MACROECONO 101 Summary International Economics: Theory and Policy Krugman. Paul R, Obstfield, Maurice 9th Edition
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International Economics
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International Economics
MACROECONO 101 Summary International Economics: Theory and Policy Krugman. Paul R, Obstfield, Maurice 9th Edition
Contents 1. Introduction ..................................................................................................................................... 14 1.1. What Is Internati...
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lOMoARcPSD|2257127
, lOMoARcPSD|2257127
Summary
International Economics:
Theory and Policy
Krugman. Paul R, Obstfield, Maurice
9th Edition
, lOMoARcPSD|2257127
Contents
1. Introduction................................................................................................................ 14
1.1. What Is International Economics About? ................................................................. 14
1.1.1. The Gains from Trade ...................................................................................... 15
1.1.2. The Pattern of Trade ....................................................................................... 15
1.1.3. How Much Trade? ..................................................................................... 16
1.1.4. Balance of Payments ....................................................................................... 17
1.1.5. Exchange Rate Determination .......................................................................... 17
1.1.6. International Policy Coordination ...................................................................... 17
1.1.7. The International Capital Market ...................................................................... 17
1.2. International Economics: Trade and Money ............................................................. 18
2. World Trade: An Overview ..................................................................................... 19
2.1. Who Trades with Whom? ................................................................................. 19
2.1.1. Size Matters: The Gravity Model ....................................................................... 19
2.1.2. Using the Gravity Model: Looking for Anomalies ................................................. 20
2.1.3. Impediments to Trade: Distance, Barriers, and Borders ...................................... 21
2.2. The Changing Pattern of World Trade ..................................................................... 21
2.2.1. Has the World Gotten Smaller? ......................................................................... 21
2.2.2. What Do We Trade? .................................................................................. 22
2.2.3. Service Offshoring ........................................................................................... 22
2.3. Do Old Rules Still Apply? .................................................................................. 22
3. Labour Productivity and Comparative Advantage: The Ricardian Model ............................ 24
3.1. The Concept of Comparative Advantage .................................................................. 24
3.2. A One-Factor Economy .................................................................................... 25
3.2.1. Production Possibilities .................................................................................... 25
3.2.2. Relative Prices and Supply ............................................................................... 26
3.3. Trade in a One-Factor World .................................................................................. 27
3.3.1. Determining the Relative Price After Trade ........................................................ 28
3.3.2. The Gains from Trade ...................................................................................... 30
3.3.3. A Note on Relative Wages .......................................................................... 31
3.4. Misconceptions About Comparative Advantage ........................................................ 31
3.4.1. Productivity and Competitiveness ..................................................................... 32
3.4.2. The Pauper Labor Argument ............................................................................ 32
3.4.3. Exploitation .................................................................................................... 32
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, lOMoARcPSD|2257127
3.5. Comparative Advantage with Many Goods ............................................................... 33
3.5.1. Setting Up the Model ................................................................................. 33
3.5.2. Relative Wages and Specialization .................................................................... 33
3.5.3. Determining the Relative Wage in the Multigood Model ...................................... 34
3.6. Adding Transport Costs and Nontraded Goods ......................................................... 34
3.7. Empirical Evidence on the Ricardian Model .............................................................. 35
4. Specific Factors and Income Distribution ....................................................................... 37
4.1. The Specific Factors Model ............................................................................... 50
4.1.1. Assumptions of the Model ................................................................................ 50
4.1.2. Production Possibilities .................................................................................... 50
4.1.3. Prices, Wages, and Labor Allocation .................................................................. 51
4.1.4. Relative Prices and the Distribution of Income ................................................... 52
4.2. International Trade in the Specific Factors Model ..................................................... 53
4.3. Income Distribution and the Gains from Trade ......................................................... 54
4.4. The Political Economy of Trade: A Preliminary View.................................................. 55
4.4.1. Income Distribution and Trade Politics .............................................................. 55
4.5. International Labor Mobility ................................................................................... 56
5. Resources and Trade: The Heckscher-Ohlin Model ......................................................... 58
5.1. A Model of a Two-Factor Economy .......................................................................... 59
5.1.1. Prices and Production ...................................................................................... 60
5.1.2. Choosing the Mix of Inputs ............................................................................... 61
5.1.3. Factor Prices and Goods Prices ......................................................................... 62
5.1.4. Resources and Output ..................................................................................... 62
5.2. Effects of International Trade Between Two-Factor Economies ................................. 63
5.2.1. Relative Prices and the Pattern of Trade ............................................................ 64
5.2.2. Trade and the Distribution of Income ................................................................ 64
5.2.3. Factor-Price Equalization ................................................................................. 65
5.3. Empirical Evidence on the Heckscher-Ohlin Model .................................................... 66
5.3.1. Trade in Goods as a Substitute for Trade in Factors ............................................ 66
5.3.2. Patterns of Exports Between Developed and Developing Countries ..................... 67
5.3.3. Implications of the Tests .................................................................................. 67
6. The Standard Trade Model ........................................................................................... 68
6.1. A Standard Model of a Trading Economy ................................................................. 70
6.1.1. Production Possibilities and Relative Supply ....................................................... 70
6.1.2. Relative Prices and Demand ............................................................................. 71
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