International Trade: Theory and Policy, 11th Edition PDF by Paul R Krugman, Maurice Obstfeld and Marc J Melitz

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International Trade: Theory & Policy, Eleventh Edition

By Paul R. Krugman, Maurice Obstfeld and Marc J. Melitz

International Trade Theory & Policy, Eleventh Edition

Contents:

Preface ………………………………………………………………………………………………………………..13

1 Introduction 23

What Is International Economics About?……………………………………………………………………25

The Gains from Trade………………………………………………………………………………………………. 26

The Pattern of Trade………………………………………………………………………………………………… 27

How Much Trade?……………………………………………………………………………………………………. 27

Balance of Payments………………………………………………………………………………………………… 28

Exchange Rate Determination…………………………………………………………………………………… 29

International Policy Coordination………………………………………………………………………………. 29

The International Capital Market……………………………………………………………………………….. 30

International Economics: Trade and Money………………………………………………………………..31

PART 1 International Trade Theory 32

2 World Trade: An Overview 32

Who Trades with Whom?…………………………………………………………………………………………32

Size Matters: The Gravity Model……………………………………………………………………………….. 33

Using the Gravity Model: Looking for Anomalies………………………………………………………… 35

Impediments to Trade: Distance, Barriers, and Borders…………………………………………………. 36

The Changing Pattern of World Trade……………………………………………………………………….38

Has the World Gotten Smaller?………………………………………………………………………………….. 38

What Do We Trade?…………………………………………………………………………………………………. 40

Service Offshoring……………………………………………………………………………………………………. 41

Do Old Rules Still Apply?………………………………………………………………………………………..43

Summary………………………………………………………………………………………………………………44

3 Labor Productivity and Comparative Advantage:

The Ricardian Model 46

The Concept of Comparative Advantage……………………………………………………………………..47

A One-Factor Economy…………………………………………………………………………………………..48

Relative Prices and Supply………………………………………………………………………………………… 50

Trade in a One-Factor World……………………………………………………………………………………51

Determining the Relative Price after Trade…………………………………………………………………… 52

box: Comparative Advantage in Practice: The Case of Usain Bolt…………………………………..55

The Gains from Trade………………………………………………………………………………………………. 56

A Note on Relative Wages…………………………………………………………………………………………. 57

box: Economic Isolation and Autarky over Time and Space……………………………………………58

Misconceptions about Comparative Advantage…………………………………………………………….59

Productivity and Competitiveness………………………………………………………………………………. 59

box: Do Wages Reflect Productivity?…………………………………………………………………………60

The Pauper Labor Argument…………………………………………………………………………………….. 61

Exploitation……………………………………………………………………………………………………………. 61

Comparative Advantage with Many Goods………………………………………………………………….62

Setting Up the Model……………………………………………………………………………………………….. 62

Relative Wages and Specialization………………………………………………………………………………. 62

Determining the Relative Wage in the Multigood Model……………………………………………….. 64

Adding Transport Costs and Nontraded Goods…………………………………………………………….66

Empirical Evidence on the Ricardian Model………………………………………………………………..67

Summary………………………………………………………………………………………………………………70

4 Specific Factors and Income Distribution 73

The Specific Factors Model………………………………………………………………………………………74

box: What Is a Specific Factor?…………………………………………………………………………………75

Assumptions of the Model………………………………………………………………………………………… 75

Production Possibilities…………………………………………………………………………………………….. 76

Prices, Wages, and Labor Allocation…………………………………………………………………………… 79

Relative Prices and the Distribution of Income…………………………………………………………….. 83

International Trade in the Specific Factors Model………………………………………………………..85

Income Distribution and the Gains from Trade…………………………………………………………….86

The Political Economy of Trade: A Preliminary View……………………………………………………89

Income Distribution and Trade Politics……………………………………………………………………….. 90

case study: Trade and Unemployment…………………………………………………………………………90

International Labor Mobility……………………………………………………………………………………94

case study: Wage Convergence in the European Union…………………………………………………..96

case study: Immigration and the U.S. Economy: Future Prospects……………………………………98

Summary……………………………………………………………………………………………………………. 101

5 Resources and Trade: The Heckscher-Ohlin Model 109

Model of a Two-Factor Economy……………………………………………………………………………. 110

Prices and Production…………………………………………………………………………………………….. 110

Choosing the Mix of Inputs…………………………………………………………………………………….. 113

Factor Prices and Goods Prices………………………………………………………………………………… 115

Resources and Output…………………………………………………………………………………………….. 118

Effects of International Trade between Two-Factor Economies…………………………………….. 119

Relative Prices and the Pattern of Trade…………………………………………………………………….. 120

Trade and the Distribution of Income……………………………………………………………………….. 121

case study: North-South Trade and Income Inequality………………………………………………… 122

Skill-Biased Technological Change and Income Inequality…………………………………………… 124

box: The Declining Labor Share of Income and Capital-Skill Complementarity……………… 128

Factor-Price Equalization………………………………………………………………………………………… 129

Empirical Evidence on the Heckscher-Ohlin Model……………………………………………………. 130

Trade in Goods as a Substitute for Trade in Factors: Factor Content of Trade………………… 131

Patterns of Exports between Developed and Developing Countries……………………………….. 134

Implications of the Tests…………………………………………………………………………………………. 136

Summary……………………………………………………………………………………………………………. 137

6 The Standard Trade Model 145

A Standard Model of a Trading Economy………………………………………………………………… 146

Production Possibilities and Relative Supply………………………………………………………………. 146

Relative Prices and Demand…………………………………………………………………………………….. 147

The Welfare Effect of Changes in the Terms of Trade………………………………………………….. 150

Determining Relative Prices…………………………………………………………………………………….. 151

case study: Unequal Gains from Trade across the Income Distribution…………………………… 151

Economic Growth: A Shift of the RS Curve………………………………………………………………. 154

Growth and the Production Possibility Frontier………………………………………………………….. 154

World Relative Supply and the Terms of Trade…………………………………………………………… 156

International Effects of Growth……………………………………………………………………………….. 157

case study: Has the Growth of Newly Industrializing Economies

Hurt Advanced Nations?……………………………………………………………………………………. 158

Tariffs and Export Subsidies: Simultaneous Shifts in RS and RD…………………………………. 160

Relative Demand and Supply Effects of a Tariff…………………………………………………………. 160

Effects of an Export Subsidy……………………………………………………………………………………. 161

Implications of Terms of Trade Effects: Who Gains and Who Loses?…………………………….. 162

International Borrowing and Lending………………………………………………………………………. 163

Intertemporal Production Possibilities and Trade………………………………………………………… 163

The Real Interest Rate…………………………………………………………………………………………….. 164

Intertemporal Comparative Advantage……………………………………………………………………… 166

Summary……………………………………………………………………………………………………………. 166

7 External Economies of Scale and the International

Location of Production 173

Economies of Scale and International Trade: An Overview………………………………………….. 174

Economies of Scale and Market Structure………………………………………………………………… 175

The Theory of External Economies…………………………………………………………………………. 176

Specialized Suppliers……………………………………………………………………………………………. 176

Labor Market Pooling………………………………………………………………………………………….. 177

Knowledge Spillovers…………………………………………………………………………………………….. 178

External Economies and Market Equilibrium…………………………………………………………….. 179

External Economies and International Trade…………………………………………………………….. 180

External Economies, Output, and Prices……………………………………………………………………. 180

External Economies and the Pattern of Trade…………………………………………………………….. 181

box: Holding the World Together……………………………………………………………………………. 183

Trade and Welfare with External Economies………………………………………………………………. 184

Dynamic Increasing Returns……………………………………………………………………………………. 185

Interregional Trade and Economic Geography…………………………………………………………… 186

box: Soccer and the English Premiere League…………………………………………………………… 188

Summary……………………………………………………………………………………………………………. 189

8 Firms in the Global Economy: Export Decisions,

Outsourcing, and Multinational Enterprises 192

The Theory of Imperfect Competition……………………………………………………………………… 193

Monopoly: A Brief Review……………………………………………………………………………………… 194

Monopolistic Competition………………………………………………………………………………………. 196

Monopolistic Competition and Trade………………………………………………………………………. 201

The Effects of Increased Market Size………………………………………………………………………… 201

Gains from an Integrated Market: A Numerical Example…………………………………………….. 202

The Significance of Intra-Industry Trade…………………………………………………………………… 206

case study: Automobile Intra-Industry Trade within ASEAN-4: 1998–2002……………………. 208

Firm Responses to Trade: Winners, Losers, and Industry Performance………………………….. 209

Performance Differences across Producers…………………………………………………………………. 210

The Effects of Increased Market Size………………………………………………………………………… 212

Trade Costs and Export Decisions…………………………………………………………………………… 214

Dumping…………………………………………………………………………………………………………….. 216

case study: Antidumping as Protectionism………………………………………………………………… 217

Multinationals and Outsourcing……………………………………………………………………………… 219

case study: Patterns of FDI Flows around the World………………………………………………….. 219

The Firm’s Decision Regarding Foreign Direct Investment…………………………………………… 223

Outsourcing………………………………………………………………………………………………………….. 224

box: Whose Trade Is It?………………………………………………………………………………………… 225

case study: Shipping Jobs Overseas? Offshoring and Labor Market

Outcomes in Germany………………………………………………………………………………………. 227

Consequences of Multinationals and Foreign Outsourcing…………………………………………… 230

Summary……………………………………………………………………………………………………………. 231

Part 2 International Trade Policy 237

9 The Instruments of Trade Policy 237

Basic Tariff Analysis……………………………………………………………………………………………. 237

Supply, Demand, and Trade in a Single Industry………………………………………………………… 238

Effects of a Tariff…………………………………………………………………………………………………… 240

Measuring the Amount of Protection……………………………………………………………………….. 241

Costs and Benefits of a Tariff………………………………………………………………………………… 243

Consumer and Producer Surplus………………………………………………………………………………. 243

Measuring the Costs and Benefits…………………………………………………………………………….. 245

box: Tariffs and Retaliation…………………………………………………………………………………… 247

Other Instruments of Trade Policy………………………………………………………………………….. 249

Export Subsidies: Theory………………………………………………………………………………………… 249

case study: Europe’s Common Agricultural Policy……………………………………………………… 250

Import Quotas: Theory…………………………………………………………………………………………… 251

case study: Tariff-Rate Quota Origin and its Application in Practice with Oilseeds………….. 252

Voluntary Export Restraints……………………………………………………………………………………. 255

case study: A Voluntary Export Restraint in Practice…………………………………………………. 256

Local Content Requirements……………………………………………………………………………………. 257

box: Healthcare Protection with Local Content Requirements……………………………………… 258

Other Trade Policy Instruments……………………………………………………………………………….. 259

The Effects of Trade Policy: A Summary…………………………………………………………………. 259

Summary……………………………………………………………………………………………………………. 260

10 The Political Economy of Trade Policy 268

The Case for Free Trade……………………………………………………………………………………….. 269

Free Trade and Efficiency………………………………………………………………………………………… 269

Additional Gains from Free Trade……………………………………………………………………………. 270

Rent Seeking…………………………………………………………………………………………………………. 271

Political Argument for Free Trade…………………………………………………………………………….. 271

National Welfare Arguments against Free Trade……………………………………………………….. 272

The Terms of Trade Argument for a Tariff………………………………………………………………… 272

The Domestic Market Failure Argument against Free Trade…………………………………………. 273

How Convincing Is the Market Failure Argument?……………………………………………………… 275

Income Distribution and Trade Policy……………………………………………………………………… 276

Electoral Competition…………………………………………………………………………………………….. 277

Collective Action……………………………………………………………………………………………………. 278

box: Politicians for Sale: Evidence from the 1990s……………………………………………………… 279

Modeling the Political Process………………………………………………………………………………….. 280

Who Gets Protected?………………………………………………………………………………………………. 280

International Negotiations and Trade Policy…………………………………………………………….. 282

The Advantages of Negotiation……………………………………………………………………………….. 283

International Trade Agreements: A Brief History……………………………………………………….. 284

The Uruguay Round………………………………………………………………………………………………. 286

Trade Liberalization……………………………………………………………………………………………….. 286

Administrative Reforms: From the GATT to the WTO………………………………………………… 287

Benefits and Costs………………………………………………………………………………………………….. 288

box: Settling a Dispute—And Creating One……………………………………………………………… 289

case study: Testing the WTO’s Metal………………………………………………………………………. 290

The End of Trade Agreements?………………………………………………………………………………. 291

box: Do Agricultural Subsidies Hurt the Third World?……………………………………………….. 292

Preferential Trading Agreements………………………………………………………………………………. 293

box: Free Trade Area Versus Customs Union……………………………………………………………. 294

box: Brexit…………………………………………………………………………………………………………. 295

case study: Trade Diversion in South America…………………………………………………………… 296

The Trans-Pacific Partnership………………………………………………………………………………….. 297

Summary……………………………………………………………………………………………………………. 298

11 Trade Policy in Developing Countries 305

Import-Substituting Industrialization………………………………………………………………………. 306

The Infant Industry Argument…………………………………………………………………………………. 306

Promoting Manufacturing through Protection……………………………………………………………. 308

case study: Export-Led Strategy…………………………………………………………………………….. 310

Results of Favoring Manufacturing: Problems of Import-Substituting Industrialization……. 311

Trade Liberalization since 1985………………………………………………………………………………. 313

Trade and Growth: Takeoff in Asia…………………………………………………………………………. 315

box: India’s Boom………………………………………………………………………………………………… 317

Summary……………………………………………………………………………………………………………. 317

12 Controversies in Trade Policy 320

Sophisticated Arguments for Activist Trade Policy…………………………………………………….. 321

Technology and Externalities…………………………………………………………………………………… 321

Imperfect Competition and Strategic Trade Policy………………………………………………………. 324

box: A Warning from Intel’s Founder………………………………………………………………………. 326

case study: When the Chips Were Up………………………………………………………………………. 327

Globalization and Low-Wage Labor………………………………………………………………………… 329

The Anti-Globalization Movement…………………………………………………………………………… 329

Trade and Wages Revisited………………………………………………………………………………………. 330

Labor Standards and Trade Negotiations…………………………………………………………………… 332

Environmental and Cultural Issues……………………………………………………………………………. 332

The WTO and National Independence………………………………………………………………………. 333

case study: A Tragedy in Bangladesh……………………………………………………………………….. 334

Globalization and the Environment………………………………………………………………………….. 335

Globalization, Growth, and Pollution……………………………………………………………………….. 335

The Problem of “Pollution Havens”………………………………………………………………………….. 337

The Carbon Tariff Dispute………………………………………………………………………………………. 338

Trade Shocks and Their Impact on Communities……………………………………………………….. 339

Summary……………………………………………………………………………………………………………. 340

Mathematical Postscripts 343

Postscript to Chapter 5: The Factor-Proportion Model……………………………………………….. 343

Factor Prices and Costs…………………………………………………………………………………………… 343

Goods Prices and Factor Prices………………………………………………………………………………… 345

Factor Supplies and Outputs……………………………………………………………………………………. 346

Postscript to Chapter 6: The Trading World Economy………………………………………………… 347

Supply, Demand, and Equilibrium……………………………………………………………………………. 347

Supply, Demand, and the Stability of Equilibrium………………………………………………………. 349

Effects of Changes in Supply and Demand………………………………………………………………… 351

Economic Growth………………………………………………………………………………………………….. 351

A Transfer of Income……………………………………………………………………………………………… 352

A Tariff………………………………………………………………………………………………………………… 353

Postscript to Chapter 8: The Monopolistic Competition Model…………………………………….. 355

Index 357

Credits 366

ONLINE APPENDICES (www.pearsonglobaleditions.com/Krugman)

Appendix A to Chapter 6: International Transfers of Income and the Terms of Trade

The Transfer Problem

Effects of a Transfer on the Terms of Trade

Presumptions about the Terms of Trade Effects of Transfers

Appendix B to Chapter 6: Representing International Equilibrium with Offer Curves

Deriving a Country’s Offer Curve

International Equilibrium

Appendix A to Chapter 9: Tariff Analysis in General Equilibrium

A Tariff in a Small Country

A Tariff in a Large Country

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