International Economics / Edition 8

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An accessible, comprehensive and relevant guide to studying international economics.

An Introduction to International Trade; Tools of Analysis for International Trade Models; The Classical Model of International Trade; The Heckscher-Ohlin Model; Tests of Trade Models: The Leontief Paradox and Its Aftermath; Tariffs; Nontariff Barriers and Arguments for Protection; Commercial Policy: History and Practice; Preferential Trade Arrangements; International Trade and Economic Growth; An Introduction to International Finance; The Balance of Payments; The Foreign-Exchange Market; Prices and Exchange Rates: Purchasing Power Parity; Exchange Rates, Interest Rates, and Interest Parity; Foreign-Exchange Risk, Forecasting, and International Investment; Basic Theories of the Balance of Payments; Exchange Rate Theories; Alternative International Monetary Standards; International Banking, Debt, and Risk; Open-Economy Macroeconomic Policy and Adjustment

For readers interested in understanding international economics.

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Editorial Reviews

A new edition of a standard textbook intended for students at the undergraduate or higher level with minimal prior coursework in economics. Solidly covers current developments in international economics and minimizes mathematics. Annotation c. Book News, Inc., Portland, OR (
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Product Details

  • ISBN-13: 9780321594563
  • Publisher: Prentice Hall
  • Publication date: 6/24/2009
  • Series: Pearson Custom Business Resources Series
  • Edition description: Older Edition
  • Edition number: 8
  • Pages: 576
  • Sales rank: 1,265,324
  • Product dimensions: 7.60 (w) x 9.00 (h) x 1.20 (d)

Meet the Author

Steven Husted

Professor of Economics, University of Pittsburgh. Ph.D., Michigan State University. Past experience includes Senior Staff Economist: Council of Economic Advisers; Visiting Scholar: International Monetary Fund; and Visiting Professor: Department of Economics and Research School of the Social Sciences, Australian National University; and Departments of Economics, the University of Glasgow and the University of Strathclyde. Professor Husted’s research interests are in international trade policy and international finance, and he has published scholarly articles in Journal of Political Economy, Review of Economics and Statistics, and other major journals.

Michael Melvin

Head of Currency Research, Barclays Global Investers and Co-editor, Journal of International Money and Finance. Former Professor of Economics and Dean’s Council Distinguished Scholar, Arizona State University. Ph.D., UCLA. Past experience includes Visiting Scholar: Federal Reserve Board and International Monetary Fund; and Visiting Professor: Kellogg Graduate School of Management, Northwestern University; Anderson Graduate School of Management, UCLA; Department of Economics, U.C. San Diego, and Pacific Asian Management Institute, University of Hawaii. Professor Melvin’s research interests are in international finance, and he has published scholarly articles in American Economic Review, Journal of Finance, and other major journals.

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Table of Contents

Chapter 1: An Introduction to International Trade


Characteristics of National Economies

Economic Growth

International Trade

The Direction of International Trade

What Goods Do Countries Trade?


Chapter 2:Tools of Analysis for International Trade Models


Some Methodological Preliminaries

The Basic Model: Assumptions

The Basic Model: Solutions

Measuring National Welfare

National Supply and Demand



Appendix 2.1: Derivation of National Supply and Demand Curves

Chapter 3: The Classical Model of International Trade


Absolute Advantage as a Basis for Trade: Adam Smith’s Model

Comparative Advantage as a Basis for Trade: David Ricardo’s Model.

The General Equilibrium Solution of the Classical Model

The Gains from International Trade

The Relationship Between Trade and Wages

An Evaluation of the Classical Model



Appendix 3.1

Appendix 3.2

Chapter 4: The Heckscher-Ohlin Model


The HO Model: Basic Assumptions

The HO Theorem

Equilibrium in the HO Model

Some New HO Theorems

Some Final Observations.



Appendix 4.1

Appendix 4.2

Chapter 5: Tests of Trade Models: The Leontief Paradox and Its Aftermath


Tests of the Classical Model

Tests of the HO Model

Attempted Reconciliations of Leontief’s Findings

Other Tests of the HO Model



Chapter 6: Tariffs


The Gains from Free Trade

Tariffs: An Introduction

Tariffs: An Economic Analysis

The Gains From Free Trade: One More Time

The Welfare Cost of Tariffs

Tariffs: Some Extensions

Export Tariff

The Optimal Tariff

How High are Tariffs




Chapter 7: Nontariff Barriers and Arguments for Protection



The Welfare Effects of Quotas

The Equivalence of Nonequivalence of Tarrifs and Quotas

Other Nontariff Barriers

Customs Valuation Practices

Government Procurement Policies

Technical Barriers to Trade

Health and Safety Standards

Failure to Protect Intellectual Property Rights

Export Subsidies

Arguments for Protection

Invalid Arguments



Fallacy of Composition

Fair Play for Domestic Industry

Preservation of the Home Market

Valid Arguments

Government Revenue

Income Redistribution

Noneconomic Goals

Infant Industry Protection

Domestic Distortions

Protecting the Environment

Strategic Trade Policies




Chapter 8: Commercial Policy: History and Practice


History of U.S. Commercial Policy

The Uruguay Round and the Creation of the WTO

The DOHA Round

The Conduct of U.S. Commercial Policy

Unfair Foreign Practices: Section 301

The Escape Clause: Section 201

Other Measures

Comparisons with Policies in Other Countries




Chapter 9: Preferential Trade Arrangements


Preferential Trade Arrangements: Economic Analysis

North American Free Trade Agreement

Other U.S. Free Trade Area Agreements

European Union

The EU Government

The Single Market Initiative

Regionalism Versus Multilateralism




Chapter 10: International Trade and Economic Growth


Trade and Development

Primary-Export-Led Development Policies

Import-Substitution Development Policies

Outward-Looking Development Policies

Trade and Growth

Trade and Growth: Some Additional Comments

Growth, Prices, and Welfare

International Flows of Factors



Economic Analysis




Chapter 11: An Introduction to International Finance


The Balance of Payments

Exchange Rates

Prices and Exchange Rates

Interest Rates and Exchange Rates

Additional Major Topics




Chapter 12: The Balance of Payments


Current Account

Financing the Current Account: The Financial Account

National Saving, Investment, and the Current Account

Additional Summary Measures

Transactions Classification

Balance-of-Payments Equilibrium and Adjustment




Chapter 13: The Foreign-Exchange Market


Spot Rates


Forward Rates


Foreign-Currency Options

Exchange Rate Supply and Demand and Central-Bank Intervention

Black Markets and Parallel Markets




Chapter 14: Prices and Exchange Rates: Purchasing Power Parity


Absolute Purchasing Power Parity

Relative Purchasing Power Parity

Time, Inflation, and PPP

Deviations from PPP

“Overvalued” and “Undervalued” Currencies

Real Exchange Rates




Chapter 15: Exchange Rates, Interest Rates, and Interest Parity


Interest Parity

Interest Rates and Inflation

Exchange Rates, Interest Rates, and Inflation

Expected Exchange Rates and the Term Structure of Interest Rates




Chapter 16: Foreign-Exchange Risk, Forecasting, and International Investment


Types of Foreign-Exchange Risk

Foreign-Exchange risk Premium

Market Efficiency

Foreign-Exchange Forecasting

International Investment and Portfolio Diversification

Direct Foreign Investment

Capital Flight

Capital Inflow Issues

International Lending and Crises




Chapter 17: Basic Theories of the Balance of Payments


The Elasticities Approach to the Balance of Trade

Elasticities and J Curves

The Currency-Contract Period\

The Pass-Through Period

Section IV – The U.S. balance of trade decreases

Section III – The U.S. balance of trade is constant

Section II – Balance of trade may increase or decrease

Section I – Balance of trade increases

The Evidence from Devaluations

The Absorption Approach

The Monetary Approach to the Balance of Payments




Chapter 18: Exchange Rate Theories


The Asset Approach

The Monetary Approach

The Portfolio-Balance Approach


Currency Substitution

The Role of News

Foreign-Exchange Market Microstructure

Exchange Rates and the Trade Balance

Overshooting Exchange Rates




Chapter 19: Alternative International Monetary Standards


The Gold Standard: 1880-1914

The Interwar Period: 1918-1939

The Gold Exchange Standard: 1944-1970

The Transition Years: 1971-1973

Floating Exchange Rates: Since 1973

The Choice of an Exchange Rate System

Optimum Currency Areas

The European Monetary System and the Euro

Target Zones

Currency Boards

International Reserve Currencies

Multiple Exchange Rates




Chapter 20: International Banking, Debt, and Risk


The Origins of Offshore Banking

International Banking Facilities

Offshore Banking Practices

International Debt

IMF Conditionality

The Role of Corruption

Country-Risk Analysis




Chapter 21: Open-Economy Macroeconomic Policy and Adjustment


Internal and External Macroeconomic Equilibrium

The IS Curve

The LM Curve

The BP Curve


Monetary Policy under Fixed Exchange Rates

Fiscal Policy under Fixed Exchange Rates

Monetary Policy under Floating Exchange Rates

Fiscal Policy under Floating Exchange Rates

The New Open-Economy Macroeconomics

International Policy Coordination

Global Financial Crisis and Macroeconomic Effects

The Open-Economy Multiplier




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