International economics theory and policy 9th edition

International Economics Theory & Policy The Pearson Series in Economics Abel/Bernanke/Croushore Macroeconomics* Bade/Parkin Foundations of Economics* Berck/Helfand The Economics of the Environment Bierman/Fernandez Game Theory with Economic Applications Blanchard Macroeconomics* Blau/Ferber/Winkler The Economics of Women, Men and Work Boardman/Greenberg/Vining/ Weimer Cost-Benefit Analysis Boyer Principles of Transportation Economics Branson Macroeconomic Theory and Policy Brock/Adams The Structure of American Industry Bruce Public Finance and the American Economy Carlton/Perloff Modern Industrial Organization Case/Fair/Oster Principles of Economics* Caves/Frankel/Jones World Trade and Payments: An Introduction *denotes Chapman Environmental Economics: Theory, Application, and Policy Cooter/Ulen Law & Economics Downs An Economic Theory of Democracy Ehrenberg/Smith Modern Labor Economics Ekelund/Ressler/Tollison Economics* Farnham Economics for Managers Folland/Goodman/Stano The 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Krugman Princeton University Maurice Obstfeld University of California, Berkeley Marc J Melitz Harvard University For Robin —P.K For My Family —M.O For Clair and Benjamin —M.M Editorial Director: Sally Yagan Editor in Chief: Donna Battista Acquisitions Editor: Noel Kamm Seibert Development Editor: Karen Misler Editorial Project Manager: Melissa Pellerano Director of Marketing: Patrice Jones Executive Marketing Manager: Lori DeShazo Marketing Assistant: Ian Gold Managing Editor: Nancy Fenton Production Project Manager: Carla Thompson Manufacturing Director: Evelyn Beaton Senior Manufacturing Buyer: Carol Melville Creative Director: Christy Mahon Senior Art Director: Jonathan Boylan Cover Designer: Black Horse Designs Interior Designer: Integra-Chicago Image Manager: Rachel Youdelman Image Researcher: Diahanne Lucas Dowridge Permissions Project Supervisor: Michael Joyce Text Permissions Editor: Joanna Green Media Producer: Melissa Honig Associate Production Project Manager: Alison Eusden Full-Service Project Management and Composition: Integra Printer/Binder: R.R Donnelley/Willard Cover Printer: Lehigh-Phoenix Color/Hagerstown Text Font: 10/12 Times New Roman Acknowledgments of material borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text Credits appear on page 683, which constitutes a continuation of the copyright page Copyright © 2012 Paul R Krugman, Maurice Obstfeld, and Marc J Melitz All rights reserved Manufactured in the United States of America This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, 501 Boylston Street, Suite 900, Boston, MA 02116, fax your request to 617-671-3447, or e-mail at http://www.pearsoned.com/legal/permission.htm Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps Library of Congress Cataloging-in-Publication Data Krugman, Paul R International economics : theory & policy/Paul R Krugman, Maurice Obstfeld, Marc J Melitz.—9th ed p cm.—(The Pearson series in economics) Rev ed of: International economics : theory and policy / Paul Krugman, Maurice Obstfeld 8th ed ISBN-13: 978-0-13-214665-4 ISBN-10: 0-13-214665-7 International economic relations International finance I Obstfeld, Maurice II Melitz, Marc J III Title HF1359.K78 2012 337—dc22 2010031988 10 ISBN 10: 0-13-214665-7 ISBN 13: 978-0-13-214665-4 Brief Contents Contents Preface Part Introduction ix xxi International Trade Theory 10 World Trade: An Overview 10 Labor Productivity and Comparative Advantage: The Ricardian Model 24 Specific Factors and Income Distribution 50 Resources and Trade: The Heckscher-Ohlin Model 80 The Standard Trade Model 111 External Economies of Scale and the International Location of Production 137 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises 155 Part International Trade Policy 192 The Instruments of Trade Policy 192 10 The Political Economy of Trade Policy 219 11 Trade Policy in Developing Countries 256 12 Controversies in Trade Policy 271 Part Exchange Rates and Open-Economy Macroeconomics 293 13 National Income Accounting and the Balance of Payments 293 14 Exchange Rates and the Foreign Exchange Market: An Asset Approach 320 15 Money, Interest Rates, and Exchange Rates 354 16 Price Levels and the Exchange Rate in the Long Run 384 17 Output and the Exchange Rate in the Short Run 421 18 Fixed Exchange Rates and Foreign Exchange Intervention 463 Part International Macroeconomic Policy 504 19 International Monetary Systems: An Historical Overview 504 20 Optimum Currency Areas and the European Experience 557 21 Financial Globalization: Opportunity and Crisis 586 22 Developing Countries: Growth, Crisis, and Reform 619 vii viii Brief Contents Mathematical Postscripts Postscript to Chapter 5: The Factor Proportions Model 661 Postscript to Chapter 6: The Trading World Economy 665 Postscript to Chapter 8: The Monopolistic Competition Model 673 Postscript to Chapter 21: Risk Aversion and International Portfolio Diversification 675 Credits 683 Index 685 Contents Preface xxi Introduction What Is International Economics About? The Gains from Trade The Pattern of Trade How Much Trade? Balance of Payments Exchange Rate Determination International Policy Coordination The International Capital Market International Economics: Trade and Money Part International Trade Theory World Trade: An Overview 10 10 Who Trades with Whom? 10 Size Matters: The Gravity Model 11 Using the Gravity Model: Looking for Anomalies 13 Impediments to Trade: Distance, Barriers, and Borders 14 The Changing Pattern of World Trade 16 Has the World Gotten Smaller? 16 What Do We Trade? 17 Service Outsourcing 19 Do Old Rules Still Apply? 21 Summary 21 Labor Productivity and Comparative Advantage: The Ricardian Model 24 The Concept of Comparative Advantage 25 A One-Factor Economy 26 Production Possibilities 27 Relative Prices and Supply 28 Trade in a One-Factor World 29 Determining the Relative Price After Trade 30 BOX: Comparative Advantage in Practice: The Case of Babe Ruth 33 The Gains from Trade 34 A Note on Relative Wages 35 BOX: The Losses from Nontrade 36 Misconceptions About Comparative Advantage 37 Productivity and Competitiveness 37 The Pauper Labor Argument 37 BOX: Do Wages Reflect Productivity? 38 Exploitation 39 Comparative Advantage with Many Goods 40 Setting Up the Model 40 Relative Wages and Specialization 40 Determining the Relative Wage in the Multigood Model 42 ix ... R International economics : theory & policy/ Paul R Krugman, Maurice Obstfeld, Marc J Melitz.? ?9th ed p cm.—(The Pearson series in economics) Rev ed of: International economics : theory and policy. .. Applications and Tools* Parkin Economics* Sawyer/Sprinkle International Economics Scherer Industry Structure, Strategy, and Public Policy Perloff Microeconomics* Microeconomics: Theory and Applications.. .International Economics Theory & Policy The Pearson Series in Economics Abel/Bernanke/Croushore Macroeconomics* Bade/Parkin Foundations of Economics* Berck/Helfand The Economics of