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Contents Part 1 Introduction and Institutions 1 chapter 1 The United States in a Global Economy 2 Introduction: The Re-Emergence of International Economic Integration 2 Globalization in Perspective 3 The Growth of World Trade 4 Capital and Labor Mobility 5 New Features of the Global Economy 7 Trade and Economic Growth 9 Twelve Issues in the International Economy 11 The Gains from Trade (Chapters 3, 4, and 5) 11 Wages, Jobs, and Protection (Chapters 3, 6, 7, and 8) 11 Trade Deficits (Chapters 9 and 11) 11 Regional Trade Agreements (Chapters 2, 13, and 14) 12 The Resolution of Trade Conflicts (Chapters 2, 7, and 8) 12 The Role of International Institutions (Chapters 2 and 12) 12 Exchange Rates and the Macroeconomy (Chapters 10 and 11) 13 Financial Crises and Global Contagion (Chapter 12) 13 Capital Flows and the Debt of Developing Countries (Chapters 2, 9, and 12) 13 Crisis and Reform in Latin America (Chapter 15) 14 Export-Led Growth in East Asia (Chapter 16) 14 The Integration of India and China into the World Economy (Chapter 17) 14 Vocabulary 15 - Study Questions 15 chapter 2 International Economic Institutions since World War II 17 Introduction: International Institutions and Issues since World War II 17 International Institutions 17 A Taxonomy of International Economic Institutions 18 The IMF, the World Bank, and the WTO 19 The IMF and World Bank 19 The GATT, the Uruguay Round, and the WTO 20 Case Study: The GATT Rounds 22 Regional Trade Agreements 23 Four Types of Regional Trade Agreements 23 Case Study: Prominent Regional Trade Agreements 24 The Role of International Economic Institutions 26 The Definition of Public Goods 27 Maintaining Order and Reducing Uncertainty 28 Case Study: Bretton Woods 29 Criticism of International Institutions 31 Sovereignty and Transparency 31 Ideology 32 Implementation and Adjustment Costs 33 Summary 34 - Vocabulary 35 - Study Questions 36 PART 2 International Trade 37 chapter 3 Comparative Advantage and the Gains from Trade 38 Introduction: Absolute Advantage and the Gains from Trade 38 Adam Smith and the Attack on Economic Nationalism 38 A Simple Model of Production and Trade 39 Absolute Productivity Advantage and the Gains from Trade 40 Case Study: The International Market for Crude Oil 42 Comparative Productivity Advantage and the Gains from Trade 44 The Production Possibilities Curve 44 Relative Prices 45 The Price Line, or Trade Line 46 The Gains from Trade 47 Domestic Prices and the Trade Price 49 Absolute and Comparative Productivity Advantage Contrasted 50 Gains from Trade with No Absolute Advantage 50 Comparative Advantage and "Competitiveness" 51 Economic Restructuring 53 Case Study: Changing Comparative Advantage in the Republic of Korea, 1960-2000 55 Summary 57 - Vocabulary 57 - Study Questions 58 chapter 4 Comparative Advantage and Factor Endowments 60 Introduction: The Determinants of Comparative Advantage 60 Modern Trade Theory 60 The Heckscher-Ohlin (HO) Trade Model 61 Gains from Trade in the HO Model 62 Trade and Income Distribution 65 The Stolper-Samuelson Theorem 66 The Specific Factors Model 68 Case StudY: Forecasts of Winners and Losers under NAFTA 70 Empirical Tests of the Theory of Comparative Advantage 72 Extension of the Heckscher-Ohlin Model 73 The Product Cycle 73 Foreign Trade versus Foreign Investment 75 Case Study: United States-China Trade 77 Outsourcing 79 Migration and Trade 80 The Impact of Trade on Wages and Jobs 82 Summary 84 - Vocabulary 85 - Study Questions 86 Appendix: Finding Trade Data 87 chapter 5 Beyond Comparative Advantage 90 Introduction: More Reasons to Trade 90 Intraindustry Trade 91 Measures of Intraindustry Trade 91 Characteristics of Intraindustry Trade 92 The Gains from Intraindustry Trade 94 Case Study: United States and Canada Trade 95 Trade and Geography 96 External Economies of Scale 97 Trade and External Economies 98 Industrial Policy 100 Industrial Policies and Market Failure 101 Strategic Trade 103 Industrial Policy Tools 105 Problems with Industrial Policies 106 U.S. Industrial Policies 108 Case Study: Subsidizing Commercial Aircraft 110 Summary 112 - Vocabulary 113 - Study Questions 113 Appendix: A Graphical Illustration of Prices and Costs with Monopolistic Competition 114 chapter 6 The Theory of Tariffs and Quotas 116 Introduction: The Impact of Tariffs 116 Analysis of a Tariff 116 Consumer and Producer Surplus 117 The Effect of a Tariff on Prices, Output, and Consumption 118 The Effect of a Tariff on Resource Allocation and Income Distribution 120 Other Potential Costs 122 The Large Country Case 123 Effective versus Nominal Rates of Protection 124 Case Study: A Comparison of Tariff Rates 126 Analysis of Quotas 128 Types of Quotas 128 The Effect on the Profits of Foreign Producers 129 Hidden Forms of Protection 131 Case Study: Intellectual Property Rights and Trade 131 Summary 133 - Vocabulary 134 - Study Questions 134 chapter 7 Commercial Policy 136 Introduction: Commercial Policy and Jobs 136 Protection in the European Union, Japan, and the United States 136 Direct Costs and Jobs Saved in Agriculture, Clothing, and Textiles 137 The Logic of Collective Action 140 Case Study: The Uruguay and Doha Rounds 141 Why Nations Protect Their Industries 142 The Labor Argument 143 The Infant Industry Argument 143 The National Security Argument 144 The Retaliation Argument 145 Case Study: Economic Sanctions 146 The Politics of Protection in the United States 148 Countervailing Duties 148 Antidumping Duties 149 Escape Clause Relief 150 Section 301 and Special 301 151 Case Study: Agricultural Subsidies 151 Summary 153 - Vocabulary 153 - Study Questions 154 chapter 8 International Trade and Labor and Environmental Standards 155 Introduction: Income and Standards 155 Setting Standards: Harmonization, Mutual Recognition, or Separate? 156 Case Study: Income, Environment, and Society 157 Labor Standards 159 Defining Labor Standards 160 Case Study: Child Labor 160 Labor Standards and Trade 163 Evidence on Low Standards as a Predatory Practice 164 Case Study: The International Labor Organization (ILO) 165 Trade and the Environment 167 Transboundary and Non-Transboundary Effects 167 Case Study: Trade Barriers and Endangered Species 169 Alternatives to Trade Measures 170 Labels for Exports 171 Requiring Home Country Standards 172 Increasing International Negotiations 173 Summary 173 - Vocabulary 174 - Study Questions 175 PART 3 International Finance 177 chapter 9 Trade and the Balance of Payments 178 Introduction: The Current Account 178 The Trade Balance 178 The Current Account Balance 179 Introduction to the Financial and Capital Accounts 181 Types of Financial Flows 184 Limits on Financial Flows 188 Case Study: The Mexican Sexenio Crisis 189 The Current Account and the Macroeconomy 190 The National Income and Product Accounts 190 Are Current Account Deficits Harmful? 196 Case Study: Current Account Deficits in the United States 197 International Debt 199 Case Study: Odious Debt 201 The International Investment Position 203 Summary 204 - Vocabulary 205 - Study Questions 205 Appendix A: Measuring the International Investment Position 206 Appendix B: Balance of Payments Data 207 chapter 10 Exchange Rates and Exchange Rate Systems 209 Introduction: Fixed, Flexible, or In-Between? 209 Exchange Rates and Currency Trading 209 Reasons for Holding Foreign Currencies 211 Institutions 212 Exchange Rate Risk 213 The Supply and Demand for Foreign Exchange 214 Supply and Demand with Flexible Exchange Rates 214 Exchange Rates in the Long Run 216 Exchange Rates in the Medium Run and Short Run 220 Case StudY: The Largest Market in the World 224 The Real Exchange Rate 226 Alternatives to Flexible Exchange Rates 228 Fixed Exchange Rate Systems 229 Case Study: Dollarization and Currency Boards 232 Choosing the Right Exchange Rate System 235 Case Study: The End of the Bretton Woods System 238 Single Currency Areas 239 Conditions for Adopting a Single Currency 241 Case Study: Is the NAFTA Region an Optimal Currency Area? 242 Summary 244 - Vocabulary 245 - Study Questions 245 Appendix: The Interest Rate Parity Condition 247 chapter 11 An Introduction to Open Economy Macroeconomics 248 Introduction: The Macroeconomy in a Global Setting 248 Aggregate Demand and Aggregate Supply 249 Fiscal and Monetary Policies 254 Fiscal Policy 254 Monetary Policy 255 Case Study: Fiscal and Monetary Policy during the Great Depression 257 Current Account Balances Revisited 260 Fiscal and Monetary Policies, Interest Rates, and Exchange Rates 261 Fiscal and Monetary Policy and the Current Account 262 The Long Run 264 Macro Policies for Current Account Imbalances 265 The Adjustment Process 266 Case Study: The Adjustment Process in the United States 267 Macroeconomic Policy Coordination in Developed Countries 268 Summary 269 - Vocabulary 270 - Study Questions 271 chapter 12 International Financial Crises 273 Introduction: The Challenge to Financial Integration 273 Definition of a Financial Crisis 274 Two Types of International Financial Crises 275 Crises Caused by Macroeconomic Imbalances 275 Crises Caused by Volatile Capital Flows 277 Case Study: The Mexican Peso Crisis of 1994 and 1995 278 Domestic Issues in Crisis Avoidance 281 Moral Hazard and Financial Sector Regulation 282 Exchange Rate Policy 283 Capital Controls 284 Case Study: Chilean Taxes on Capital Inflows 286 Domestic Policies for Crisis Management 287 Case Study: The Asian Crisis of 1997 and 1998 288 Reform of the International Financial Architecture 292 A Lender of Last Resort 293 Conditionality 294 Reform Urgency 296 Summary 297 - Vocabulary 299 - Study Questions 299 PART 4 Regional Issues in the Global Economy 301 chapter 13 Economic Integration in North America 302 Introduction: Expanding Economic Relations 302 Economic and Demographic Characteristics of North America 302 The Canada-U.S. Trade Relationship 305 The Auto Pact of 1965 306 The Canadian-U.S. Trade Agreement (CUSTA) of 1989 307 Recent Mexican Economic History 310 The Slowdown in Economic Growth 310 The Lost Decade of the 1980s 311 Economic Policy Reforms in the Mexican Economy 312 Case Study: Mexico's Export Processing Industry 313 The North American Free Trade Agreement (NAFTA) 315 The NAFTA Debate in the United States 316 Labor Issues 317 Environmental Issues 318 Immigration 320 Jobs, Politics, and the Future 322 The Expansion of NAFTA 325 The Future of NAFTA: A North American Community? 326 Case Study: Doing Business in Canada, Mexico, and the United States 328 Summary 329 - Vocabulary 330 - Study Questions 331 chapter 14 The European Union: Many Markets into One 332 Introduction: The European Union 332 The Size of the European Market 333 Before the European Union 336 The Treaty of Rome 336 Institutional Structure of the EEC 337 Deepening and Widening the Community in the 1970s and 1980s 340 Before the Euro 340 The Second Wave of Deepening: The Single European Act 343 Case Study: The Schengen Agreement 343 The Delors Report 344 Forecasts of the Gains from the Single European Act 345 Problems in the Implementation of the SEA 346 The Third Wave of Deepening: The Maastricht Treaty 350 Monetary Union and the Euro 351 Costs and Benefits of Monetary Union 352 The Political Economy of a Single Currency 353 Implementation of the Single Currency 354 Widening the European Union 355 Central and Eastern Europe 356 Turkey 358 Case Study: Spain's Switch from Emigration to Immigration 358 The Demographic Challenge of the Future 360 Summary 361 - Vocabulary 362 - Study Questions 363 chapter 15 Trade and Policy Reform in Latin America 364 Introduction: Defining a "Latin American" Economy 364 Population, Income, and Economic Growth 365 Import Substitution Industrialization 367 Origins and Goals of ISI 369 Criticisms of ISI 371 Case Study: ISI in Mexico 373 Macroeconomic Instability and Economic Populism 375 Populism in Latin America 375 The Debt Crisis of the 1980s 376 Proximate Causes of the Debt Crisis 376 Responses to the Debt Crisis 377 Economic Policy Reform and the "Washington Consensus" 380 Stabilization Policies to Control Inflation 380 Structural Reform and Open Trade 383 Case Study: Regional Trade Blocs in Latin America 386 The Washington Consensus 388 The Next Generation of Reforms 389 Summary 391 - Vocabulary 392 - Study Questions 393 chapter 16 Export-Oriented Growth in East Asia 394 Introduction: The High-Performance Asian Economies 394 Population, Income, and Economic Growth 395 General Characteristics of Growth in the HPAEs 399 Shared Growth 399 Rapid Accumulation of Physical and Human Capital 401 Rapid Growth of Manufactured Exports 402 Stable Macroeconomic Environments 402 The Institutional Environment 403 Fiscal Discipline 404 Business-Government Relations 404 Case Study: Deliberation Councils in the Ministry of International Trade and Industry (MITI) 405 Avoiding Rent Seeking 406 Case Study: Were East Asian Economies Open? 407 The Role of Industrial Policies 410 Targeting Specific Industries in the HPAEs 410 Did Industrial Policies Work? 411 Case Study: HCI in Korea 413 The Role of Manufactured Exports 414 The Connections between Growth and Exports 414 Is Export Promotion a Good Model for Other Regions? 416 Case Study: Asian Trade Blocs 417 Is There an Asian Model of Economic Growth? 418 Summary 421 - Vocabulary 421 - Study Questions 422 chapter 17 China and India in the World Economy 423 Introduction: The Challenges of Openness 423 Demographic and Economic Characteristics 424 Economic Reforms in China and India 426 The Reform Process in China 426 Indian Economic Reforms 428 Remaining Issues 429 Case Study: Why Did the USSR Collapse and China Succeed? 430 China and India in the World Economy 432 Chinese and Indian Trade Patterns 432 The Challenges of India and China in the World Economy 435 Unresolved Issues 438 The Choices Ahead 441 Summary 442 - Vocabulary 443 - Study Questions 443 Suggested Readings 445 Glossary 454 Index 466
Library of Congress Subject Headings for this publication:
International economic relations.
International economic integration.
United States -- Foreign economic relations.