International Economics - uCoz

1 International EconomicsTheory & PolicyThe Pearson Series in EconomicsAbel/Bernanke/CroushoreMacroeco nomics*Bade/ParkinFoundations of Economics *Berck/HelfandThe Economics of theEnvironmentBierman/FernandezGame Theory with EconomicApplicationsBlanchardMacroeconom ics*Blau/Ferber/WinklerThe Economics of Women, Menand WorkBoardman/Greenberg/Vining/WeimerCost -Benefit AnalysisBoyerPrinciples of TransportationEconomicsBransonMacroecono mic Theory andPolicyBrock/AdamsThe Structure of AmericanIndustryBrucePublic Finance and theAmerican EconomyCarlton/PerloffModern Industrial OrganizationCase/Fair/OsterPrinciples of Economics *Caves/Frankel/JonesWorld Trade and Payments: AnIntroductionChapmanEnvironmental Economics :Theory, Application, and PolicyCooter/UlenLaw & EconomicsDownsAn economic Theory ofDemocracyEhrenberg/SmithModern Labor EconomicsEkelund/Ressler/TollisonEconomi cs*FarnhamEconomics for ManagersFolland/Goodman/StanoThe Economics of Health andHealth CareFortSports EconomicsFroyenMacroeconomicsFusfeldThe Age of the EconomistGerberInternational Economics *GordonMacroeconomics*GreeneEco nometric AnalysisGregoryEssentials of EconomicsGregory/StuartRussian and Soviet EconomicPerformance and StructureHartwick/OlewilerThe Economics of NaturalResource UseHeilbroner/MilbergThe Making of the EconomicSocietyHeyne/Boettke/PrychitkoTh e economic Way of ThinkingHoffman/AverettWomen and the Economy.

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3 A Fable of FreeTrade and ProtectionRohlfIntroduction to EconomicReasoningRuffin/GregoryPrinciple s of EconomicsSargentRational Expectations andInflationSawyer/SprinkleInternational EconomicsSchererIndustry Structure, Strategy, andPublic PolicySchillerThe Economics of Poverty andDiscriminationShermanMarket RegulationSilberbergPrinciples of MicroeconomicsStock/WatsonIntroduction to EconometricsIntroduction to Econometrics,Brief EditionStudenmundUsing Econometrics: A Practical GuideTietenberg/LewisEnvironmental and NaturalResource EconomicsEnvironmental Economics andPolicyTodaro/SmithEconomic DevelopmentWaldmanMicroeconomicsWaldman/ JensenIndustrial Organization: Theory and PracticeWeilEconomic GrowthWilliamsonMacroeconomicsThis page intentionally left blank International EconomicsTheory & PolicyNINTH EDITIONPaul R. KrugmanPrinceton UniversityMaurice ObstfeldUniversity of California, BerkeleyMarc J. MelitzHarvard UniversityAcknowledgments of material borrowed from other sources and reproduced, with permission, in this textbook appearon appropriate page within text.

4 Credits appear on page 683, which constitutes a continuation of the copyright Robin My Family Clair and Benjamin Director: Sally YaganEditor in Chief: Donna BattistaAcquisitions Editor: Noel Kamm SeibertDevelopment Editor: Karen MislerEditorial Project Manager: Melissa PelleranoDirector of Marketing: Patrice JonesExecutive Marketing Manager: Lori DeShazoMarketing Assistant: Ian GoldManaging Editor: Nancy FentonProduction Project Manager: Carla ThompsonManufacturing Director: Evelyn BeatonSenior Manufacturing Buyer: Carol MelvilleCreative Director: Christy MahonSenior Art Director: Jonathan BoylanCover Designer: Black Horse DesignsInterior Designer: Integra-ChicagoImage Manager: Rachel YoudelmanImage Researcher: Diahanne Lucas DowridgePermissions Project Supervisor: Michael JoyceText Permissions Editor: Joanna GreenMedia Producer: Melissa HonigAssociate Production Project Manager:Alison EusdenFull-Service Project Management and Composition: IntegraPrinter/Binder: Donnelley/WillardCover Printer: Lehigh-Phoenix Color/HagerstownText Font: 10/12 Times New Roman10987654321 ISBN 10: 0-13-214665-7 ISBN 13: 978-0-13-214665-4 Copyright 2012 Paul R.

5 Krugman, Maurice Obstfeld, and Marc J. Melitz. All rights reserved. Manufactured in theUnited States of America. This publication is protected by Copyright, and permission should be obtained from the pub-lisher 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 of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Wherethose designations appear in this book, and the publisher was aware of a trademark claim, the designations have beenprinted in initial caps or all of Congress Cataloging-in-Publication DataKrugman, Paul Economics : theory & policy/Paul R. Krugman, Maurice Obstfeld, Marc J.

6 Melitz. 9th cm. (The Pearson series in Economics )Rev. ed. of: International Economics : theory and policy / Paul Krugman, Maurice Obstfeld. 8th : 978-0-13-214665-4 ISBN-10: 0-13-214665-71. International economic International Obstfeld, Melitz, Marc 2012337 dc222010031988viiBrief ContentsContentsixPrefacexxi1 Introduction1 Part 1 International Trade Theory102 World Trade: An Overview103 Labor Productivity and Comparative Advantage: The Ricardian Model244 Specific Factors and Income Distribution505 Resources and Trade: The Heckscher-Ohlin Model806 The Standard Trade Model1117 External Economies of Scale and the International Location of Production1378 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises155 Part 2 International Trade Policy1929 The Instruments of Trade Policy19210 The Political Economy of Trade Policy21911 Trade Policy in Developing Countries25612 Controversies in Trade Policy271 Part 3 Exchange Rates and Open-Economy Macroeconomics29313 National Income Accounting and the Balance of Payments29314 Exchange Rates and the Foreign Exchange Market.

7 An Asset Approach32015 Money, Interest Rates, and Exchange Rates35416 Price Levels and the Exchange Rate in the Long Run38417 Output and the Exchange Rate in the Short Run42118 Fixed Exchange Rates and Foreign Exchange Intervention463 Part 4 International Macroeconomic Policy50419 International Monetary Systems: An Historical Overview50420 Optimum Currency Areas and the European Experience55721 Financial Globalization: Opportunity and Crisis58622 Developing Countries: Growth, Crisis, and Reform619 Mathematical PostscriptsPostscript 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 Credits683 Index685viiiBrief ContentsixContentsPreface ..xxi1 Introduction1 What Is International Economics About? ..3 The Gains from Trade ..4 The Pattern of Trade.

8 5 How Much Trade? ..5 Balance of Payments ..6 Exchange Rate Determination ..6 International Policy Coordination ..7 The International Capital Market ..7 International Economics : Trade and Money ..8 Part 1 International Trade Theory102 World Trade: An Overview10 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 ..19Do Old Rules Still Apply? ..21 Summary ..213 Labor Productivity and Comparative Advantage: The Ricardian Model24 The Concept of Comparative Advantage ..25A 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 ..34A Note on Relative Wages.

9 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 Adding Transport Costs and Nontraded Goods ..43 Empirical Evidence on the Ricardian Model ..45 Summary ..474 Specific Factors and Income Distribution50 The Specific Factors Model ..51 BOX:What Is a Specific Factor? ..52 Assumptions of the Model ..52 Production Possibilities ..53 Prices, Wages, and Labor Allocation ..56 Relative Prices and the Distribution of Income ..60 International Trade in the Specific Factors Model ..62 Income Distribution and the Gains from Trade ..63 The Political Economy of Trade: A Preliminary View ..65 CASE STUDY:Trade and Unemployment ..66 Income Distribution and Trade Politics.

10 68 International Labor Mobility ..69 CASE STUDY:Wage Convergence in the Age of Mass Migration ..70 CASE STUDY:Immigration and the Economy ..71 Summary ..73 Appendix: Further Details on Specific Factors ..77 Marginal and Total Product ..77 Relative Prices and the Distribution of Income ..785 Resources and Trade: The Heckscher-Ohlin Model80A Model of a Two-Factor Economy ..81 Prices and Production ..81 Choosing the Mix of Inputs ..84 Factor Prices and Goods Prices ..86 Resources and Output ..88 Effects of International Trade Between Two-Factor Economies ..89 Relative Prices and the Pattern of Trade ..90 Trade and the Distribution of Income ..91 CASE STUDY:North-South Trade and Income Inequality ..92 Factor-Price Equalization ..97 Empirical Evidence on the Heckscher-Ohlin Model ..98 Trade in Goods as a Substitute for Trade in Factors ..98 Patterns of Exports Between Developed and Developing Countries ..101 Implications of the Tests ..102 Summary ..104 Appendix: Factor Prices, Goods Prices, and Production Decisions.