International economics

List of Figures                                                                                                                                                                                            xiv

List of Tables                                                                                                                                                                                           xviii

1 The Study of International Economics                                                                                                                                                 1

International Economics and Economics in General Differences in Kind Factor Mobility Different Moneys Balance of Payments Adjustment Different National Policies Separate Markets Politically Different Units International Economic Problems Scheme of the Book

PART I THE THEORY OF INTERNATIONAL TRADE

2 The Pure Theory of International Trade Supply                                                                                                                                     17

Law of Comparative Advantage Production Possibilities Curves Constant Costs Increasing Opportunity Costs Factor Proportions Trade and Factor Efficiency Equalization of Factor Prices Increasing Returns

3 The Pure Theory of International Trade Demand                                                                                                                                   35

The Law of Reciprocal Demand Offer Curves Supply and the Offer Curve Indifference Curves The Terms of Trade The Gains from Trade Different Tastes Identical Factors Identical Tastes More Commodities More Countries General Equilibrium

4 The Comparative Statics of Trade Changes in Tastes Factor Endowments Technology                                                                        53

The Simple Assumptions of Heckscher Ohlin Comparative Advantage Changes in Tastes Changes in Factor Endowments Technological Change Making Old Goods More Cheaply Factor Growth and Technological Change Changes in Technology New Goods Shifting Comparative Advantage Meeting or Setting the International Standard Marketing Need for a New Theory in Manufactured Goods

5 Trade and Growth in Developing Economies                                                                                                                                         70

Trade and Growth Export Led Growth in 19th Century Developing Economies Export Led Growth in Industrial Leaders Export Led Growth in Developed Countries Today The Penalties of the Head Start The Terms of Trade Engels Law Biased Factor and Technological Change and Monopoly The Impact of Internal Conditions Neoimperialism Neocolonialism and Exploitation Import Substitution

6 Transport Costs and Location Theory                                                                                                                                                    89

Transport Costs and Price Equality Transport Costs in Partial Equilibrium The Impact of Transport Costs The Rationale of Transport Costs Supply Oriented Commodities Market Orientation Footloose Industries Location Economics

PART II COMMERCIAL POLICY

7 Commercial Policy Tariff and Non Tariff Distortions                                                                                                                          107

Eight Effects The Protective Effect The Consumption Effect The Revenue Effect The Redistribution Effect Infant Industry Argument Tariff Factories Effective Rate of Protection The Terms of Trade Effect The Competitive Effect The Income and Balance of Payments Effects The Reciprocal Trade Agreements Program Nontariff Barriers Export Quotas Abroad Barriers to Trade in Agriculture Noneconomic Arguments

8 Other National Policies Affecting Trade                                                                                                                                               129

Elements of Public Finance Government Activity and Comparative Advantage Differences in Rates of Tax Different Tax Systems State Trading Economic Warfare Trade among Socialist Countries East West Trade

9 Monopoly Cartels and Price Discrimination                                                                                                                                        145

Competitive Trade Monopoly and Monopsony Cartels Cartel Policy Market Separation Price Discrimination Discriminating Monopsony Dumping and Reverse Dumping Trade Restrictions against Dumping The Dilemma of Policy

10 Commercial Policy and Developing Countries                                                                                                                                   159

Commodity Price Stabilization Financial Devices Developed Country Protection in Primary Products Import Substitution Preferences for Manufactures from Developing Countries Export Incentives and Subsidies Asymmetric Rules

11 Economic Integration                                                                                                                                                                          174

Custom Unions and Free Trade Areas The Theory of Customs Unions The Real World The Dynamic Effects of Customs Union Beyond Customs Union Some Lesser Problems of Customs Unions and Free Trade Areas EECs Special Regime for Agriculture Regional Integration among Developing Countries

12 The Case for Free Multilateral Trade                                                                                                                                                 189

Merits of the Price System Demerits of the Price System Alternatives to the Price System Efficiency and Welfare The Case for Multilateral Trade The Conditions Needed for Free Trade The Theory of the Second Best The Burden of Proof Social versus Economic Goals

PART III FACTOR MOVEMENTS

13 The International Movement of Labor                                                                                                                                               209

Labor Migration The International Labor Market The Patterns of Labor Movement The European Labor Market Does Emigration Benefit the Sending Country Does Immigration Benefit the Receiving Country Cosmopolitan Migration Policy Technical Assistance Freedom of Movement and Social Integration

14 Long Term Portfolio Capital                                                                                                                                                              224

Forms of Long Term Capital New Bond Issues Foreign and Domestic Investment Institutional Pattern of Lending Government Control Capital Movements and Welfare The Feasibility of Controlling Capital Movements Borrowing to Finance Imports Tied Loans The Project Basis for Loans Capacity to Absorb Capital Cumulative Lending The Need to Borrow Interest Debt Service Ratio

15 The Theory of Direct Investment                                                                                                                                                       245

Direct Investment as Capital Movement Monopolistic Competition Bilateral Monopoly Direct Investment in Resource Industries in Developing Countries Direct Investment and Welfare The International Corporation Direct Investment and the Balance of Payments In the Home Country The Impact on the Balance of Payments of the Host Country

16 Policies toward Direct Investment                                                                                                                                                     263

Instinctive Reactions Foreign Enterprise and Exports Foreign Control Market Failure Restricting Nonessentials Mitigating the Effects of Foreign Investment Joint Ventures Selectivity Limiting Take Overs Excluding Foreigners from the Local Capital Market Taking the Package Apart Cartels Disinvestment and Disappearing Investment The Burke Hartke Bill Government Guarantees and Insurance A Forum for Resolving Conflicts over Direct Investment

PART IV THE ADJUSTMENT PROCESS

17 The Foreign Exchange Market                                                                                                                                                            283

Functions of the Foreign Exchange Market International Clearing Credit Function The Euro Dollar Market Hedging Arbitrage The Foreign Exchange Rate Types of Intervention The Foreign Exchange Market and the Balance of Payments

18 The Balance of Payments                                                                                                                                                                   303

Purposes Definition Economic Transactions Balance of Payments Accounting Balances within the Total The Merchandise Trade Balance The Current Account Balance Basic Balance The Balance on Regular Transactions The Balance Settled by Official Transactions Autonomous versus Compensatory Items Banker versus Trader The Figures The Balance of Indebtedness

19 Disequilibrium and Adjustment The Role of Price                                                                                                                            322

The Fluctuating Exchange Rate Excess Demand and Supply Curves Exchange Depreciation The Marshall Lerner Condition Unstable Equilibrium Elasticity Optimism and Pessimism Terms of Trade and Depreciation Partial versus Complete Elasticities Changing Prices and Fixed Exchange Rates

20 Income Changes and International Trade                                                                                                                                           338

The Assumptions The Import Function Propensities of the United States Exports and National Income The Multiplier in a Closed Economy The Foreign Trade Multiplier No Savings No Investment The Foreign Trade Multiplier Savings Income Changes and the Balance of Payments Foreign Repercussion Adding Realism

21 Money in the Adjustment Process                                                                                                                                                      358

Price Specie Flow Mechanism Real Balances The Rate of Interest IS LM Analysis with Foreign Trade Equilibrium in Three Markets Keynesism versus Monetarism Capital Mobility The Identification Problem The Pure Gold Standard The Pure Dollar Standard Colonial Currency Standards Inside Money and Outside Money Borrowing Money Adjustment in the Reserve Center Balance of Payments Adjustment through Long Term Assets

22 Interactions of Price Income and Money                                                                                                                                            372

Partial versus General Equilibrium The Income Effects of Devaluation Depreciation under Full Employment Structural Inflation Different Trade offs between Employment and Inflation Flexible Exchange Rates with Balanced Trade Elasticities versus Absorption versus Monetarism

PART V BALANCE OF PAYMENTS ADJUSTMENT AND INTERNATIONAL MONETARY ARRANGEMENTS

23 National Adjustment Policies                                                                                                                                                             389

Adjustment Confidence and Liquidity Equilibrium The Purchasing Power Parity Doctrine Fundamental Disequilibrium Kinds of Disequilibriums Quasi Adjustment Measures Internal and External Balance Monetary and Fiscal Policy The Costs of Adjustment and Financing Dividing the Costs and the Responsibility for Disequilibriums between Deficit and Surplus Countries Whose Exchange Rate Change

24 Short Term Capital Movements and Equilibrium                                                                                                                               404

Financing Disequilibrium The Means of Finance International Monetary Fund Seasonal Adjustment through Short Term Capital Movements Speculation Mobile Short Term Capital and Monetary Policy Destabilizing Speculation Speculation and the Equilibrium Rate Moral Suasion Discount Policy Domestic Offsets The IMF and Speculation The Basle Agreement The General Arrangements to Borrow and Enlarging the Funds Quotas Confidence The Gold Exchange Standard Flexible Exchange Rates and the Movement of Short Term Capital

25 International Monetary Arrangements                                                                                                                                                420

The Issues International Money National Money Optimum Currency Area Europe of the Nine as an Optimum Currency Area The Costs and Benefits of a Single Money Compromise Solutions Regional Compromise Symmetry Seigniorage

26 Foreign Aid                                                                                                                                                                                         435

Foreign Aid and Equilibrium Automatic Sharing versus Charity International Sharing Sharing in Defense Defining Foreign Aid Multilateral versus National Aid Conditions of Aid Loans versus Grants Projects versus Plans Aid and the Balance of Payments The Link between SDRs and Assistance to Developing Countries

27 The International Economic System                                                                                                                                                   449

The Classical System Maximizing National Income Building the International Economic System Coordinating National Action International Economic Integration National versus International Policy

APPENDIXES

A Factor Supply Technology and Production Possibilities                                                                                                                      461

B Factor Price Equalization                                                                                                                                                                     467

C The Relation of the Offer Curve to the Production Possibilities Curve and the Consumption Indifference Map                                                                                                                                                                                                                                                       474

D The Optimum Tariff                                                                                                                                                                             480

E The Monopoly Effect of a Quota                                                                                                                                                         484

F The Forward Exchange Market                                                                                                                                                            487

G The Marshall Lerner Condition                                                                                                                                                           493

H Foreign Trade Multipliers                                                                                                                                                                    501

INDEXES

Index of Names and Authors                                                                                                                                                                  513

Index of Subjects                                                                                                                                                                                    517