Table of Contents

NOTE: Every chapter has the following end-of-chapter materials:
Summary, Key Terms, Exercises

Part One: Introduction to International Trade Chapter 1: Trade in the Global Economy
1.1 International Trade
The Basics of World Trade Map of World Trade Trade Compared to GDP Barriers to Trade
1.2 Migration and Foreign Direct Investment
Map of Migration Map of Foreign Direct Investment
1.3 Conclusions

Part Two: Patterns of International Trade Chapter 2: Trade and Technology: The Ricardian Model
2.1 Reasons for Trade
2.2 Ricardian Model
The Home Country The Foreign Country
Application: Comparative Advantage in Apparel, Textiles, and Wheat
2.3 Determining the Pattern of International Trade International Trade Equilibrium Solving for Wages Across Countries
Application: Labor Productivity and Wages
2.4 Solving for International Prices
Home Export Supply Curve Foreign Import Demand Curve International Trade Equilibrium
Application: The Terms of Trade for Primary Commodities
2.5 Conclusions

Chapter 3: Gains and Losses from Trade in the Specific-Factors Model
3.1 The Specific-Factors Model
The Home Country The Foreign Country Overall Gains from Trade
Application: How Large are the Gains from Trade?
3.2 Earnings of Labor
Determination of Wages Change in Relative Price of Manufactures
Application: Manufacturing and Services in the U.S.: Employment and Wages across Sectors
Application: Trade Adjustment Assistance Programs: Financing the Adjustment Costs of Trade
3.3 Earnings of Capital and Land
Determining the Payments to Capital and Land Numerical Example What It All Means
Application: Prices in Agriculture
3.4 Conclusions

Chapter 4: Trade and Resources: The Heckscher-Ohlin Model
4.1 Heckscher-Ohlin Model
Assumptions of the Heckscher-Ohlin Model
Application: Are Factor Intensities the Same Across Countries?
No Trade Equilibrium Free Trade Equilibrium Testing the Heckscher-Ohlin Theorem: Leontief’s Paradox
4.2 Effect of Trade on Factor Prices
Effect of Trade on the Wage and Rental Determination of the Real Wage and Real Rental Changes in the Real Wage and Rental: Numerical Example
Application: Opinions Toward Free Trade Comparing the Wage and Rental Across Countries
4.3 Extending the Heckscher-Ohlin Model
Many Goods, Factors and Countries Differing Productivities Across Countries Extending the Heckscher-Ohlin Theorem
Application: Why Did India Import Cotton Textiles?
4.4 Conclusions
Appendix: The "Sign Test" in the Heckscher-Ohlin Model

Chapter 5: Movement of Labor and Capital Between Countries
5.1 Movement of Labor Between Countries
Effect of Immigration in the Short Run: the Specific Factors Model
Application: Immigration to the New World
Application: Immigration to the U.S. and Europe Today Other Effects of Immigration in the Short Run Effects of Immigration in the Long Run
Application: The Effects of the Mariel Boat Lift on Industry Output in Miami
Application: Immigration and U.S. Wages, 1990-2004
5.2 The Movement of Capital Between Countries: Foreign Direct Investment
Application: Acquisition Investment into the United States Greenfield Investment FDI In the Short Run: the Specific Factors Model FDI In the Long Run
Application: The Effect of FDI on Rentals and Wages in Singapore
5.3 Gains from Labor and Capital Flows
Gains from Immigration
Application: Gains from Migration Gains from Foreign Direct Investment
5.4 Conclusions

Part Three: New Explanations for International Trade Chapter 6: Increasing Returns to Scale and Imperfect Competition
6.1 Basics of Imperfect Competition
Monopoly Equilibrium Demand with Duopoly
6.2 Trade Under Monopolistic Competition
Equilibrium without Trade Equilibrium with Free Trade
6.3 Empiricals of Monopolistic Competition and Trade
Gains and Adjustment Costs for Canada Gains and Adjustment Costs for Mexico Gains and Adjustment Costs for the United States Summary of NAFTA Intra-industry Trade The Gravity Equation
Application: The Gravity Equation for Canada and the United States Trade within Canada
6.4 Imperfect Competition with Homogeneous Products: The Case of Dumping
A Model of Product Dumping Numerical Example of Dumping Reciprocal Dumping Numerical Example of Reciprocal Dumping
6.5 Conclusions

Chapter 7: Foreign Outsourcing of Goods and Services
Application: Is Trade Today Different From the Past?
7.1 A Model of Outsourcing
Value Chain of Activities Changing the Costs of Trade
Application: Change in Relative Wages Across Countries Change in Relative Wages in the United States Change in Relative Wages in Mexico
7.2 The Gains from Outsourcing
Simplified Outsourcing Model Terms of Trade
Application: U.S. Terms of Trade and Service Exports
Application: Impact of Outsourcing on U.S. Productivity
7.3 Outsourcing in Services
The Logic of Service Outsourcing The Future of U.S. Comparative Advantage
7.4 Conclusions

Part Four: International Trade Policies
Chapter 8: Import Tariffs and Quotas under Perfect Competition
8.1 A Brief History of the World Trade Organization
8.2 The Gains from Trade
Consumer and Producer Surplus Home Welfare Home Import Demand Curve
8.3 Import Tariffs in a Small Country
Free Trade in a Small Country Effect of the Tariff Why are Tariffs Used?
Application: U.S. Tariffs on Steel Deadweight Loss due to the Steel Tariff Response of the European Countries
8.4 Imports Tariffs for a Large Country
Foreign Export Supply Effect of the Tariff
Application: U.S. Tariffs on Steel Once Again
8.5 Import Quotas
Import Quota in a Small Country Costs of Import Quotas in the U.S.
Application: China and the Multifibre Arrangement
8.6 Conclusions

Chapter 9: Import Tariffs and Quotas under Imperfect Competition
9.1 Tariffs and Quotas with Home Monopoly
No Trade Equilibrium Free Trade Equilibrium Effect of a Home Tariff Effect of a Home Quota
Application: U.S. Imports of Japanese Automobiles
9.2 Infant Industry Protection
Free Trade Equilibrium Tariff Equilibrium
Application: Examples of Infant Industry Protection Protecting the Automobile industry in China Computers in Brazil U.S. Tariff on Heavyweight Motorcycles
9.3 Tariffs with Foreign Monopoly
Foreign Monopoly
Application: Import Tariffs on Japanese Trucks
9.4 Policy Response to Dumping
Antidumping Duty Countervailing Duty Comparison with Safeguard Tariff Calculation of Antidumping Duty
Application: Antidumping/ Countervailing Duties versus Safeguard Tariffs
9.5 Conclusions

Chapter 10: Export Subsidies IN Agriculture and High Technology Industries
10.1 WTO Goals on Agricultural Export Subsidies
Agricultural Export Subsidies Other Matters From the Hong Kong WTO Meeting
10.2 Agricultural Export Subsidies in a Small Home Country
Impact of an Export Subsidy
10. 3 Agricultural Export Subsidies in a Large Home Country Effects of the Subsidy
Application: Who Gains and Who Loses?
10.4 Agricultural Production Subsidies
Effect of a Production Subsidy in a Small Home Country Effect of a Production Subsidy in a Large Home Country
10.5 High-Technology Export Subsidies
"Strategic" Use of High-Tech Export Subsidies Effect of at Subsidy to Airbus Subsidy with Cost Advantage for Boeing
Application: Subsidies to Commercial Aircraft
10.6 Conclusions

Chapter 11: International Agreements: Trade, Labor and the Environment
11.1 International Trade Agreements
The Logic of Multilateral Trade Agreements Regional Trade Agreements Trade Creation and Trade Diversion Numerical Example of Trade Creation and Diversion Trade Diversion in a Graph
Application: Trade Creation and Diversion for Canada
11.2 International Agreements on Labor Issues
Labor Side Agreement under NAFTA Other Labor Agreements
11.3 International Agreements on the Environment
Environmental Issues in the GATT and WTO Does Trade Help or Harm the Environment?
The Tragedy of the Commons International Agreements on Pollution
Application: The Kyoto Protocol
11.4 Conclusions

Part Five: Introduction to International Macroeconomics Chapter 12: The Global Macroeconomy
12.1 Foreign Exchange: Of Currencies and Crises
How Exchange Rates Behave Why Exchange Rates Matter When Exchange Rates Misbehave
Headlines: Economic Crisis in Argentina
Summary
12.2 Globalization of Finance: Of Debts and Deficits
Deficits and Surpluses: The Balance of Payments Debtors and Creditors: External Wealth Darlings and Deadbeats: Defaults and Other Risks Summary
12.3 Government and Institutions: Of Policies and Performance Integration and Capital Controls: The Regulation of International Finance Independence and Monetary Policy: The Choice of Exchange Rate Regimes Institutions and Economic Performance: The Quality of Governance
Headlines: The Wealth of Nations
Summary
12.4 Conclusions

Part Six: Exchange Rates Chapter 13: Introduction to Exchange Rates and the ForeigN Exchange Market
13.1 Exchange Rate Essentials
Defining the Exchange Rate Appreciations and Depreciations Multilateral Exchange Rates
Example: Using Exchange Rates to Compare Prices in a Common Currency
Headlines: By How Much Has the Dollar Fallen?
13.2 Exchange Rates in Practice
Exchange Rate Regimes: Fixed Versus Floating
Application: Recent Exchange Rate Experiences
Side Bar: Currency Unions and Dollarization
Exchange Rate Regimes of the World
13.3 The Market for Foreign Exchange
The Spot Contract Transaction Costs Derivatives
Application: Foreign Exchange Derivatives
Private Actors Government Intervention
13.4 Arbitrage and Spot Exchange Rates
Cross Rates and Vehicle Currencies
13.5 Arbitrage and Interest Rates
Riskless Arbitrage: Covered Interest Parity
Application: Evidence on Covered Interest Parity
Risky Arbitrage: Uncovered Interest Parity
Side Bar: Assets and Their Attributes Application: Evidence on Uncovered Interest Parity
Uncovered Interest Parity: A Useful Approximation Summary
13.6 Conclusion

Chapter 14: Exchange Rates I: The Monetary Approach in the Long Run
14.1 Exchange Rates and Prices in the Long Run: Purchasing Power Parity and Goods The Law of One Price Purchasing Power Parity The Real Exchange Rate Absolute PPP and the Real Exchange Rate Absolute PPP, Prices, and the Nominal Exchange Rate Relative PPP, Inflation, and Exchange Rate Summary
Application: Evidence for PPP in the Long Run and Short Run
How Slow is Convergence to PPP?
Side Bar: Forecasting When the Real Exchange Rate is Undervalued or Overvalued
What Explains Deviations from PPP?
Headlines: The Big Mac Index
14.2 Money, Prices, and Exchange Rates in the Long Run: Money Market Equilibrium in a Simple Model
What is Money?
The Measurement of Money The Supply of Money Demand for Money: A Simple Model Equilibrium in the Money Market A Simple Monetary Model of Prices A Simple Monetary Model of the Exchange Rate Money Growth, Inflation, and Depreciation
14.3 The Monetary Approach: Implications and Evidence
Exchange Rate Forecasts using the Simple Model
Application: Evidence for the Monetary Approach
Application: Hyperinflations of the Twentieth Century Side Bar: Currency Reform Headlines: The First Hyperinflation of the Twenty-First Century
14.4 Money, Interest, and Prices in the Long Run: A General Model
The Demand for Money: The General Model Long-Run Equilibrium in the Money Market Inflation and Interest Rates in The Long Run The Fisher Effect Real Interest Parity
Application: Evidence on the Fisher Effect and Real Interest Parity
The Fundamental Equations under the General Model Exchange Rate Forecasts using the Standard Model
14.5 Monetary Regimes and Exchange Rate Regimes
The Long Run: The Nominal Anchor
Side Bar: Nominal Anchors in Theory and Practice
14.6 Conclusion

Chapter 15: Exchange Rates II: The Asset Approach in the Short Run
15.1 Exchange Rates and Interest Rates in the Short Run: UIP and FX Market Equilibrium Risky Arbitrage Equilibrium in the FX Market: An Example Adjustment to FX Market Equilibrium Changes in Domestic and Foreign Returns and FX Market Equilibrium
15.2 Interest Rates in the Short Run: Money Market Equilibrium
Money Market Equilibrium in the Short Run: How Nominal Interest Rates are Determined Money Market Equilibrium in the Short Run: Graphical Solution Adjustment to Money Market Equilibrium in the Short Run Another Building Block: Short-Run Money Market Equilibrium Changes in Money Supply and the Nominal Interest Rate Changes in Real Income and the Nominal Interest Rate The Monetary Model: The Short Run versus the Long Run
15.3 The Asset Approach: Applications and Evidence
The Asset Approach to Exchange Rates: Graphical Solution Short-Run Policy Analysis
Application: The Fall of the Dollar, 1999–2004
15.4 A Complete Theory: Unifying the Monetary and Asset Approaches
Side Bar: Confessions of a Forex Trader
Long-Run Policy Analysis Overshooting
Application: Bernanke's Bold Move Side Bar: Overshooting in Practice?
15.5 Fixed Exchange Rates and the Trilemma
What is a Fixed Exchange Rate Regime?
Pegging Sacrifices Monetary Policy Autonomy in the Short Run: Example Pegging Sacrifices Monetary Policy Autonomy in the Long Run: Example The Trilemma
Application: The Trilemma in Europe
15.6 Conclusion
Application: News and The Foreign Exchange Market in Wartime

Part Seven: The Balance of Payments Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments
16.1 Measuring Macroeconomic Activity: An Overview
The Flow of Payments in a Closed Economy: Introducing the National Income and Product Accounts The Flow of Payments in an Open Economy: Incorporating the Balance of Payments Accounts Summary
16.2 National Accounts: Product, Expenditure, and Income
Three Approaches From GNE to GDP: Accounting for Trade in Goods and Services
Headlines: Who Makes the iPod?
From GDP to GNI: Accounting for Trade in Factor Services
Application: Celtic Tiger or Tortoise
From GNI to GNDI: Accounting for Transfers of Income What the National Economic Aggregates Tell Us What the Current Account Tells Us
Application: Global Imbalance
16.3 Balance of Payment Accounts: International Transactions
Accounting for Asset Transactions Accounting for Home and Foreign Assets How the Balance of Payments Accounts Work Understanding the Data for the Balance of Payments Account What the Balance of Payments Account Tells Us
16.4 External Wealth
The Level of External Wealth Changes in External Wealth
Side Bar: The Nokia Economy
Understanding the Data on External Wealth What External Wealth Tells Us
16.5 Conclusions
Headlines; Lies, Damned Lies...
Appendix to Chapter 16: External Wealth and Total Wealth

Chapter 17: Balance of Payments I: The Gains from Financial Globalization
17. 1 Intertemporal Macroeconomics
The Long Run Budget Constraint A Long-Run Budget Example: The Perpetual Loan Implications of the LRBC for Gross National Expenditure and Gross Domestic Product Summary
Application: The Favorable Situation of the United States Application: The Difficult Situation of Emerging Nations
17.2 Gains from Consumption Smoothing
The Basic Model Consumption Smoothing: A Numerical Example and Generalization Summary: Save for a Rainy Day Side Bar: Wars and the Current Account
Application: Consumption Volatility and Financial Openness Application: Precautionary Saving, Reserves, and Sovereign Wealth
Funds
Headlines: Copper-Bottomed Insurance Headlines: The Next Globalization Backlash?
17.3 Gains from Efficient Investment
The Basic Model Efficient Investment: A Numerical Example and Generalization
Application: Delinking Saving from Investment
Can Poor Countries Gain from Financial Globalization?
Application: A versus k
Side Bar: What Does the World Bank Do?
Headlines: A Brief History of Foreign Aid
17.4 Gains from Diversification of Risk
Diversification: A Numerical Example and Generalization
Application: The Home Bias Puzzle
17.5 Conclusion Appendix to Chapter 17: Common Versus Idiosyncratic Shocks

Chapter 18: The Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies
18.1 Demand in the Open Economy
Preliminaries and Assumptions Consumption Investment The Government The Trade Balance
Headlines: Soaring Loonie Drives Canadian Shoppers South Application: The Trade Balance and the Real Exchange Rate Side Bar: Barriers to Expenditure Switching: Pass-Through and the J Curve
Exogenous Changes in Demand
18.2 Goods Market Equilibrium: The Keynesian Cross
Supply and Demand Determinants of Demand Factors that Shift the Demand Curve Headlines: Expenditure Switching and the Dollar Devaluation Summary
18.3 Goods and Forex Market Equilibria: Deriving The IS Curve
Equilibrium in Two Markets Forex Market Recap Deriving the IS Curve Factors that Shift the IS Curve Summing up the IS Curve
18.4 Money Market Equilibrium: Deriving The LM Curve
Money Market Recap Deriving the LM Curve Factors that Shift the LM Curve Summing up the LM Curve
18.5 Short-Run IS-LM-FX Equilibrium in an Open Economy
Macroeconomic Policies in the Short Run Monetary Policy Under Floating Exchange Rates Monetary Policy Under Fixed Exchange Rates Fiscal Policy Under Floating Exchange Rates Fiscal Policy Under Fixed Exchange Rates Summary
Application: The Rise and Fall of the Dollar in the 1980s
18.6 Stabilization Policy
Application: Australia, New Zealand, and the Asian Crisis of 1997 Problems in Problems in Policy Design and Implementation
7 Conclusion
Appendix 1 to Chapter 18: The Marshall-Lerner Condition Appendix 2 to Chapter 18: Multilateral Real Exchange Rates

Part Eight: Applications and Policy Issues Chapter 19: Fixed Versus Floating: International Monetary Experience
19.1 Exchange Rate Regime Choice: Key Issues
Application: Britain and Europe: The Big Issues
Key Factors in Exchange Rate Regime Choice: Integration and Similarity Economic Integration and the Gains in Efficiency Economic Similarity and the Costs of Asymmetric Shocks Simple Criteria for a Fixed Exchange Rate
Application: Do Fixed Exchange Rates Promote Trade?
Application: Do Fixed Exchange Rates Diminish Monetary Autonomy and Stability?
19.2 Other Benefits of Fixing
Fiscal Discipline, Seigniorage, and Inflation
Side Bar: The Inflation Tax
Liability Dollarization, National Wealth, and Contractionary Depreciations Headlines: The Last Temptation Summary
19.3 Fixed Exchange Rate Systems
Cooperative and Noncooperative Adjustments to Interest Rates Cooperative and Noncooperative Adjustments to Exchange Rates
Application: The Gold Standard
19.4 International Monetary Experience
The Rise and Fall of the Gold Standard Bretton Woods to the Present
19.5 Conclusions

Chapter 20: Exchange Rate Crises: How Pegs Work and How They Break
20.1 Facts about Exchange Rate Crisis
What is An Exchange Rate Crisis?
How Costly Are Exchange Rate Crises?
Side Bar: The Political Costs of Crises Summary
20.2 How Pegs Work I: The Mechanics of a Fixed Exchange Rate
Preliminaries and Assumptions The Central Bank Balance Sheet Fixing, Floating, and the Role of Reserves How Reserves Adjust to Maintain the Peg Graphical Analysis of the Central Bank Balance Sheet Defending the Peg I: Changes in Money Demand
Application: Risk Premiums in Advanced and Emerging Markets Application: The Argentine Convertibility Plan before the Tequila Crisis
Defending the Peg II: Changes in Domestic Credit
Application: The Argentine Convertibility Plan after the Tequila Crisis
The Central Bank Balance Sheet and the Financial System
Side Bar: The Great Reserve Accumulation in Emerging Models Headlines: Too Much of a Good Thing
Summary
20.3 How Pegs Break I: Inconsistent Fiscal Policies
The Basic Problem: Fiscal Dominance A Simple Model Summary
Application: The Peruvian Crisis of 1986
20.4 How Pegs Break II: Contingent Monetary Policies
The Basic Problem: Limited Commitment A Simple Model
Application: The Man Who Broke the Bank of England
Summary
20.5 Conclusions
Can We Prevent Crises?

Chapter 21: The Euro
21.1 The Economics of the Euro
The Theory of Optimum Currency Areas Simple Optimum Currency Area Criteria What’s the Difference between a Fix and a Currency Union?
Other Optimum Currency Area Criteria
Application: Optimum Currency Areas: Europe versus the United States
Are the OCA Criteria Self-Fulfilling?
Headlines: Currency Unions and Trade
Summary
21.2 The History and Politics of the Euro
A Brief History of Europe Summary
21.3 The ECB and the Eurozone in Theory and Practice
The European Central Bank Headlines: The ECB is from Mars, the Fed is from Venus The Rules of the Club Sticking to the Rules
21.4 Conclusion: Assessing the Euro
Headlines: Whither the Euro?

Chapter 22: Topics in International Macroeconomics
22.1 Exchange Rates in the Long Run: Deviations from Purchasing Power Parity
Limits to Arbitrage
Application: It’s Not Just the Burgers That Are Cheap
Nontraded Goods and the Balassa-Samuelson Model Overvaluations, Undervaluations, and Productivity Growth: Forecasting Implications for Real and Nominal Exchange Rates
Application: Real Exchange Rates in Emerging Markets
Conclusions
22.2 Exchange Rates in the Short Run: Deviations from Uncovered Interest Parity
Headlines: Eastern Europe and the Euro Application: The Carry Trade Headlines: Mrs. Watanabe's Hedge Fund Application: Peso Problems
The Efficient Markets Hypothesis Limits to Arbitrage Conclusions
22.3 Global Imbalances
Facts about Emerging Global Imbalances A Model of Saving and Investment in the World Economy
Application: The Savings Glut
Looking Backward: How We Got Here Looking Forward: What Next?
Side Bar: Reserves and Global Imbalances
Debtors, Creditors, and the Long-Run Budget Constraint Real Exchange Rates and Global Imbalances: Two Views Conclusions
22.4 Debt and Default
Facts about Emerging Global Imbalances A Model of Default, Part One: The Probability of Default
Application: Is There Profit in Lending to Developing Countries?
A Model of Default, Part Two: Loan Supply and Demand
Application: The Costs of Default
Conclusions
Application: The Argentine Crisis of 2000-2002
Headlines: Is the IMF "Pathetic?"

Index