel Hill He received his undergraduate and graduate training at Iowa State University and joined the faculty at Carolina in 1967 Field taught courses in international economics and economic development at both the graduate and undergraduate level and directed numerous Senior Honors theses and Master’s theses He served as principal member or director of more than 100 Ph.D dissertations, duties that he continued to perform after retirement in 2010 In addition, he has served as Director of Graduate Studies, Associate Chair/Director of the Undergraduate Program in Economics, and Acting Department Chair In 1966, he received the Department’s Jae Yeong Song and Chunuk Park Award for Excellence in Graduate Teaching, and in 2006 he received the University of North Carolina at Chapel Hill John L Sanders Award for Excellence in Undergraduate Teaching and Service He also served on the Advisory Boards of several university organizations, including the Institute for Latin American Studies Professor Field’s research encompassed the areas of international trade and economic development He has worked in Latin America and China, as well as with a number of international agencies in the United States and Europe, primarily on trade and development policy issues His research interests lie in the areas of trade policy and adjustment and development policy, particularly as they relate to trade, agriculture, and household decision making in developing countries Another of Field’s lines of research addressed trade and structural adjustment issues in the United States, focusing on the textile and apparel industries and the experience of unemployed textile and apparel workers in North Carolina during the 1980s and 1990s He maintains an active interest in theoretical trade and economic integration issues, as well as the use of econometric and computable general equilibrium models in analyzing the effects of trade policy, particularly in developing countries iv app21677_fm_i-xxiv.indd iv 23/11/12 2:10 PM Confirming Pages PREFACE It is our view that in a time of dramatic increase in globalization and high interrelatedness among countries, every student should have a conscious awareness of “things international.” Whether one is studying, for example, political science, sociology, chemistry, art, history, or economics, developments worldwide impinge upon the subject matter of the chosen discipline Such developments may take the form of the discovery of a new compound in Germany, an election result in Greece, a new oil find in Mexico, formation of a new country in Africa, a startling new political/terrorist/military development in Pakistan or Syria, or a change in consumer tastes in China And, because information now gets transmitted instantaneously across continents and oceans, scientists, governments, firms, and households all react quickly to new information by altering behavior in laboratories, clinics, legislative processes, production and marketing strategies, consumption and travel decisions, and research projects Without keeping track of international developments, today’s student will be unable to understand the changing nature of the world and the material that he or she is studying In addition to perceiving the need for international awareness on the part of students in general, we think it is absolutely mandatory that students with an interest in economics recognize that international economic events and the international dimensions of the subject surround us every day As we prepared to launch this eighth edition of International Economics, we could not help noting how much had changed since the initial writing for our first edition The world has economically internationalized even faster than we anticipated more than 20 years ago, and the awareness of the role of international issues in our lives has increased substantially Almost daily, headlines focus on developments such as the increased problems facing monetary union in Europe and the euro; proposed policies of erecting additional trade barriers as a protective response to worldwide economic weakness; increased integration efforts such as the emerging Trans-Pacific Partnership; and growing vocal opposition and hostility in many countries to the presence of large and increasing numbers of immigrants Beyond these broad issues, headlines also trumpet news of the U.S trade deficit, rising (or falling) gasoline prices, the value of the Chinese renminbi yuan, and outsourcing to call centers in India In addition, as we write this edition, the world has become painfully aware that increased globalization links countries together strongly in times both of recession and prosperity The growing awareness of the importance of international issues is also in evidence in increased student interest in such issues, particularly those related to employment, international working conditions, and equity It is thus increasingly important that individuals have a practical working knowledge of the economic fundamentals underlying international actions to find their way through the myriad arguments, emotions, and statistics that bombard them almost daily Young, budding economists need to be equipped with the framework, the tools, and the basic institutional knowledge that will permit them to make sense of the increasingly interdependent economic environment Further, there will be few jobs that they will later pursue that will not have an international dimension, whether it be ordering components from a Brazilian firm, traveling to a trade show in Malaysia, making a loan for the transport of Caspian Sea oil, or working in an embassy in Quito or in a medical mission in Burundi Thus, the motive for writing this edition is much the same as in earlier editions: to provide a clear and comprehensive text that will help students move beyond simple recognition and interest in international issues and toward a level of understanding of current and future international developments that will be of use to them in analyzing the problem at hand and selecting a policy position In other words, we seek to help these scholars acquire the necessary human capital for dealing with important questions, for satisfying their intellectual curiosity, and for providing a foundation for future on-the-job decisions We have been very flattered by the favorable response to the previous seven editions of our book In this eighth edition, we continue to build upon the well-received features to develop a text that is even more attuned to our objectives We have also continued to attempt to clarify our presentation of some of the more difficult concepts and models in order to be more student-friendly IMPROVEMENTS AND SPECIFIC CHAPTER CHANGES In this edition, as usual, we have attempted to provide current and timely information on the wide variety of international economic phenomena New boxes have been added and previous ones modified to provide up-to-date coverage of emerging issues in the global economy The text includes such matters as recent developments in U.S trade policy, major changes in the European Union and implications of the recent v app21677_fm_i-xxiv.indd v 23/11/12 2:10 PM Confirming Pages vi PREFACE worldwide financial crisis/recession We should note that, in the monetary material, we continue to maintain our reliance on the IS/LM/BP framework for analyzing macroeconomic policy because we believe that the framework is effective in facilitating student understanding and because that material was favorably received by users of the earlier editions We also continue to incorporate key aspects of the asset approach into the IS/LM/BP model Particular mention should be made of the fact that, in this edition, we have continued to employ Learning Objectives at the beginning of each chapter to orient the reader to the central issues This text is comprehensive in its coverage of international concepts, and the Learning Objectives are designed to assist the instructor with the choice of chapters to cover in designing the course and to assist the students in focusing on the critical concepts as they begin to read each chapter Because of the positive response to the opening vignettes in recent editions, we have retained and updated them in this edition to focus on the real-world applicability of the material We have continued to use the pedagogical structure employed in the seventh edition As in that edition, the “In the Real World” boxes are designed to provide examples of current international issues and developments drawn straight from the news that illustrate the concepts developed in the chapter We have added, updated or deleted boxes where appropriate In situations where particularly critical concepts would benefit from further elaboration or graphical representation, we have continued to utilize “Concept” boxes Generally speaking, in each chapter we edited and updated textual material, in addition to the specific changes listed below Also, where appropriate, we have deleted outdated or overly technical material, and these deletions are not included in this list Chapter • resources are fully employed, such has not been the situation in recent years; nevertheless, the basic case for engaging in international trade still holds Updating of all tables and related discussion pertaining to world, regional, and U.S trade value, composition, and structure Chapter Chapter • • Addition of new material to the “In the Real World” box on present-day Mercantilism Chapter • Updating of the “In the Real World” box on countries with highly concentrated export bundles and the particular leading commodities in those bundles Updating of information contained in “In the Real World” boxes showing the commodity terms of trade and income terms of trade of major groups of countries since 1973 Chapter • Updating of data in an “In the Real World” table showing capital/labor, capital/land, and labor/ land ratios in six countries Chapter • • • • Updating and provision of new material on freight rates for shipment of various commodities and on the “freight and insurance factor” difference between c.i.f./f.o.b prices for various countries’ import bundles A new, updated graph on steel industry productivity An updated graph of U.S steel import penetration ratios over time A new “In the Real World” box on how exporting can lead to higher industry productivity, drawing on recent studies of nine African countries and Slovenia • • • Fuller explanation of the implications of factorintensity reversals for the theoretical validity of the Heckscher-Ohlin theorem A new “In the Real World” box providing details of two recent empirical papers that assess the relative contribution of Heckscher-Ohlin compared with other theories as an explanation of real-world trade patterns Updating of information on growing income inequality, especially in the United States; introduction of recent wealth data in addition to recent income data Chapter Chapter 10 • • Updating of the “In the Real World” box on U.S consumer expenditure patterns since 1960 to include 2010 data Chapter • app21677_fm_i-xxiv.indd vi Chapter Brief acknowledgment of the fact that, although micro trade theory and analysis assume that • • Distinguishing between outsourcing and offshoring New literature references throughout the chapter where appropriate Reorganization of section on post–HecksherOhlin theories; addition of new section on multiproduct exporting firms 23/11/12 2:10 PM Confirming Pages vii PREFACE Chapter 11 • • Updating of data on factor endowments in selected countries to include 2010 Updating of “In the Real World” box on the terms of trade of Brazil, Jordan, Morocco, and Thailand Chapter 12 • • • • • • Updating of opening vignette on foreign direct investment (FDI) in China Updating of data on worldwide FDI, U.S FDI abroad, and foreign FDI in the United States Updating of tables on the world’s largest corporations and largest banks Updating of an “In the Real World” box on the determinants of FDI; updating of data on worldwide labor migration, including the material in the “In the Real World” box on immigration to the United States Updating of data on immigrants’ remittances worldwide A new “In the Real World” box on the relationship between immigration to a country and that country’s trade pattern • Chapter 16 • • • • • • Updating to 2012 of the tables on U.S tariff rates and countries receiving Generalized System of Preferences treatment from the United States New information on nominal and effective tariff rates for the European Union’s agricultural sectors A new “In the Real World” box on recent nominal and effective tariff rates in Egypt and Vietnam Updating of the “In the Real World” box that discusses trade controls in Australia, El Salvador, and Pakistan A new table showing the domestic price impacts of the existence of tariffs and nontariff barriers on food and agricultural products in several developed countries Chapter 14 • • Inclusion of new estimates of the potential impact on world welfare of the removal by eight developed countries of tariff and non-tariff barriers to trade in food products Inclusion of new estimates by the U.S International Trade Commission of the welfare impact of removing significant U.S import barriers Chapter 15 • app21677_fm_i-xxiv.indd vii Updating of data, including data on government revenues obtained from tariffs in a variety of countries and of information pertaining to the number of anti-dumping duties and Presentation of new information on the attitudes of citizens of the United States and a variety of other countries toward international trade Discussion of recent developments in the World Trade Organization multilateral trade negotiations and in U.S international trade policy Chapter 17 • • • • Chapter 13 • countervailing duties in place in the United States against imports Inclusion of recent information on the BoeingAirbus rivalry • • Inclusion of recent developments in the European Union and in the East African Community Introduction of new material on Canada’s movement toward forming free-trade pacts with other countries Considerable change in the treatment of the effects on trade and on the partner countries of the implementation of the North American Free Trade Agreement Revision of material on the United States/Central American–Dominican Republic Free Trade Agreement Introduction of new material on the 2011 freetrade agreements of the United States with Colombia, South Korea, and Panama; introduction of material on the Trans-Pacific Partnership Updating of material on the Free Trade Area of the Americas and on Chile’s many free-trade agreements Chapter 18 • • • • Updating of information on the contrasting characteristics of emerging/developing countries and developed countries Introduction of new material on the Fair Trade Movement Introduction of new empirical material regarding the relationship of growth in trade with economic growth in developing countries Updating of data pertaining to the external debt problems of emerging and developing countries Chapter 19 • • • Updating of tables and data throughout the chapter, including balance-of-trade deficits with China and leading trading partners and the international investment position of the United States Introduction of new material on the size of the global daily foreign exchange market Change in presentation of balance-of-payments accounting entries to conform more closely with current official presentations 23/11/12 2:10 PM Confirming Pages viii PREFACE Chapter 20 Chapter 25 • • • • • • • Updating of numerical examples and tables throughout the chapter New case study of the nominal and real exchange rate behavior of the Canadian dollar relative to the U.S dollar Updating of graph showing the nominal and real effective exchange rates of the U.S dollar through 2011 Updating of the graphs showing spot and purchasing-power-parity (PPP) exchange rates of the U.S dollar relative to the euro and the UK pound through 2011 Updating of discussion in Concept Boxes on currency futures and futures options Addition of material on the “carry trade” pertaining to foreign exchange markets and money markets • • Chapter 26 • • • Chapter 21 • • • Updating of information and discussion of international bank lending, international bond markets, and size and growth of financial derivatives Updating discussion in Concept Boxes on interest rate futures and interest rate futures options Presentation of new data on nominal and real interest rates in 24 countries and in graphs of U.S and LIBOR deposit and lending rates Chapter 22 • • • Updating and condensation of information on the Federal Reserve balance sheet and the money supply Updating of information in an “In the Real World” box on money, prices, and exchange rates in Russia Discussion of four recent papers on the testing of the monetary approach and the portfolio balance approach to the balance of payments and the exchange rate Chapter 23 • • Provision of new information on real-world estimates of import and export demand elasticities Introduction of recent information pertaining to the J curve Chapter 24 • • • • app21677_fm_i-xxiv.indd viii Updating of data on the average propensities to import of Canada, France, Japan, the United Kingdom, and the United States Introduction of a new “In the Real World” box on the tendency of industrial countries’ GDP movements to become more highly correlated over the long run than in the short run Expanded discussion of fiscal policy’s income effects, taking into account feedback loops from trading partners A new discussion of increased synchronization of business cycles across countries since 2007 Inclusion of a brief consideration of real-world government expenditure multipliers in the context of the IS/LM/BP model Addition of new graph and textual material to illustrate, using the IS/LM/BP analysis, Greece’s recent fiscal difficulties Updated data on the extent of foreign exchange restrictions in IMF countries • General updating of discussion and data throughout the chapter Addition of material on current economic events at several points in the chapter Introduction of a new “In the Real World” box on perceived increased economic instability in Europe and its impact on the United States, using the IS/LM/BP framework Reworking and updating of the “In the Real World” box on policy coordination among developed countries Chapter 27 • • • • • Updating of information on actual and natural levels of U.S GDP, actual and natural levels of unemployment, and U.S inflation rates Inclusion of recent research results comparing the impact of government expenditures on income under fixed and flexible exchange rates Interpretation of the recent financial crisis in the United States in terms of the aggregate demand/ aggregate supply framework Inclusion of a brief overview of recent research regarding the workings and effectiveness of monetary policy Updating of information in an “In the Real World” box on sub-Saharan Africa Chapter 28 • • • • Addition of new research findings on the impact of exchange rate changes on the size of international trade Updating and extension of the comparison over time of central banks’ reserves with the size of imports Updating of discussion in the “In the Real World” box on currency boards in Estonia and Lithuania Introduction of a new “In the Real World” box describing the nature of the four current monetary unions in the world economy, focusing on the Eastern Caribbean Currency Union Chapter 29 • • Updating of information on members’ quotas in the IMF Addition of material at various spots on the current euro-zone difficulties and world recovery from the recent recession 23/11/12 2:10 PM Confirming Pages ix PREFACE It is our hope that the changes in the eighth edition will prove beneficial to students as well as to instructors The improvements are designed to help readers both understand and appreciate more fully the growing importance of the global economy in their lives DESCRIPTION OF TEXT Our book follows the traditional division of international economics into the trade and monetary sides of the subject Although the primary audience for the book will be students in upper-level economics courses, we think that the material can effectively reach a broad, diversified group of students—including those in political science, international studies, history, and business who may have fewer economics courses in their background Having taught international economics ourselves in specific nonmajors’ sections and Master’s of Business Administration sections as well as in the traditional economics department setting, we are confident that the material is accessible to both noneconomics and economics students This broad audience will be assisted in its learning through the fact that we have included separate, extensive review chapters of microeconomic (Chapter 5) and macroeconomic (Chapter 24) tools International Economics presents international trade theory and policy first Introductory material and data are found in Chapter 1, and Chapters through present the Classical model of trade, including a treatment of pre-Classical Mercantilism A unique feature is the devotion of an entire chapter to extensions of the Classical model to include more than two countries, more than two goods, money wages and prices, exchange rates, and transportation costs The analysis is brought forward through the modern DornbuschFischer-Samuelson model including a treatment of the impact of productivity improvements in one country on the trading partner Chapter provides an extensive review of microeconomic tools used in international trade at this level and can be thought of as a “short course” in intermediate micro Chapters through present the workhorse neoclassical and Heckscher-Ohlin trade theory, including an examination of the assumptions of the model Chapter focuses on the traditional production possibilities–indifference curve exposition We are unabashed fans of the offer curve because of the nice general equilibrium properties of the device and because of its usefulness in analyzing trade policy and in interpreting economic events, and Chapter extensively develops this concept Chapter explores Heckscher-Ohlin in a theoretical context, and Chapter is unique in its focus on testing the factor endowments approach, including empirical work on the trade-income inequality debate in the context of Heckscher-Ohlin Continuing with theory, Chapters 10 through 12 treat extensions of the traditional material Chapter 10 discusses various post–Heckscher-Ohlin trade theories that relax standard assumptions such as international factor immobility, homogeneous products, constant returns to scale, and perfect competition An important focus here is upon imperfect competition and intra-industry trade, and new material has been added regarding the multiproduct exporting firm Chapter 11 explores the comparative statics of economic growth and the relative importance of trade, and it includes material on endogenous growth models and on the effects of growth on the offer curve Chapter 12 examines causes and consequences of international factor movements, including both capital movements and labor flows Chapters 13 through 17 are devoted to trade policy Chapter 13 is exclusively devoted to presentation of the various instruments of trade policy Chapter 14 then explores the welfare effects of the instruments, including discussion of such effects in a “small-country” as well as a “large-country” setting Chapter 15 examines various arguments for protection, including strategic trade policy approaches Chapter 16 begins with a discussion of the political economy of trade policy, followed by a review of various trade policy actions involving the United States as well as issues currently confronting the WTO Chapter 17 is a separate chapter on economic integration We have updated the discussion of the European Union (including recent problems) and the North American Free Trade Agreement In addition, there is new material on the U.S free-trade agreements with Colombia, South Korea, and Panama and on the TransPacific Partnership The trade part of the book concludes with Chapter 18, which provides an overview of how international trade influences growth and change in the developing countries as well as a discussion of the external debt problem The international monetary material begins with Chapter 19, which introduces balance-of-payments accounting This is followed by discussion of the foreign exchange market in Chapter 20 We think this sequence makes more sense than the reverse, since the demand and supply curves of foreign exchange reflect the debit and credit items, respectively, in the balance of payments A differentiating feature of the presentation of the foreign exchange market is the extensive development of various exchange rate measures, for example, nominal, real, and effective exchange rates Chapter 21 then describes characteristics of “real-world” international financial markets in detail, and discusses a (we hope not-too-bewildering) variety of international financial derivative instruments Chapter 22 presents in considerable detail the monetary and portfolio balance (or asset market) approaches to the balance of payments and to exchange rate determination The more technical app21677_fm_i-xxiv.indd ix 23/11/12 2:10 PM Confirming Pages 811 INDEX Frangos, Alex, 485n Frankel, Jeffrey A., 576–578, 720, 778 Frankfurter, Felix, 608 Franklin, Benjamin, 25 Freeman, Richard B., 170–172, 258 free-rider problem, 368, 370 Free to Choose (TV series), 733 Free Trade Area for the Americas (FTAA), 419–420 free-trade areas (FTAs), 396–397 freight and insurance factor (FIF), 51–52 French, Gary L., 187 Frenkel, Jacob A., 575, 576 Friedman, Milton, 720, 733 Froyen, Richard T., 554 FTAs (free-trade areas), 396–397 future rate agreements (FRAs), 537–538 futures contracts, 500–504 defined, 500 eurodollar interest rate, 539–541 foreign currency, 502–504, 540 Gagnon, Joseph, 726 gains from trade “actual” versus “potential,” 104 Classical trade theory, 34–35, 38 neoclassical trade theory, 89–104 total, 34–35, 95 game theory, 194, 356–358, 360–361 GATS (general agreement on trade in services), 380 GATT rounds of trade negotiations, 374– 380, 381 See also General Agreement on Tariffs and Trade (GATT) DOHA Development Agenda, 374, 384–387 Doha Round, 297, 386, 390, 416 Kennedy Round, 374–375, 409 Tokyo Round, 280, 374, 375–378 Uruguay Round, 10, 275, 283, 297, 374, 378–380, 419, 687 GDP See gross domestic product (GDP) Gendreau, Brian, 502n General Agreement on Tariffs and Trade (GATT), 10, 268, 373–380, 381, 391 See also World Trade Organization (WTO) general agreement on trade in services (GATS), 380 General Dynamics, 359 General Electric Company, 149, 388 general equilibrium analysis defined, 289 in large-country case, 313–316 in open economy macroeconomics, 642–656, 667–668 in small-country case, 311–313 trade diversion in, 404–405 trade restrictions in, 311–316 general equilibrium model, 289 Generalized System of Preferences (GSP), 267–268, 269–272, 336, 372, 376, 418 General Motors (GM), 550 General Theory of Employment, Interest and Money (Keynes), 608 geographical distribution of trade exports in, 4, 5, 6, 10 app21677_idx_803-824.indd 811 imports in, 4, 5, 6, 10 issues in, 198 merchandise, 3–5 services, 10 Geography and Trade (Krugman), 198 George, Henry, 330n, 348–349 Gephardt, Richard A., 21 Germany income inequality and, 170 international cartels and, 149 labor and capital per unit of output, 215–216 labor migration to, 248–250 Leontief paradox and, 164 price elasticities of demand for exports and imports, 592–593 and testing of monetary approach to the balance of payments, 575–577 vertical specialization-based trade and, 184–185 get prices right, 443 Gibson, Heather D., 519 Giddy, Ian H., 537n, 539, 541, 547 Gill, Indermit, 425n Glader, Paul, 388n global crisis in Argentina, 692 Asian crisis (1997–1998) and, 425, 770, 777 in international monetary system, 749–752 recession of 2007–2008, 43, 545, 771–772 global funds, 528 globalization of international financial markets, 516, 517–518 terrorism, 445 world attitudes toward, 368 global logistics/supply chain management, 185 Glyn, Andrew, 55–56 Glytsos, Nicholas P., 253 gold in central bank reserves, 553, 768 discontinuation of transactions in, 758 gold export point, 601 gold import point, 601–602 Goldsmith, Charles, 359n gold standard, 599–602, 624 breakdown of, 750 defined, 23–24 global crisis and, 749–750 under Mercantilism, 23–24 proposals to restore, 773–775 Golub, Stephen S., 55 Goodrich, Ben, 57n Gottschalk, Peter, 173n Gourdon, Julien, 163 government under Mercantilism, 19–20 procurement provisions of, 280 trade taxes as key source of revenue, 328, 329 government procurement provisions, 280 government spending, in Keynesian income model, 610–611 Graham, Edward M., 239 Graham, Frank D., 575n Graves, Robert, 69 gravity model of trade, 188–189, 195–196, 258–259 Great Britain See United Kingdom Great Depression, 374, 608, 750–751, 752 Greece debt crisis, 411, 650–660 seasonal workers from, 248–250 worker remittances to, 253 Greenberger, Robert S., 371n Greenspan, Alan, 382, 580, 580n Greytak, David, 187, 189 Groen, Jan J J., 577 gross domestic product (GDP) European instability and U.S GDP, 684 historical correlation over time of country, 624 as measurement device, 11–12 price shocks and, 680–681 synchronization across countries, 625 trade deficits and growth of, 607 unemployment and U.S., 699–700 gross international bank lending, 517–518 Grossman, Gene M., 156n, 217–218, 355, 358n, 436n Group of (G-7) nations defined, 686 import and export demand elasticities, 592–593 macroeconomic policy coordination, 686, 687–688, 779 Group of (G-8) nations, 687–688 Group of 20 (G-20) nations, 687–688, 779 Grubel, Herbert G., 199, 200 Gruber, William C., 182, 183n guest workers, 254–257 Gulde, Anne-Marie, 736n Gultekin, N B., 736n Haberler, Gottfried, 84, 109 Hagerty, James, 349n Hamilton, Alexander, 347–348 Hamner, Susanna, 349n Hanink, Dean M., 189 Hanke, Steve H., 665n Hanson, Gordon H., 166, 174–175, 254n Harkness, Jon, 162 Harley-Davidson, 349 Harrod, R F., 608, 608n Hart, Michael, 412, 412n Hartigan, James C., 162 Hartman, Stephen W., 414n, 415, 415n Harvey, David L., 430n, 432 Harvey, Hanafiah, 595–596 Hauk, William, Jr., 593, 593n Hazlewood, Arthur, 408n Head, Keith, 195 health issues in Doha Development Agenda, 385 in U.S trade policy, 391 Heathcote, Jonathan, 625, 625n Heavily Indebted Poor Countries (HIPC) Initiative, 452–456 Hebert, Robert F., 30n 27/11/12 3:03 PM Confirming Pages 812 Heckscher, Eli F., 66, 129–130 Heckscher-Ohlin (H-O) model, 129–176 assumptions of, 129–130, 142–153 comparative advantage and, 102, 168–169 demand reversal and, 142–143, 157–160 different relative factor endowments and, 130–131, 132–133, 135, 161, 162–168, 220 different relative factor intensities and, 129, 131, 134, 143–144 different relative factor prices and, 136–140 Edgeworth box diagram and, 135, 148–151 factor abundance, 130–131 factor growth and, 220 factor-intensity reversal (FIR) and, 143–144, 160 factor price equalization theorem and, 137–140 firm-focused theories and, 185–186 Heckscher-Ohlin theorem, 133–137 home bias in productivity, 166–168 imperfect competition and, 146–147 income distribution and, 140–142, 169–175 income inequality and, 169–175 labor migration and, 253 Leontief paradox as test of, 156–162 Linder hypothesis and, 186–190 other tests of, 162–168 outsourcing and, 391–393 post-Heckscher-Ohlin theories of trade, 180–198 product cycle theory (PCT) versus, 181–184, 186 production-possibilities frontier (PPF) and, 133–137, 148–151, 220 role of empirical work and, 156 specific-factors model and, 148–153, 336 Stolper-Samuelson theorem and, 140–142, 161, 171, 173 theoretical qualifications of, 142–153 transportation costs and, 144–146 Trefler-Conway dialogue concerning, 166–168 vertical specialization-based trade and, 184–185 Heckscher-Ohlin-Samuelson model See Heckscher-Ohlin (H-O) model Heckscher-Ohlin-Vanek (H-O-V) model, 163, 163n hedging defined, 486 of eurodollar interest rate risk, 535–544 in foreign exchange market, 486, 496–504 Hegerty, Scott William, 599n, 726 Heilbroner, Robert L., 25n, 30n, 608n Helbling, Thomas F., 624, 624n Hellerstein, Rebecca, 594, 594n Helpman, Elhanan, 166, 195, 217–218, 436n Henderson, Dale W., 562 Henderson, David R., 435n herd instincts, 777 app21677_idx_803-824.indd 812 INDEX Hernández-Catá, Ernesto, 713n Herron, Lanny, 188n Hertel, Thomas, 297, 297n Hessels, Jolanda, 188, 188n Hickok, Susan, 102 high degree of openness, 429 high-income economies, 426n Hillman, Arye, 367n HIPC (Heavily Indebted Countries), 453 Hitt, Greg, 266n, 388n, 389n Hoekman, Bernard, 386, 386n Hoftyzer, John, 187, 188 home bias, in productivity, 166–168 home bond supply, in portfolio balance approach to balance of payments, 565–566 home-currency appreciation, 487–488, 565, 566 home-currency depreciation, 487–488, 558 H-O model See Heckscher-Ohlin (H-O) model Honda America, 349 Hong Kong in Asian crisis (1997–1998), 770 economic growth in, 210 Hooper, Peter, 592n, 592–593, 593n, 614n, 614–615, 725 Hoover Institution, 733n Horn, Bobbie L., 450 Horwitz, Tony, 410n host countries defined, 236 determinants of investment inflows, 242 potential impact of foreign direct investment, 244–247 potential impact of labor migration, 257–260 HSBC Holdings, 237 Hudson Bay Company, 19 Hufbauer, Gary Clyde, 57n, 160, 183n, 289, 295n, 317n, 335, 335n, 349, 349n, 407n, 409n, 414–415 Hume, David, 16, 22–24, 25, 737–738 Hummels, David, 146, 146n, 174, 184 Humpage, Owen F., 665n Husain, Ishrat, 456 Hutchison, Michael, 735 Hutzler, Charles, 389n Hymer, Stephen, 246 hyperinflation, 575–577 Iacocca, Lee, 282 Ichimura, Shinich, 162 Ilzetski, Ethan, 620n, 657n Imbs, Jean, 625, 625n IMF conditionality, 781 IMF quota, 753–755, 757–758 imitation lag, 180 imitation lag hypothesis, 180–181 immiserizing growth, 224–227 imperfect capital mobility defined, 651 under flexible exchange rates, 672–679 imperfect competition and Heckscher-Ohlin (H-O) model, 146–147 strategic trade policy and, 348 imperfect substitutes, 561 import(s) autonomous, 612, 621–622 average propensity to import (APM), 612, 614–615 capital/labor ratios and, 157, 158–159, 161 country leaders in merchandise trade, demand for imports schedule, 300–301 elasticity of demand and, 116–121, 124, 214, 229, 400–402, 588, 592–593, 612–613 gold import point, 601–602 impact of trade policies concerning, 290–296, 300–301, 302–307, 311–316, 317 income elasticity of demand and, 214, 400–402, 612–613 induced, 612 leaders in service, 10 marginal propensity to import (MPM), 612 price elasticity of demand by country, 592–593 regional distribution of, 4–6, 10 restrictions on, 441 steel industry, 56–57 import function, in Keynesian income model, 612–613 import quotas, 279 impact in large-country case, 305–307, 309, 313–316, 317, 322–323, 388–389 impact in small-country case, 293–294 on nonhomogeneous goods, 319–320 import subsidies, 267 impact in small-country case, 293–296 tariffs to offset foreign, 342–347 import substitution, 442–443 import substitution industrialization (ISI), 444–445 import tariffs, 267–278 to benefit scarce factor of production, 335–336 to extract foreign monopoly profit, 339–340 in fostering national pride, 336 impact in large-country case, 302–305, 313–316, 321 impact in small-country case, 290–293, 311–313 to improve balance of trade, 330–331 incidence of the tariff, 303 to increase employment in particular industry, 334–335 Leontief paradox and, 161 measurement of, 273–278 national defense argument for, 328–330 to offset foreign dumping, 341–342, 388–389 to offset foreign subsidies, 342–347 optimum tariff rate, 331–332, 358–361 other features of, 269–272 to promote exports through economies of scale, 353 to promote exports through research and development, 353–355 to reduce aggregate unemployment, 333 27/11/12 3:03 PM Confirming Pages 813 INDEX reductions following Uruguay Round of trade negotiations (GATT), 381 terms-of-trade argument for, 331–333, 358–361 types of, 267 of the U.S., 161, 269–272, 275–276, 289 impossible trinity, 662 incidence of the tariff, 303 incipient BOP deficit, 558, 671, 702 incipient BOP surplus, 558, 671, 702 income distribution developing countries and, 170–171, 172 in Heckscher-Ohlin (H-O) model, 140–142, 169–175 impact of international trade on, 102 impact of trade policy on, 317 in intra-industry trade, 200 income effect, 120 income elasticity of demand, 432 income elasticity of demand for imports (YEM), 214, 400–402, 612–613 income terms of trade, 121, 122 increasing opportunity costs, 83–84 increasing returns to scale, 78 independent floating, 765, 766 independent variable, 574n India antidumping orders, 343–344 labor migration from, 249 Leontief paradox and, 162 most-favored-nation (MFN) treatment, 268 open-economy multiplier for, 621 outsourcing trend and, 391–393 preferential duties and, 267, 268 rise as trade competitor, 416 worker remittances to, 253, 254, 260 Indian Currency and Finance (Keynes), 608 indifference curves community/country, 70–72, 101, 104 consumer See consumer indifference curves Indonesia, in Asian crisis (1997–1998), 770 induced consumption spending, 609 induced imports, 612 Industrial and Commercial Bank of China, 237 industrial policy, 393 inelasticity of demand, concept of, 23 infant industry argument for protection, 348–350 inferior goods, 120n inflation current account deficit and, 627 current account surplus and, 628 expected, 556, 565 flexible exchange rates and, 735 hyperinflation, 575–577 in monetary approach to balance of payments, 554, 556, 565 stagflation and, 714, 715 unemployment and, 714, 715 vicious circle hypothesis and, 723, 769 Ingersoll, Bruce, 317n, 371n Ingram, James C., 327, 328 Ingrassia, Lawrence, 379n injections, 617–618 app21677_idx_803-824.indd 813 input-output table, Leontief paradox and, 156–157 inshoring, 392 integration See economic integration intellectual property rights, 283–286, 379–380 Inter-American Development Bank, 779 interbank market, 489 interdependence, economic, changes in, 11–12 Interest Equalization Tax (IET), 520, 523–524 interest rate risk, 530, 535–544 interest rates See also IS/LM/BP analysis across countries, 525–526 equilibrium, 642–646, 667–668 eurodollar futures contracts, 539–541 foreign interest rate shock, 682–685 link with exchange rates, 519–527 in monetary approach to balance of payments, 552–554 inter-industry trade, 198 INTERLINK, 625, 626n internal balance defined, 627 price adjustment mechanism and, 626–628 International Bank for Reconstruction and Development (IBRD), 752 See also World Bank international bank lending, 516–522 defined, 517 gross, 517–518 net, 518 international bond market, 522–527 international buffer stock agreement, 437 International Cocoa Agreement, 439 International Coffee Agreement, 437, 439 international commodity agreements (ICAs), 438 International Development, Growth, and Change (Prebisch), 433 International Development Association (IDA), 453 international economics, 1–14 changes in economic interdependence and, 11–12 general reference list on, 12–14 introduction to, 1–2 merchandise in See merchandise trade services in See service trade international export quota agreement, 437 international financial flows, 504–513 international financial markets, 515–547 bank lending in, 516–522, 547 bonds in, 522–527 derivatives in, 529–547 globalization of, 516, 517–518 link between foreign exchange market and, 504–513, 529–544 loan participation syndicates, 547 stocks in, 527–529 international funds, 528 international indebtedness position of a country, 478–482 international investment position of a country, 478–482 International Labour Organization (ILO), 128 international liquidity, 749 internationally acceptable reserve assets, 749 international macroeconomic policy coordination, 686–688 International Monetary Fund (IMF), 437, 451–456, 465, 465n, 479, 523, 533–534, 575, 640–641 “Aid for Trade” and, 386–387 balance-of-payments statistics and, 465–466, 478 in Bretton Woods system, 752–756 commodity prices and U.S real GDP, 680–681 controls over trade and, 283–284 crawling peg system and, 745n debt relief for developing countries and, 451–455 development in Africa and, 713 exchange controls and, 653 exchange rate regimes, 764–767 freight and insurance factor, 51–52 goals of, 752–755 help for poor countries, 451–452, 713 IMF conditionality, 781 IMF quotas by country, 753–755 income terms of trade, 122 Jamaica Accords and, 759 macroeconomic policy coordination, 686–688 origins of, 608, 752 real effective exchange rate, 492–495, 593 terms of trade calculation, 115 terms of trade for major groups of countries, 117–118 terms of trade for specific countries, 228 terms-of-trade indexes and, 117–118, 122 terms-of-trade shocks and, 106, 439–440 trade and income inequality for developing countries, 172 trade and income inequality in, 172 trade taxes as source of government revenue, 329 international monetary system, 748–782 Bretton Woods system in, 752–756 current exchange rate arrangements, 764–767 developing countries and, 780–781 evolution of new, 756–764 early disruption, 756–757 European monetary system (EMS), 759–763 exchange rate variations, 764–767 short-run fluctuations in 1990s and 2000s, 763–764 Smithsonian Agreement, 758 special drawing rights (SDRs), 456, 553, 757–758, 769, 779 experience under current, 767–772 fixed versus flexible exchange rates, 726–727, 750–751, 765–767 global crisis in, 749–752 suggestions for reform of, 773–780 controls on capital flows, 777–780 return to gold standard, 773–775 stability and coordination of macroeconomic policies, 779–780 target zone proposal, 775–777 world central bank (proposed), 774 27/11/12 3:03 PM Confirming Pages 814 international portfolio diversification, 528 international reserves, 551–552, 727, 729–730, 749–750, 769 International Standard Industrial Classification (ISIC) system, international stock markets, 527–529 International Sugar Agreement, 439 International Tin Agreement, 437, 439 international trade See also exchange rate; foreign exchange market; merchandise trade; trade policy attitudes toward, 368, 369 economic development and, 426–435 exchange rate risk and, 725–726 income distribution and, 102 introduction in neoclassical trade theory, 92–97 managed trade, 393 intra-firm trade, 434 intra-industry trade (IIT), 198–202 defined, 190 level of, 201–202 measurement of, 207–208 reasons for, 199–201 investment spending See also foreign direct investment (FDI); foreign portfolio investment (FPI) in Keynesian income model, 610 inward-looking trade strategy, 442–448 Ip, Greg, 382n Irwin, Douglas, 383n Isard, Peter, 726 IS curve, 646–647 See also IS/LM/BP analysis defined, 646 equilibrium in open economy, 654–656 IS/LM/BP analysis of aggregate demand, 701–703 effects of changes in exchange rates, 662–666 with fixed exchange rates, 642–668, 701–702, 727–729, 734–735 with flexible exchange rates, 670–688, 702–703, 710–711, 727–729, 734–735 relationship between exchange rate and income in equilibrium, 675–677 isocost lines, 78–80 isoquants, 75–78, 81 Issing, Otmar, 762n Isuzu, 282 Italy income inequality and, 170 price elasticities of demand for exports and imports, 592–593 item-by-item approach, 374 Ito, Takatoshi, 726 Jaguar, 550 Jamaica Accords, 759 James, Sallie, 21n Japan antidumping orders, 343–344 average propensity to import, 614–615 dynamic comparative advantage and, 182 economic growth in, 210 economies of scale and, 353 app21677_idx_803-824.indd 814 INDEX effect of protection instruments on domestic prices, 284–285 export pricing and exchange rate pass-through of, 595–596 flexible exchange rates and, 735 foreign exchange market, 485 international cartels and, 149 labor and capital requirements per unit of output, 215–216 largest corporations, 237 Leontief paradox and, 164 policy frictions in interdependent world, 685 price elasticities of demand for exports and imports, 592–593 synchronization of GDP movements across countries, 625 U.S trade deficits with, 475–476 world central bank (proposed) and, 774 Japan Post Holdings, 237 J curve, 597–598 Jennings, Thomas, 764n Jensen, J Bradford, 392, 392n Johanson, Jan J., 185, 188, 188n Johnson, George E., 173n Johnson, Harry G., 358n, 438 Johnson, Karen, 592n, 592–593, 593n, 614n, 614–615 Johnson, Leland, 280 Johnson, Lyndon B., 137 Johnson, Samuel, 25 Johnson, Simon, 447 Johnston, R B., 518n Jones, M., 185 Jones, Ronald W., 201 Jordan, terms of trade in, 228 Joyce, Joseph P., 770n JPMorgan Chase, 237 July Framework Agreement (Geneva, 2004), 386 Kaempfer, William H., 184 Kakoza, Joseph, 408n Kantor, Mickey, 371 Karfakis, Costas, 578 Karmin, Craig, 392n Karras, Georgios, 705n Kasman, Bruce, 512 Katz, Lawrence F., 171, 258 Kaufman, Herbert M., 519, 519n, 520 Kawasaki, 349 Keeney, Roman, 297, 297n Keesing, Donald B., 161, 182 Kehoe, Patrick J., 413 Kehoe, Timothy J., 413 Kellard, Neil M., 430n, 432 Kemp, Murray C., 204, 205n Kendry, Adrian, 137n Kenen, Peter B., 452 Kennedy, John F., 137 Kennedy, Thomas E., 187, 188 Kennedy Round of trade negotiations (GATT), 374–375, 409 Kenya in East African Common Market (EACM), 408 normal trade relations (NTR) and, 268 Ketenci, Natalya, 577 key currencies, 756 Keynes, John Maynard, 69, 69n, 607, 608, 639, 774 Keynes, John Neville, 608 Keynesian income model, 606–633 autonomous spending multiplier and, 619–622 consumption function in, 609–610 current account balance, 607–613 equilibrium level of national income in, 613–619 import function in, 612–613 saving function in, 609–610 Khan, M Shahbaz, 451n Kharas, Homi, 425n Kierzkowski, Henryk, 201 King, Neil, Jr., 21n, 253n, 266n, 289n, 366n, 386n, 388n Klein, Michael, 726 Kletzer, Lori G., 392, 392n Klitgaard, Thomas, 595, 595n, 596n Klonsky, Joanna, 419n Kobayashi, Kiyoshi, 277 Kohlhagen, Steven, 725 Kolb, Robert W., 502n Konings, Josef, 278n Korhonen, Iikka, 736n, 738n Kraay, Art, 446 Kramer, Roland L., 149n Kravis, Irving B., 182–183 Kreicher, Lawrence L., 521n Krueger, Anne O., 102, 350, 444, 446 Krugman, Paul R., 178, 190–195, 198, 206–207, 239, 350–353, 352n, 361, 452, 776–777, 777n Krugman model characteristics of, 190–193 economies of scale in, 190 monopolistic competition, 191–193, 206–207 Krupp, 149 Kuroda, Haruhiko, 421, 421n Kuwait, 520 Kvasnicka, Joseph G., 519n Kyle, John F., 162 Laboarde, David, 386n labor See also employment; unemployment aggregate demand curve in closed economy, 694–695 brain drain and, 232, 256–257, 260 capital/labor ratios and, 157, 158–159, 161 costs of protecting industry employment, 335 different skill levels of, 158–159, 161, 166–168 foreign direct investment (FDI) and, 239–240 in Heckscher-Ohlin (H-O) model, 158–159, 161, 162–163, 253 impact of foreign direct investment on, 246 international movements of, 247–260 in Krugman model, 190–191 27/11/12 3:03 PM Confirming Pages 815 INDEX labor force growth and per capita income, 223 labor market equilibrium, 250–253 marginal physical product of, 77–78, 140–142, 151–153 under Mercantilism, 20 migration from developing countries, 253–257 See also migration of labor outsourcing and, 174–175, 184–185, 391–393 permanent migration, 248–250 requirements per unit of output, 215–216 seasonal workers, 247–248 skill levels of, 158–159, 161, 162–163, 166–168 surplus, 251–252 trade adjustment assistance and, 100, 375, 377, 419 unit labor costs, 53–55 worker remittances, 253–254, 260 labor-saving technological changes, 214–215 labor standards comparative advantage and, 128–129 following Uruguay Round of trade negotiations (GATT), 380–383 labor theory of value, 19, 24–26, 29 Lachica, Edward, 282n Laffer, Arthur B., 452n, 639, 639n Laffer curve, 452–454 debt-relief, 452–454 described, 452n Lafourade, Miren, 186n laissez-faire defined, 24 under Mercantilism, 24–26 Lamy, Pascal, 366, 386 Land Rover, 550 land use, impact of trade policy on, 317 Lane, Morton, 537n large country defined, 114 export subsidies in, 310–311, 324–325 export taxes and, 307–309, 323–324 factor growth in, 222–227 general equilibrium analysis, 313–316 impact of trade policies in, 299–311, 313–316, 317, 321–325 import quotas, 305–307, 309, 313–316, 317, 322–323, 388–389 import tariffs, 302–305, 313–316, 321 shifts in offer curve, 114–116 Latin American Integration Association (LAIA), 400 Lauricella, Tom, 485n law of one price, 492 Lawrence, T E., 69 leakages, 617–618 Leamer, Edward E., 156, 156n, 164, 164n, 168, 219n leaning against the wind, 744–746 leaning with the wind, 744–746 least developed countries, 425–426 Lees, Frances A., 523n Leff, Nathaniel H., 309 legal tender, exchange arrangements with no separate, 766 app21677_idx_803-824.indd 815 Lehman Brothers, 771 Lehrman, Lewis E., 720 Leith, J Clark, 375 Lemieux, Thomas, 173n Leontief, Wassily W., 66, 156–162, 158n Leontief paradox, 156–162, 164 capital/labor ratios and, 157, 158–159, 161 described, 156–157 explanations, 157–162 Leontief statistic, 157, 162 Leontief test, 158–159 less developed countries (LDCs) See developing countries Levinsohn, James, 156, 156n, 168 Liang, Hong, 439, 440n LIBOR (London Interbank Offered Rate), 519, 523, 533–534, 540, 543 Lincoln, Abraham, 327 Linder, Staffan Burenstam, 186–190, 201 Linder hypothesis, 186–190 Linnemann, Hans, 195 Lipsey, Robert E., 182–183 liquidity international, 749 liquidity problem, 450, 755 List, Frederick, 347–348 Lithuania, currency boards in, 737–738 Liu, Xiaming, 195 Lloyd, P J., 199 LM curve, 642–646 See also IS/LM/BP analysis defined, 644–645 equilibrium in open economy, 654–656 loan participation syndicates, 547 loan-pushing, 450 Locksley, Gareth, 137n, 733n London (Ontario) Court of International Arbitration, 389 London Interbank Offered Rate (LIBOR), 519, 523, 533–534, 540, 543 Londoño, Juan Luis, 102 Long, William J., 376n long hedge, 539 long position, 499 long-run aggregate supply curve, 698 long-run deterioration, in terms of trade, 431–435 long-run free-market equilibrium world price, 438 Loong, Lee Hsien, 421 Lopokova, Lydia, 608 Loria, Eduardo, 577 Louvre Accord, 763 Love, James, 431 Lovely, Mary, 240 lower-middle-income economies, 426n low-income economies, 426n Luce, Geoffrey, 537n Lunsford, J Lynn, 359n Maastricht Treaty, 760–763 MacDonald, Alistair, 253n MacDonald, Ronald, 563, 576 MacDougall, G D A., 53–55, 54n Machlup, Fritz, 460, 755n, 757n macroeconomic interpretation of trade deficit, 330–331 macroeconomic policy See closed economy macroeconomics; fiscal policy; monetary policy; open economy macroeconomics Madsen, Jakob B., 218, 374, 430n, 432 Magaziner, Ira, 361 Magee, Christopher, 377, 377n Maggard, Kasey Q., 254n magnification effect, 141 Magraw, Daniel, 522 Makin, John H., 568n Malaysia, in Asian crisis (1997–1998), 770 Malkiel, Burton G., 755n Mallampally, Padma, 242, 242n managed floating, 744–746, 765, 766 managed trade, 393 management problem, of currency boards, 738 Mandelson, Peter, 412 Mankiw, N Gregory, 392 Mann, Catherine, 607, 607n maquiladora program, 415 marginal cost (MC), in monopoly, 339–340 marginal physical product of capital, 77–80, 140–142, 151–153, 241–244 marginal physical product of labor, 77–78, 140–142, 151–153 marginal propensity to consume (MPC), 609–610 marginal propensity to import (MPM), 612 marginal propensity to save (MPS), 609–610 marginal rate of substitution (MRS), 70–72 defined, 70 diminishing, 70 marginal rate of technical substitution (MRTS), 77–78 marginal rate of transformation (MRT), 84, 90–91 marginal revenue (MR) in monopolistic competition, 206–207 in monopoly, 339–340 Marjit, Sugata, 201 market failure, externalities and, 337–341 market-seeking FDI, 242 market stability, 584–591 defined, 584 and price adjustment mechanism, 584–591 Markusen, James R., 184, 239 Marquez, Jaime, 592n, 592–593, 593n, 614n, 614–615 Marsh, Ian W., 576 Marshall, Alfred, 198 Marshall, Kathryn G., 167 Marshall-Lerner condition defined, 590 derivation of, 604–605 estimates of import and export demand elasticities, 592–593 nature of, 587–591 Marshall Plan, 442 Martin, William, 386, 386n Maskus, Keith E., 163–164, 184 Massell, Benton F., 431 27/11/12 3:03 PM Confirming Pages 816 Mathematical Psychics (Edgeworth), 69 Matthews, Robert Guy, 51, 289n, 295n Mattoo, Aaditya, 386, 386n maturing-product stage, 181 maturity mismatching, 537 Mayer, Thierry, 186n, 196–197 Mayo, Herbert B., 528 McAuley, Andrew, 188, 188n McCormick, Frank, 510n McCulloch, Rachel, 724 McDermott, C John, 439, 440n McDonnell Douglas, 359 McDougall, Patricia P., 185, 188, 188n McHugh, Richard, 187, 188 McKinnon, Ronald, 740, 742, 773 McPherson, M A., 189 McVey, Rick, 537n median-voter model, 367 Meese, Richard A., 576, 578 Mehta, Dileep, 182, 183n Meier, Gerald M., 225, 244, 350, 431, 433n Melitz, Marc, 196–197 Melloan, George, 685n Melvin, James R., 184 Melvin, Michael, 571, 572 Mendelsohn, M S., 523 Mendelson, Morris, 522 Mendoza, Entrique G., 620n, 657n Mercantilism, 18–26 balance of trade argument for tariffs and, 330 challenges to, 22–26 defined, 18 domestic economic policy under, 20 economic system under, 18–19, 25 government role under, 19–20 recent examples of, 21 trade policy and, 330, 347 merchandise trade, 3–9 commodity composition of, 6–9 export taxes and subsidies, 278–279 geographical composition of, 3–5 growth of, import tariffs, 267–278 interdependence in, 11–12 leading exporters and importers by country, nontariff barriers to, 279–286 U.S., 7–9, 474–481 merchandise trade balance, 469 MERCOSUR (Southern Cone Common Market), 400, 419, 420, 441 Mexico See also North American Free Trade Agreement (NAFTA) capital loans to, 450 labor migration from, 249, 260 Leontief paradox and, 165 maquiladora program of, 415 possible solutions to debt problem, 450 tomato exports to the U.S., 371 trade policy of, 266 worker remittances to, 253, 254 Michaels, Daniel, 359n migration of labor, 247–260 additional considerations for, 253–257 labor surplus and, 251–252 permanent, 248–250 app21677_idx_803-824.indd 816 INDEX potential benefits and costs to host country, 257–260 seasonal, 247–248 worker remittances to home country, 253–254 Milgate, Murray, 30n, 69n, 137n, 433n, 608n, 733n Mill, John Stuart, 34, 39, 49, 58, 460 Millennium Development Goals (United Nations), 453 Miller, John W., 21n, 51, 359n, 386n, 388n, 685n Miller, Scott, 366n, 385n, 388n Minhas, B S., 160 mint par, 600 Mishel, Lawrence, 170, 173n moderately-inward-oriented economies, 443–444 moderately-outward-oriented economies, 443–444 Moffett, Matt, 439n Mohanty, Samarendu, 317n Mollenkamp, Carrick, 688n, 779n monetary approach See also international monetary system; monetary policy to the balance of payments, 550–557 demand for money, 552–555 monetary equilibrium and balance of payments, 555–557 supply of money, 551–552, 555–557 testing, 574–577 to the exchange rate, 557–560 nature of, 557–558 testing, 574–577 two-country framework, 558–560 monetary base, 551–552 Monetary History of the United States, 1867–1960 (Friedman and Schwartz), 733 monetary policy contractionary, 555 expansionary, 555, 689–690 under fixed exchange rates, 660–662, 704–706 under flexible exchange rates, 675–677, 689–690, 706–709 aggregate demand, 704–706 coordination with fiscal policy, 677–679, 686–688, 779–780 monetary policy-fiscal policy coordination, 677–679, 686–688, 779–780 monetary sovereignty problem, 739 monetary unions, 397, 399–400, 741 money market, general equilibrium in, 642–646 money market instruments, 523 money multiplier, 551 monopolistic competition defined, 191 in Krugman model, 191–193, 206–207 monopoly model export tax to extract domestic monopoly profit, 340–341 and Heckscher-Ohlin (H-O) model, 146–147 impact of foreign direct investment on, 245, 246 under Mercantilism, 19–20 tariff to extract foreign monopoly profit, 339–340 monopsony market power, under Mercantilism, 19–20 Moonie, Ken, 371 Morgan, Theodore, 431 Morocco, terms of trade in, 228 Morrow, Peter, 168–169, 169n Morse, Dan, 388n Mossberg, Walter S., 282n most-favored-nation (MFN) treatment, 268, 269–271, 374 motorcycle industry, infant industry protection for, 349 Mozambique, trade and income inequality in, 172 MPC (marginal propensity to consume), 609–610 MPM (marginal propensity to import), 612 MPS (marginal propensity to save), 609–610 MRS (marginal rate of substitution), 70–72 MRT (marginal rate of transformation), 84, 90–91 MRTS (marginal rate of technical substitution), 77–78 Multi-Fiber Agreement, 379–380, 383, 389, 444 Multilateral Debt Relief Initiative (MDRI), 453 multilateral negotiations, 374 multinational corporations (MNCs) defined, 234 dynamic comparative advantage and, 182 education and, 246 foreign direct investment (FDI) and, 234–237 product cycle theory (PCT) and, 181–184, 186, 238 and transfer pricing, 245, 434–435 trends concerning, 232–247 world’s largest, 237 multinational enterprises (MNEs) See multinational corporations (MNCs) multiple exchange rates, 778 multiplier autonomous spending, 619–622 money, 551 open-economy, 620–626, 629–633 Mun, Thomas, 16 Mundell, Robert, 140, 639, 640n, 739, 740, 742, 774, 774n Mundell-Fleming diagram, 640–641 Muriel, Beatriz, 165 Murphy, Ricardo Lopez, 692, 692n Murray, Shailagh, 388n mutual funds, 528 Myint, Hla, 428 Myrdal, Gunnar, 229 NAFTA See North American Free Trade Agreement (NAFTA) Narayan, Paresh Kumar, 593, 593n Narayan, Seema, 593, 593n National Bank of Argentina, 433 national defense, as argument for tariffs, 328–330 27/11/12 3:03 PM Confirming Pages 817 INDEX national income current account and, 606–633 equilibrium in Keynesian income model, 613–619 income adjustments and, 626–628 multiplier when taxes depend on, 629–631 price adjustments and, 626–628 unemployment and U.S., 699–700 national pride, trade policy in fostering, 336 natural level of employment, 698 natural level of income, 698 natural resources See also oil shocks fixed versus flexible exchange rates and, 726–727 in Heckscher-Ohlin (H-O) model, 162 Navajas, Fernando, 692, 692n NBC, 369 Neary, J Peter, 197, 274 negative trade balance See unfavorable balance of trade neoclassical trade theory, 65–176 See also Heckscher-Ohlin (H-O) model assumptions in analysis of, 100–102 autarky equilibrium and, 90–92, 204–205 basis for trade, 127–154 consumer behavior theory in, 68–75 Edgeworth Box diagram and, 68, 69, 80–83 equilibrium terms of trade in, 110–111 gains from trade and, 89–104 introduction of international trade in, 92–97 introduction to, 68 minimum conditions for trade and, 97–100 offer curves and, 106–110, 112–116 production-possibilities frontier (PPF) and, 75–80, 83–87 production theory in, 75–80, 81 terms of trade in, 105–126 net barter terms of trade (commodity terms of trade), 115, 245 net creditor country, 479 net debtor country, 479 net debtor status, 481 net errors and omissions, 478 Netherlands international cartels and, 149 largest corporations, 237 Netherlands Antilles, 523 net international bank lending, 518 net international investment position, 463 net lag, in imitation lag hypothesis, 180–181 network theory, 185–186 neutral consumption effect, 213 neutral production effect, 211 Newman, Peter, 30n, 69n, 137n, 433n, 608n, 733n new products imitation lag hypothesis and, 180–181 product cycle theory (PCT) and, 181–184, 186, 238 new-product stage, 181 new venture internationalization, 188 Nguyen, Elena L., 235n, 236n Nitsche, V., 445, 445n app21677_idx_803-824.indd 817 Nixon, Richard, 758 Nomani, Asra Q., 282n nominal effective exchange rate (NEER) defined, 490–491 of U.S dollar, 493–495 nominal tariff rate, 274–278 nonhomogeneous goods, impact of trade policy on, 319–320 nonreciprocity principle, 377–378 nontariff barriers (NTBs), 279–286 additional domestic policies, 283–286 types of, 279–282 nontraded goods, 51 normal trade relations (NTR), 268, 269–271 See also most-favored-nation (MFN) treatment North American Free Trade Agreement (NAFTA), 400, 411–417, 441 antidumping provisions, 389–390 claimed violations of, 266 domestic content provisions, 280 impact of, 90, 267–268, 269, 280, 295–296, 371, 379, 413–417 implementation of, 232 myths versus facts, 416–417 new venture internationalization and, 188 origins of, 12, 90, 232, 390, 397, 411–413 preferential duties and, 267–268 recent U.S free-trade agreements and, 417–419 U.S tariff rates, 161, 269–272, 275–276, 289 Norway, flexible exchange rates in, 750–751 notional values, 545 Noyer, Christian, 762n Nyerere, Julius, 408 Obama, Barack, 21, 266, 280, 375, 389, 391, 416, 418–419, 711 Obote, Milton, 408 Obstfeld, Maurice, 516n Occupy Wall Street movement, 170–171 Odessey, Bruce, 317n Oehmke, James F., 184 offer curve (reciprocal demand curve) alternative terms of trade and, 108–109 in analyzing impact of trade policy, 313–316 economic growth and, 225 elasticity and, 116–121, 124–126 equilibrium of, 124–126 in neoclassical trade theory, 106–110, 112–116 shifts in, 112–116 tabular approach to deriving, 109–110 trading equilibrium and, 110–111 official reserve transactions (ORT), 656 official reserve transactions balance, 472, 520 official settlements balance, 472 offshore assembly provisions (OAP), 268 offshore centers, 523–524 offshoring, 174–175, 184–185, 391–393 O’Grady, Mary Anastasio, 420n, 665n Ohlin, Bertil, 66, 129–130 oil shocks, 117–118, 149, 438, 440, 449, 520 O’Leary, Christopher J., 413n, 415, 415n Olivei, Giovanni P., 594, 594n Omitted-country bias, 189 Omnibus Trade and Competitiveness Act of 1988, 21 O’Neil, Peter, 412, 412n open economy macroeconomics, 635–718 external shocks and, 703–704, 713–717 fixed exchange rates and, 637–668 aggregate demand, 701–702, 703–706 currency adjustments, 710 effects of fiscal policy, 657–660, 704–706 effects of monetary policy, 660–662, 704–706 effects of official changes in exchange rate, 49–50, 662–666, 677–679 external shocks, 703–704 flexible exchange rates versus, 726–729, 750–751, 765–767 general equilibrium, 642–656, 667–668 IS/LM/BP analysis, 642–668, 701–702, 703–706, 727–729, 734–735 two-instrument, two-target model, 639–642 flexible exchange rates and, 669–690 aggregate demand, 702–703 aggregate supply, 711–712 effects of fiscal policy, 672–675, 689–690, 710–711 effects of monetary policy, 675–677, 689–690, 706–709 fixed exchange rates versus, 726–729, 750–751, 765–767 IS/LM/BP analysis, 679–686, 702–703, 710–711, 727–729, 734–735 policy coordination, 686–688, 779–780 multiplier with foreign repercussions, 623–626, 631–633 Open Economy Macroeconomics (Dornbusch), 568 open-economy multiplier, 620–626, 629–633 current account and, 622–623 defined, 620 with foreign repercussions, 623–626, 631–633 for India, 621 when taxes depend on income, 629–631 open interest, 540 open positions, 497 Operation Desert Storm, 520 Opinion Research Corporation, 369 opportunity costs, increasing, 83–84 optimal size of international reserves, 727 optimum currency areas, 739–742 defined, 739 “true” versus “pseudo,” 740 optimum tariff rate, 331–332, 358–361 option premium, 541 options eurodollar interest rate, 541–544 foreign currency, 502–504 on swaps, 544 Oracle at Delphi, 18 ordinal utility, 68–69 27/11/12 3:03 PM Confirming Pages 818 Organization for Economic Cooperation and Development (OECD), 167, 189, 284–285, 384, 625 Organization of Petroleum Exporting Countries (OPEC) oil price shocks, 117–118, 149, 438, 440, 449, 520 role of, 438, 440, 475–476, 769 terms-of-trade indexes, 117–118 U.S trade deficits with, 475–476 Orser, B., 185 Ostry, Jonathan D., 447 Ottaviano, Gianmarco I P., 196–197 outsourcing, 174–175, 184–185, 391–393 Outtara, Alassane D., 713n outward-looking trade strategy, 443–448 overall balance, 472 overlapping demand, in Linder hypothesis, 186–187 overshooting, exchange rate, 550, 567–573 over-the-counter instruments, 545–547 Oviatt, Benjamin M., 185, 188n Pain, Nigel, 239 Pakistan, interference with free trade, 283–284 Palma, J G., 433n Panagariya, Arvind, 204 Panama home bias in productivity and, 166 trade promotion agreement, 418 Paraguay, in Southern Cone Common Market (MERCOSUR), 400, 419 Pareto, Vilfredo, 83 Pareto efficiency, 83 Paris Club, 451 partial current account adjustment, 623 partial equilibrium analysis defined, 289 in large-country case, 299–311 in small-country case, 290–299 trade restrictions in, 290–311 partial exchange rate pass-through, 594 Patinkin, Don, 608n Pattillo, Catherine, 106, 106n payoff matrix, 356–358, 360–361 Peera, Nural, 781n pegged rate system, 602–603 crawling peg, 743–744, 745, 765, 766 extent of use, 765, 766 fixed peg, 766 pegged but adjustable exchange rates, 752–755 per capita income, labor force growth and, 223 perfect capital immobility, 652 perfect capital mobility, 651 perfect competition, in Ricardian model, 30 performance requirements, for foreign direct investment, 247 Perot, Ross, 21 Perri, Fabrizio, 625, 625n Perry, Guillermo, 665n persistent dumping, 341–342 Peru, price instability in, 439 Peterson Institute for International Economics, 295, 414 app21677_idx_803-824.indd 818 INDEX Petri, Peter A., 333 Pew Global Attitudes Project, 368, 369 Pew Research Center, 170, 368 Philippines in Asian crisis (1997–1998), 770 Leontief paradox and, 165 worker remittances to, 253 Phillips, Matt, 513n Phillips, Michael M., 387n physical definition of factor abundance, 130 Pigott, Charles, 512 Pittelko, Brian M., 413n, 415, 415n Plastina, Alejandro, 435n Plaza Agreement of 1985, 763 Political Discourses (Hume), 22 political economy empirical work on, 436 of state building, 18–20 of trade policy, 366–373 U.S attitudes toward international trade, 369 world attitudes toward foreign trade, 368 political problem, of currency boards, 739 portfolio adjustments, in portfolio balance approach, 564–567 portfolio balance approach to the balance of payments, 561–567, 577–578 to the exchange rate, 561–567, 577–578 positive-sum game defined, 25–26 in Ricardian model, 26, 32 positive trade balance See favorable balance of trade Posner, Michael V., 180–181 post-Heckscher-Ohlin theories of trade, 180–198 concluding comments, 197 economies of scale, 190 firm-focused theories, 185–186 gravity model, 195–196 imitation lag hypothesis, 180–181 Krugman model, 190–193 Linder hypothesis, 186–190 multiproduct exporting firms, 196–197 product cycle theory, 181–184 reciprocal dumping model, 193–195 vertical specialization-based trade, 184–185 poultry, in U.S trade policy, 391 Pöyhönen, Pentti, 195 Prebisch, Raul, 229, 431, 433 Prebisch-Singer hypothesis, 431–433 precautionary demand for international reserves, 727 precious metal, in Mercantilism, 19–20 predatory dumping, 342 preferential duties, 267–268, 271–272 premium, 507–511 option, 541 price(s) different relative factor prices, 136–137, 137–140 domestic, impact of protection instruments on, 284–285 domestic price shocks, 682 factor price equalization theorem, 137–140 factor prices line, 79–80 foreign price shocks, 679–682 law of one price, 492 long-run free-market equilibrium world price, 438 in monetary approach to balance of payments, 552 national income and, 626–628 policies to stabilize export, 437–438, 439 transfer pricing, 245, 434–435 price adjustment mechanism, 579–603 defined, 581 demand for goods and services in, 581–584 under fixed exchange rate system, 599–603 under flexible-rate system, 580–599 market stability and, 584–591 in short run versus long run, 591–599 and simultaneous external and internal balance, 626–628 price definition of factor abundance, 130 price elasticity of demand concept of, 23 estimates by country, 592–593 in Krugman model, 206–207 price index, 115 price ratios in autarky, 24–26, 31–32, 34, 36–38, 52–53, 129 price shocks domestic, 682 foreign, 679–682 foreign interest rate, 682–685 in integrative framework for trade policy, 373 price-specie-flow mechanism, 22–24, 49–50 Principles of Political Economy and Taxation, The (Ricardo), 29, 30 Priority Foreign Countries, 376 private capital account, in monetary approach to balance of payments, 556 producer equilibrium, 79, 80, 91 producer surplus defined, 291 in small-country case, 291–293 product aggregation, in intra-industry trade, 200 product cycle theory (PCT), 181–184, 186, 238 product differentiation automobiles and, 184–185, 189–190, 199–200 defined, 189–190 in gravity model, 258–259 in intra-industry trade (IIT), 199–200 production aggregate production function, 694–695 Cobb-Douglas production function, 217n neutral production effect, 211 positive externalities in, 338 production effect, 120 production efficiency locus, 81–83 production efficiency points, 86–87 27/11/12 3:03 PM Confirming Pages 819 INDEX production growth production gain (gains from specialization), 94–95 trade effects of, 210–212 ultra-antitrade production effect, 212, 253 ultra-protrade production effect, 212 production-possibilities frontier (PPF), 83–87 autarky equilibrium and, 90–92, 204–205 in Classical trade theory, 36–38 comparative advantage in, 36–38 consumption-possibilities frontier (CPF) and, 36–38, 94 costless factor mobility and, 100 economies of scale and, 190, 204–205 Edgeworth box and, 84–87, 148–151 effects of technological change on, 214–218 example of, 36–38 factor growth and, 219–220 full employment of factors of production, 100–101 gains from trade and, 38, 104 Heckscher-Ohlin (H-O) model and, 133–137, 148–151, 220 increasing opportunity costs on, 83–87 international trade and, 92–97 in neoclassical trade theory, 75–80, 83–87 sources of growth and, 214–220 trade between countries with identical, 97–98 production-sharing arrangements, 268 production theory, 75–80 isocost lines in, 78–80 isoquants in, 75–78, 81 producer equilibrium and, 79, 80, 91 productivity see also economies of scale exporting and, 58 home bias and, 166–168 steel industry, 56–57 product markets, unequal market power in, 432–434 prohibitive tariff, 273 protrade consumption effect, 213 protrade production effect, 212 public-choice economics, 367 purchasing power parity (PPP), 492–496, 750–751, 767 absolute, 492–493 relative, 493 spot market, 498–499, 501 pure price discrimination, 147 put options, eurodollar, 541–543 quantity theory of money, 23 crude, 557 Quayyum, Saad, 592593, 593n Quesnay, Franỗois, 25 quota rent, 293, 306307 quotas export See export quotas IMF, 753–755 import See import quotas Qureshi, Usman A., 187 Raby, Geoff, 445n Ramanarayanan, Ananth, 625, 625n, 710 app21677_idx_803-824.indd 819 Ramcharan, Rodney, 170n Ramstad, Evan, 419n random walk, 578 Rapach, David E., 576 Rapoport, Dana, 174, 184 Ratha, Dilip, 254n rational expectations, 561 Rauh, Alison, 189 reaction functions defined, 350–351 tariff, 358–361 real economic effects, 767 real effective exchange rate (REER), 593 defined, 492 of U.S dollar, 493–495 real exchange rate (RER), 492 real income, in monetary approach to balance of payments, 552 real interest rates across countries, 525–526 behavior of, 449 recession of 2007–2008, 43, 545, 771–772 reciprocal demand curve See offer curve (reciprocal demand curve) reciprocal dumping model of trade, 193–195 Reciprocal Trade Agreements Act of 1934, 374 recognized interdependence, 350–351 Redfearn, M R., 189 Redward, Peter, 421 REER (real effective exchange rate), 492, 493–495, 593 Reeve, T A., 166 regional funds, 528 Regulation Q, 519–520 Reich, Robert, 361 Reid, Scott, 247n relative capital immobility, 657–660 relative capital mobility, 658–659 relative purchasing power parity, 493 rent-seeking activity, 370 repatriation of earnings, 434 research and development (R&D) product cycle theory (PCT) and, 182–184, 186, 238 tariffs to promote exports through, 353–355 reserves adequacy of reserves problem, 755 in balance of payments, 466 of central banks, 466, 553, 729–730, 768, 769 domestic, 551–552 under fixed versus flexible exchange rates, 729–730 international, 551–552, 727, 729–730, 749–750, 769 official reserve transactions (ORT), 656 official reserve transactions balance, 472, 520 reserve tranches, 755 resource-exchange theory, 185 resource-seeking FDI, 242 results-based trade policy, 393 retail spread, 497 retail trading margin, 497 Reynolds, Paul D., 188, 188n Ricardian model, 28–40 assumptions of, 29–30 comparative advantage in, 30–35, 39 monetized, 43–44, 46 production-possibilities frontier (PPF) in, 36–38 total gains from trade and, 34–35 Ricardo, David, 16, 18, 26, 28–40, 43–44, 68, 181–182, 436 Richardson, J David, 355, 358n Richardson, Pete, 625 Riding, M., 185 risk diversification, 239 risk premium, 507 Rivera-Batiz, Francisco L., 510n, 566 Rivera-Batiz, Luis A., 510n, 566 Robinson, Richard B., Jr., 188n Rodrik, Dani, 436n Rogoff, Kenneth, 156n, 576, 578 Romania, in European Union (EU), 396 Romer, Paul M., 217n, 436n Roosevelt, Franklin D., 608 Root, Franklin R., 149n, 239 Rose, Andrew K., 576 Rosefielde, Steven, 162 Roskamp, Karl W., 162 Ross-Larson, Bruce, 350 rounds of spending in the multiplier process, 619–621 Royal Bank of Scotland Group, 237 Royal Dutch Shell, 237 Ruffin, Roy J., 180, 180n rules-based trade policy, 393 rules of origin, 397 rules of the game, 600 Russia See also Central/Eastern Europe; Soviet Union, former collapse of ruble, 770 money growth and exchange rates, 559 Rybczynski theorem, 221–222, 224–225 Saa, President, 665 SAARC (South Asian Association of Regional Cooperation), 400 SACU (Southern African Customs Union), 400 Sailors, Joel W., 187 Salgado, Uberto, 577 Salvantici, Luca, 276n Samuelson, Paul A., 50, 60–63, 84, 104, 137, 140–141, 264, 568 Samuelson, Robert, 392, 392n, 447n Sánchez, Armando, 577 Sarkozy, Nicolas, 412 Sarno, Lucio, 764 Sauvant, Karl P., 242, 242n saving impact of foreign direct investment on, 245–246 marginal propensity to save (MPS), 609–610 saving function, in Keynesian income model, 609–610 Saxena, Shishir, 218 scale economies See economies of scale Scandizzo, Pasquale L., 432 27/11/12 3:03 PM Confirming Pages 820 Scharler, Johann, 625n Schipke, Alfred, 741n Schmukler, Sergio L., 665n Schott, Jeffrey J., 414–415 Schott, Peter K., 167 Schroeder, Michael, 266n, 366n, 392n Schumacher, D., 445, 445n Schwartz, Anna J., 733 Scitovsky, Tibor de, 264 SDRs See Special Drawing Rights (SDRs) seasonal workers, 247–248 secondary debt market, 453 second best, 398 Seers, Dudley, 433n Segerstrom, Paul S., 184 seigniorage problem, of currency boards, 738 self-interest approach, to trade policy, 367–370 Sematech, 328 Serfaty, Simon, 396n Serven, Luis, 665n service trade, 9–10 general agreement on trade in services (GATS), 380 geographical composition of, 10 interdependence in, 11–12 leading exporters and importers, 10 outsourcing in, 391–393 restrictions on, 281 Shackleton, J R., 137n, 733n Shambaugh, Jay, 726 Sharer, Robert, 408n Shierholz, Heidi, 170 Shimpo, Kazushige, 166 shocks, economic domestic price, 682 exchange rate, 685–686 external, 703–704, 713–717 fixed versus flexible exchange rates and, 734–735 foreign interest rate, 682–685 foreign price, 679–682 oil, 117–118, 149, 438, 440, 449, 520 in open economy macroeconomics, 703–704, 713–717 terms of trade, 106, 439–440 shock to the expected exchange rate, 685–686 short hedge, 539–540 short position, 500 short-run aggregate supply curve, 695 short-term assets, 466 Sichuan Tengzhong Heavy Industrial Machinery Company, 550 Silva, Julie A., 172, 172n Sims, Christopher, 709n Singer, Hans W., 229, 431, 433, 434, 445 Single European Act of 1986, 410 single factoral terms of trade, 121–122 Sinopec Group, 237 skill levels, of labor, 158–159, 161, 162–163, 166–168 Slater, Joanna, 513n Slaughter, Matthew S., 169n Slotkin, Michael H., 356 Slovenia, euro changeover, 722 app21677_idx_803-824.indd 820 INDEX small country consumer surplus in, 290–293 defined, 114 exchange rate overshooting, 567–573 export quotas in, 298 export subsidies in, 298–299 export taxes and, 296–298 factor growth in, 221–222 general equilibrium analysis, 311–313 impact of trade policies in, 290–299, 311–313 import quotas, 293–294 import tariffs, 290–293, 311–313 shifts in offer curve, 114–116 Smith, Adam, 16, 18, 22, 24–26, 29, 30–31, 39, 58, 428n, 436 Smith, David, 392n Smith, Stephen C., 445 Smithsonian Agreement, 758 Smoot-Hawley Tariff of 1930, 373, 750 social policy, trade policy in, 327–336, 371–372 softwood lumber, 295, 389–390 Solomon, Robert, 687–688 Solow, Robert M., 137n solvency problem, 450 South Asian Association for Regional Cooperation (SAARC), 400 Southern African Customs Union (SACU), 400 Southern Cone Common Market (MERCOSUR), 400, 419, 420, 441 Southern Minnesota Beet Sugar Cooperative, 317 South Korea antidumping orders, 343–344 in Asian crisis (1997–1998), 770 dynamic comparative advantage and, 182 economic growth in, 210 free trade agreement, 418–419 labor migration from, 249 Soviet Union, former currency boards in, 737–738 economic reforms in, 442, 444 eurodollar market and, 519–520 foreign trade pricing strategies, 442 Leontief paradox and, 162 money growth and exchange rates in, 559 moving toward market economy in, 407–411 Spahn, Paul Bernd, 777, 778 Spain, income inequality and, 170 Special Drawing Rights (SDRs), 456, 456n, 553 in central bank reserves, 553, 769 defined, 757 development of, 757–758 in IMF quota, 757–758 policy coordination and, 779 special interest groups, impact on political economics, 367–370 specialization complete, 35, 38 extent of export concentration and, 33 gains from, 94–95 problems of, 39 vertical specialization-based trade, 184–185 specific-factors model (SF model), 148–153, 336 specificity principle, 333–335, 383 specific tariffs, 267, 271–272 Spector, Mike, 388n speculation, 729–734 defined, 486 destabilizing, 729–734 in foreign exchange, 486, 729–734 stabilizing, 731–734 Spence, M., 185 Spencer, Barbara J., 339, 355 Spilimbergo, Antonio, 102 spillovers, and economic growth, 218 sporadic dumping, 342 spot market, 489–496 defined, 489 different measures of spot rate and, 490–496 expected spot rate, 506 forward exchange rates and, 496–497, 498–499, 501 principal actors in, 489 purchasing power parity (PPP) exchange rates and, 498–499 role of arbitrage in, 489–490 Spraos, John, 432 Srinivasan, T N., 204 Stability and Growth Pact (1997), 762 stabilizing speculation, 731–734 stack contracts, 541 stage theory described, 185 new venture internationalization, 188 stagflation, 714, 715 Staiger, Robert W., 161 Standard International Trade Classification (SITC) system, 33, 200, 202 standardized-product stage, 182 startup problem, of currency boards, 738 State Grid, 237 state-owned enterprises (SOEs), 233 static effects of economic integration, 397–404 of trade on economic development, 427–428 statistical discrepancy, 478 status quo bias, 368–370 steel industry labor productivity and import penetration in, 56–57 restraints on imports to U.S., 388 U.S import tariffs and, 289 sterilization, 556, 656, 662, 664 Stern, Robert M., 54, 161–163, 275, 378n, 382, 382n Stiglitz, Joseph, 636 stock markets, international, 527–529 Stolper, Wolfgang F., 140–141, 162, 264 Stolper-Samuelson theorem, 140–142, 161, 171, 173 Stotsky, Janet G., 778 Strachey, Lytton, 608 Strategic Petroleum Reserve, 328 27/11/12 3:03 PM Confirming Pages 821 INDEX strategic trade policy, 347–362 concluding observations on, 361–362 economies of scale in duopoly framework, 348, 350–353 export subsidy in duopoly, 355–358, 359 imperfect competition and, 348 infant industry argument for protection, 348–350 nature of, 347–348 research and development sales of home firm, 353–355 world welfare and, 358–361 Streeten, Paul, 444 strike price, 542 strips, eurodollar, 541 strongly-inward-oriented economies, 443–444 strongly-outward-oriented economies, 443–444 structural adjustment policies, 451 Subramanian, Arvind, 436n, 447 subsidiaries, foreign, 234 subsidies export See export subsidies import See import subsidies substitution imperfect substitutes, 561 marginal rate of (MRS), 70–72 marginal rate of technical (MRTS), 77–78 substitution effect, 120 sugar quotas, 317 supply aggregate See aggregate supply of money See supply of money supply of exports schedule, 300, 301–302 supply of money defined, 551 excess, 555 in foreign exchange market, 486 and monetary approach to the balance of payments, 551–552, 555–557 surplus labor, 251–252 surveillance, 759 Survey of Current Business (U.S Department of Commerce), 171 Suzuki Motors, 282 Svaleryd, Helena, 165 Sveikauskas, Leo, 164, 164n, 219n Svensson, Lars E O., 776, 777n Swan, T W., 628 swaps debt-equity, 455–456 equity, 544 eurodollar cross-currency interest rate, 538 eurodollar interest rate, 538 options on, 544 swaptions, 544 Symanski, Steven, 726 synchronization of GDP, 625 Székely, Miguel, 102 Tadesse, Bedassa, 259, 259n Taiwan in Asian crisis (1997–1998), 770 economic growth in, 210 app21677_idx_803-824.indd 821 Tanzania, in East African Common Market (EACM), 408 target zone proposal, 775–777 Krugman version of, 776–777 policy actions in, 775–776 tariff(s) See also import tariffs escalated tariff structure, 278 nominal tariff rate, 274–278 Tariff Act of 1930 (Smoot-Hawley), 373, 750 tariff factories, 238 tariff negotiations, 361 tariff reaction function, 358–361 tariff to benefit a scarce factor of production, 335–336 tariff to extract foreign monopoly profit, 339–340 tariff to improve balance of trade, 330–331 tariff to increase employment in specific industry, 334–335 tariff to offset a foreign subsidy, 342–347 tariff to offset foreign dumping, 341–342, 388–389 tariff to promote exports through economies of scale, 353 tariff to promote exports through research and development, 353–355 tariff to reduce aggregate unemployment, 333 Tata Group, 550 Tatemoto, Masahiro, 162 taxes See also export tax impact of foreign direct investment on, 244–245 Interest Equalization Tax (IET), 520, 523–524 international tax on spot transactions, 778 as key source of government revenue, 328, 329 offshore centers and, 523–524 open-economy multiplier and, 629–631 tax relief for U.S firms engaged in export, 387–388 value-added tax (VAT), 280–281 Taylor, Alan M., 516, 516n Taylor, Mark P., 563, 576, 577, 578, 746, 764 Technologies for Basic Needs (Prebisch), 433 technology effects of technological change on growth, 62–63, 214–218, 434 imitation lag hypothesis and, 180–181 impact of foreign direct investment on, 245 labor-saving technological changes, 214–215 marginal rate of technical substitution (MRTS), 77–78 product cycle theory (PCT) and, 181–184, 186, 238 relative skill levels of labor and, 166–168 in Ricardian model, 29 technology cycle, in product cycle theory (PCT), 184 Tejada, Carlos, 388n Templin, Neal, 282n terms of trade alternative, 108–109 as argument for trade protection, 331–333, 358–361 changes in, 106, 112–116 commodity (net barter), 115, 245 defined, 31–32 double factoral, 123 equilibrium, 32, 110–111 in Heckscher-Ohlin (H-O) model, 133–137 impact of growth on, 221–227 income, 121, 122 indexes of, 117–118, 122 long-run deterioration of, 431–435 for major groups of countries (1973–2010), 117–118 measurement of, 115 in neoclassical trade theory, 105–126 shocks related to, 106, 439–440 single factoral, 121–122 for specific countries, 228 tariff reaction function and, 358–361 trade triangle and, 94, 107–109 terms-of-trade argument, 331–333` terms-of-trade effect, 120 Terra, Cristina, 165 terrorism, developing countries and, 445 textile industry import quotas on China, 388–388 Multi-Fiber Agreement, 379–380, 383, 389, 444 NAFTA and, 413 nonhomogeneous goods in, 320 trade complexities and, 43 Thailand, terms of trade in, 228 Theory of Moral Sentiments, The (Smith), 25 Theory of the Consumption Function, A (Friedman), 733 Thurow, Lester, 361 Thursby, Jerry G., 188, 725 Thursby, Marie C., 188, 725 Tieslau, M A., 189 Tinbergen, Jan, 195 Tobin, James, 777–778 Tobin tax, 778 Todaro, Michael, 445 Tokarick, Stephen, 297, 297n Tokyo Round of trade negotiations (GATT), 280, 374, 375–378 tomato imports, 371 Tomson, Bill, 317n Topel, Robert H., 173n Total, 253 total factor requirements, Leontief paradox and, 156–157, 158–159, 161 total gains from trade, 34–35, 95 total revenue, in monopolistic competition, 206–207 Touzlatzi, Hasan, 248 Towards a New Trade Policy for Development (Prebisch), 433 Tower, Edward, 101 Toyota Motor, 237 Trade Act of 1974, 341, 375–376 trade adjustment assistance (TAA), 100, 375, 377, 419 27/11/12 3:03 PM Confirming Pages 822 Trade Adjustment Assistance Act of 2011, 375 Trade Adjustment Assistance Reform Act of 2002, 375 Trade and Globalization Adjustment Act of 2009, 375 Trade and International Economic Policy Reform Act of 1987, 21 trade creation in the European Community (EC), 400–402 general conclusions on, 404–405 nature of, 397–398 trade deficits macroeconomic interpretation of, 331–333 in merchandise trade balance, 469 U.S., 475–476 trade diversion in the European Community (EC), 400–402 general conclusions on, 404–405 in general equilibrium, 404–405 nature of, 397–398 trade effects, 426–435 of consumption growth, 212–214 of economic growth, 210–214 terms-of-trade effect, 120 Trade Expansion Act of 1962, 374–375 trade policy, 263–457 See also economic integration; United States trade policy arguments for interventionist, 326–362 automobiles in, 280, 282 Baldwin’s framework for analyzing, 372, 373 comparative advantage and, 347–362 conduct of, 393 in developing countries, 43 differential protection as part of, 336 impact of, 288–325 exports, 296–299, 307–311 imports, 290–296, 300–301, 302–307, 311–316, 317 in large-country case, 299–311, 313–316, 317, 321–325 other effects, 316–318 in small-country case, 290–299, 311–313 import tariffs in, 267–278 instruments of, 265–286 See also specific instruments of trade policy effect on domestic prices, 284–285 export taxes and subsidies, 278–279 import tariffs, 267–278 nontariff barriers, 279–286 international commodity agreements (ICAs), 438 international policy distortions and, 341–347 inward- versus outward-looking, 443–448 and long-run deterioration in terms of trade, 431–435 miscellaneous invalid arguments for, 347 to offset market imperfections, 337–341 political economy of, 366–373 political science and, 373 price stabilization, 437–438, 439 app21677_idx_803-824.indd 822 INDEX self-interest approach to, 367–370 in social policy objectives, 327–336, 371–372 strategic, 347–362 vignettes, 366 world attitudes to foreign trade, 368 Trade Promotion Authority, 379 trade-related intellectual property rights (TRIPs), 283, 379–380 trade-related investment measures (TRIMs), 281–282, 379–380 trade restrictions in general equilibrium, 311–316 trade triangle, 94, 107–109 trading line, 94 trading partners, 96–97 traditional foreign bank lending, 518 transactions demand for international reserves, 727 transactions demand for money, 552 transfer pricing, 245, 434–435 transfer problem, 449 transformation, marginal rate of (MRT), 84, 94 transition economies euro changeover in, 722, 764 exchange rate trends in, 576–577 money growth and exchange rates, 559 Russia, 559 stock market performance in, 528–529 transition problem, of currency boards, 738 transitivity, 69 transnational corporations (TNCs) See multinational corporations (MNCs) transnational enterprises (TNEs) See multinational corporations (MNCs) Trans-Pacific Partnership (TPP), 422 transportation costs in Classical trade theory, 50–52 freight and insurance factor (FIF), 51–52 in Heckscher-Ohlin (H-O) model, 144–146 in intra-industry trade (IIT), 200 size of, 51–52 transshipment strategy, 397 Treaties of Rome (1957), 407, 411 Treatise on Probability, A (Keynes), 608 Treaty for East African Cooperation, 408 Treaty of Basseterre (1983), 741 Treaty of Paris (1951), 407 Trefler, Daniel, 166–167 triangular arbitrage, 490 Triffin, Robert, 749, 755n, 774 trigger price, 341 TRIMS (trade-related investment measures), 281–282, 379–380 Trinh, Bui, 277 TRIPS (trade-related intellectual property rights), 283, 379–380 Tsiang, S C., 750, 751n Tuchinda, Ukrist, 189 Tuncer, Baran, 350 Turkcan, Kemal, 594, 594n Tyler, William G., 444 UEMOA (West African Economic and Monetary Union), 400, 741 Uganda in East African Common Market (EACM), 408 worker remittances to, 254 UIP (uncovered interest parity), 506, 513, 567–571 Ujiie, Junichi, 574, 574n ultra-antitrade consumption effect, 213 ultra-antitrade production effect, 212, 253 ultra-protrade consumption effect, 213 ultra-protrade production effect, 212 uncovered interest parity (UIP), 506, 513, 567–571 uncovered positions, 497 UNCTAD (United Nations Conference on Trade and Development), 51, 52, 234–235, 242, 425–426, 433 unemployment See also labor current account deficit with, 627–628 impact of foreign direct investment on, 246 income and U.S., 699–700 income inequality and, 170 inflation and, 714, 715 labor migration and, 253–257 stagflation and, 714, 715 tariffs to reduce aggregate, 333 trade adjustment assistance and, 100, 375, 377 Unemployment and the Unemployed (Prebisch), 433 unequal market power in product and factor markets, 432–434 unfavorable balance of trade, 19 United Kingdom average propensity to import, 614–615 Commonwealth or imperial preference, 267 effect of protection instruments on domestic prices, 284–285 export performance relative to U.S., 53–55 flexible exchange rates in, 750–751 labor and capital requirements per unit of output, 215–216 labor strikes in, 253 largest corporations and banks, 237 preferential duties of British Commonwealth, 267 price elasticities of demand for exports and imports, 592–593 vertical specialization-based trade and, 184–185 United Nations Economic Commission for Latin America (ECLA), 433 General Assembly, 437 Millennium Development Goals, 453 Monetary and Financial Conference, 752 Standard International Trade Classification (SITC) system, 33, 200, 202 United Nations Conference on Trade and Development (UNCTAD), 51, 52, 234–235, 242, 425–426, 433 27/11/12 3:03 PM Confirming Pages 823 INDEX United States See also United States dollar; United States trade policy administrative classification by, 281, 282 automobile product differentiation, 184–185, 189–190, 199–200 brain drain for developing countries and, 232, 256–257, 260 cabotage laws, 21 capital/labor ratio, 158–159, 161 commodity composition of trade, 7–9 consumer expenditure patterns and, 76 dynamic comparative advantage and, 182–183 failure to conform to Heckscher-Ohlin (H-O) model, 181 Heckscher-Ohlin prediction for, 157, 158–159, 161 income and unemployment, 699–700 income distribution in, 171–175 income inequality in, 171–175 inflation and unemployment, 714, 715 labor and capital requirements per unit of output, 215–216 labor migration to, 249, 256–260 largest corporations and banks, 237 Leontief paradox and, 162 outsourcing in, 174–175 price shocks and real GDP, 680–681 product cycle theory (PCT) and, 181–184 recession of 2007–2008, 43, 545, 771–772 relationship between monetary concepts, 553 stagflation in, 714, 715 subprime mortgage crisis, 771–772 synchronization of GDP movements across countries, 625 wage inequality in, 171–175 U.S Census Bureau, 170, 171n U.S.-Central America/Dominican Republic Free Trade Agreement (CAFTA-DR), 417–418 U.S.-Colombia Trade Promotion Agreement (CTPA) of 2011, 418 U.S Customs Service, 281, 282 U.S Department of Agriculture, 391, 599 U.S Department of Commerce, 171, 342, 343, 345, 349, 359, 371, 389, 465n Bureau of Economic Analysis, 171 U.S Department of Defense, 280 U.S Department of Labor, 377 U.S Department of Transportation, 21 United States dollar See also United States; United States trade policy Big Mac Index (BMI) and, 496, 496n breaking of gold-dollar link, 758 in exchange arrangements with no separate legal tender, 766 in IMF quota, 757–758 nominal and real exchange rates of, 493–495 short-run fluctuations in the 1990s and 2000s, 763–764 U.S.-Canadian exchange rates, 578 world central bank (proposed) and, 774 app21677_idx_803-824.indd 823 U.S Federal Reserve, 489, 521–522, 532, 535, 553 relationships between monetary concepts, 553 U.S International Trade Commission (USITC), 289 antidumping provisions, 342, 343–344, 388 countervailing duties in the U.S., 345–346 effects of sugar quota system, 317 export taxes and subsidies, 279n impact of liberalizing import restraints, 309 import competition, 317, 376 import quotas, 279, 279n industry employment effects of trade liberalization, 334 infant industries, 349 offshore assembly provisions, 268 protecting markets with nonhomogeneous goods, 319–320 U.S generalized system of preferences, 271–272 U.S tariff rates, 269–272 welfare costs of U.S import quotas and VERS, 309 U.S.-Panama Trade Promotion Agreement of 2011, 418 U.S.-South Korea Free Trade Agreement of 2012, 418–419 U.S Tariff Commission, 149 U.S Trade Adjustment Assistance (TAA) Program, 419 United States trade policy, 266, 373–393 See also North American Free Trade Agreement (NAFTA); United States; United States dollar antidumping actions in, 343–344, 388–390 average propensity to import, 614–615 balance-of-payments summary statement, 474–478 beef exports in, 387, 390 with China, 266, 388–389, 475–476 concluding observations on, 393 countervailing duties in, 345–346 domestic content provisions of, 280 effect of protection instruments on domestic prices, 284–285 effects of trade restrictions on, 90 European instability and U.S GDP, 684 exchange rate pass-through of foreign exports to, 594 exchange risk and, 725–726 export performance relative to U.K., 53–55 export subsidies of, 279 foreign direct investment by, 234–237, 239–240, 478–482 foreign direct investment in, 236–238 General Agreement on Tariffs and Trade (GATT) and, 373–380 Generalized System of Preferences (GSP), 267–268, 271–272, 336, 372, 376 hegemony of, 372 import quotas of, 309, 317, 388–389 import tariffs of, 161, 269–272, 275–276, 289 income distribution changes with increased trade in, 102 international cartels and, 149 international investment position, 478–482 international trade, 7–9 Mercantilist, 21 merchandise trade, 7–9, 474–478 monetary approach to balance of payments and, 553 motorcycle industry in, 349 nominal and effective tariffs, 275–276 policy frictions in interdependent world, 685 preferential duties and, 271–272 price elasticities of demand for exports and imports, 592–593 recent foreign trade actions, 387–393 restrictions on services trade, 281 softwood timber disputes with Canada, 389–390 steel industry in, 56–57, 289, 388 tariff structure of, 161, 269–272, 275–276, 289 terms of trade calculation, 115 tomato imports in, 371 trade adjustment assistance in, 100 trade deficits of, 475–476 U.S attitudes toward international trade, 369 U.S Trade Representative, 376, 390, 416, 417 U.S Treasury Department, 343, 345 United We Stand, 21 unit elasticity of demand, 23, 116–121 unit labor costs, 53–55 unweighted-average tariff rate, 273–274 upper-middle-income economies, 426n Uruguay, in Southern Cone Common Market (MERCOSUR), 400, 419 Uruguay Round of trade negotiations (GATT), 10, 275, 283, 297, 374, 378–383, 419, 687 to 1993, 379 provisions of, 379–380 tariff reductions following, 381 trade policy issues after, 380–383 utility cardinal, 68–69 ordinal, 68–69 Uz, Idil, 577 Vahlne, Jan-Eric, 185, 188, 188n Valdés, Alberto, 277, 277n value-added tax (VAT), 280–281 value date, 497 Vamvakidis, Athanasios, 218, 218n Van Biesebroeck, Johannes, 58, 58n van der Mensbrugghe, Dominique, 386n Vanek, Jaroslav, 163n Van Reenen, John, 55–56 variable dependent, 574n independent, 574n 27/11/12 3:03 PM Confirming Pages 824 Végh, Carlos A., 620n, 657n Velasco, Andrés, 439 vent for surplus, 428 VER (voluntary export restraints), 279–280, 282, 307, 309, 313–316, 372, 376, 379 Vernon, Raymond, 181–183, 183n vertical specialization-based trade, 184–185 Veugelers, Reinhilde, 239 vicious circle hypothesis, 723, 769 Vietnam, nominal and effective tariffs, 277 Viner, Jacob, 398, 402–404 Vlachos, Jonas, 165 voluntary export constraints (VER), 279–280, 282, 307, 309, 313–316, 372, 376, 379 Vondra, Alexandr, 412 Vousden, Neil, 370 Wacziarg, Romain, 447, 448n WAEMU (West African Economic and Monetary Union), 400 wage rate limits, 44–47 defined, 45 in monetized Ricardian model, 46 wage rates effect of changes in, 48–49 foreign direct investment and, 244 inequality in U.S., 171–175 labor migration and, 253–257 specific-factors model and, 148–153 Wahl, Donald F., 162 Walker, Marcus, 253n Wall, Howard J., 90, 90n, 295n, 295–296 Wall Street Journal, 392, 502, 503 Wal-Mart Stores, 237 Walsh, Carl E., 735 Walters, Alan, 733n Wang, Chengang, 195 Wang, Hua, 240 Wang, Kai-li, 726 Warsh, David, 639n wealth under Mercantilism, 20 in monetary approach to balance of payments, 554 app21677_idx_803-824.indd 824 INDEX in portfolio balance approach to balance of payments, 566 Wealth of Nations, The (Smith), 24, 25, 30 Wei, Yingqi, 195 weighted-average tariff rate, 273–274 Weinstein, David E., 156, 156n, 166, 168 Welch, Karen Horn, 447, 448n welfare effects community indifference curves and, 101 of economic growth, 227–229 of economic integration, 400–404 of export subsidy in large country, 310–311, 324–325 of export tax in large country, 308–309 of import quota in large country, 306–307, 309 of import subsidy in small country, 295–296 of import tariff in small country, 292–293 optimum tariff rate and, 331–333, 358–361 reciprocal dumping model and, 193–195 of strategic government interaction, 358–361 Wellington, Duke of, 30 Wells, Louis T., Jr., 183 Wessel, David, 392n, 688n West African Economic and Monetary Union (WAEMU/UEMOA), 400, 741 Westphal, Larry E., 350 White, Roger, 258, 259, 259n Whitt, Preston, 416n wider bands, 742–743 Willett, Thomas D., 659n Williams, John H., 178 Williams, Walter, 317n Williamson, Elizabeth, 389n, 419n Williamson, John H., 739n, 775–776 Wilson, Edward, 383n, 385n Winestock, Geoff, 289n, 388n Winkelmann farming group, 247–248 Wohar, Mark E., 430n, 432, 576 Wood, Adrian, 173–174 worker remittances, 253–254, 260 World Bank, 163, 329, 425, 451–456, 479, 523, 779 “Aid for Trade” and, 386–387 debt relief for developing countries and, 451–455 help for poor countries, 451–452 immigration remittances and, 254 origins of, 752 outward-looking strategy and, 443–444 world central bank (proposed), 774 World Development Report (World Bank), 425 World Economic Forum, 386 World Trade Organization (WTO), 366 “Aid for Trade” and, 386–387 antidumping provisions, 342, 343–344 conduct of trade policy, 393 countervailing duties, 345–346 Doha Development Agenda, 374, 384–387 European border taxes, 280–281 European Union (EU) and, 359, 362, 380–383 government procurement provisions of, 280 most-favored-nation status and, 268 national sovereignty and, 384 new venture internationalization and, 188 origins of, 10, 268, 380 recent U.S trade actions, 387–393 value-added tax (VAT), 280–281 World Values Surveys, 259 Wright, R., 185 Yang, Jiawen, 594, 594n YEM (income elasticity of import demand), 214, 400–402, 612–613 Yeyati, Eduardo Levy, 665n Yi, Kei-Mu, 174, 184 Yilmaz, K., 736n Zacharakis, Andrew L., 185 zero-sum game defined, 18–19 under Mercantilism, 18–19, 25 Zlowe, David, 568n Zoellick, Robert, 366 27/11/12 3:03 PM dEnnIs R ApplEyARd AlfREd J fIEld, JR Comprehensive International Analysis Updated discussion and data on wide-ranging issues such as growth in income inequality, multiproduct exporting firms, foreign direct investment in China, free-trade agreements around the world, foreign exchange restrictions, and current euro zone difficulties Many new and updated pedagogical boxes on trade and monetary issues worldwide Discussion of latest research results and updated literature review To learn more about this book and the resources available to you, please visit www.mhhe.com/appleyard8e EIghth EdItIon International Economics E I g h t h E dI t I o n MD DALIM #1216888 11/27/12 CYAN MAG YELO BLK CourseSmart enables access to a printable e-book and mirrors the traditional textbook experience with the ability to highlight and take notes in the text Curious? Go to www.coursesmart.com to try one chapter of the e-book, free of charge, before purchase International Economics International Economics, eighth edition, offers extensive, up-to-date discussion of international trade and monetary issues This coverage is vital to students searching for tools to understand an increasingly interrelated world Appleyard and Field provide those tools through rigorous analysis and real-world applications By studying theories, solving problems, and examining current international topics, students will be well equipped to recognize and interpret the economic issues linking countries around the world The eighth edition includes: ... Principles of Economics Colander Economics, Microeconomics, and Macroeconomics Eighth Edition Frank and Bernanke Principles of Economics, Principles of Microeconomics, Principles of Macroeconomics... Field Environmental Economics: An Introduction Fifth Edition International Economics Appleyard and Field International Economics Eighth Edition King and King International Economics, Globalization,... Editions: Principles of Economics, Principles of Microeconomics, Principles of Macroeconomics First Edition McConnell, Brue, and Flynn Economics, Microeconomics, and Macroeconomics Eighteenth Edition