HpcportOriented Industrialization Hgie East Asian Miracle
As pointed out previously, in the 1950s and 1960s it was widely believed that developing countries could create industrial bases only by substituting domestic manufactured goods for imports. From the mid-1960s onward, however, it became increasingly apparent that there was another possible path to industrialization via exports of manufactured goods, primarily to advanced nations. Moreover, the countries that developed in this manner a group that the World Bank now refers to as the high...
Info Lwk
1.205.7 1,635.7 2,919.1 4,854.6 8,081.0 73,016 141,101 128,137 167,428 272,375 481,756 885,476 1,182,300 1,087,440 1,120,210 Source Juan-Antonio Morales, Inflation Stabilization in Bolivia, in Michael Bruno et al., eds., Inflation Stabilization The Experience of Israel, Argentina, Brazil, Bolivia, and Mexico. Cambridge MIT Press, 1988, Table 7A-1. Money supply is Ml. Permanent Money Supply Changes and the Exchange Rate We now apply our analysis of inflation to study the adjustment of the dollar...
Info Oqx
Jagdish N. Bhagwati and T. N. Srinivasan. Trade Policy and Development, in Rudiger Dornbusch and Jacob A. Frenkel, eds. International Economic Policy Theory and Evidence. Baltimore Johns Hopkins University Press, 1979, pp. 1-35. Reviews research findings on the links between trade policy and economic development. W. Max Corden. Trade Policy and Economic Welfare. Oxford Clarendon Press, 1974. A clear analytical discussion of the role of trade policy in economic development. Anne O. Krueger....
Problems Wlb
1. For each of the following examples, explain whether this is a case of external or inter- ' nal economies of scale a. Most musical wind instruments in the United States are produced by more than a dozen factories in Elkhart, Indiana. b. All Hondas sold in the United States are either imported or produced in Marysville, Ohio. c. All airframes for Airbus, Europe's only producer of large aircraft, are assembled in Toulouse, France. d. Hartford, Connecticut, is the insurance capital of the...
Pow Output Is Determined In the Short Run
Having discussed the factors that influence the demand for an open economy's output, we now study how output is determined in the short run. We show in this section that the output market is in equilibrium when real output, Y, equals the aggregate demand for domestic output The equality of aggregate supply and demand therefore determines the short-run equilibrium output level.5 Our analysis of real output determination applies to the short run because we assume that the money prices of goods...
Info Sde
Initially, there are 11 workers employed in Home, but only 3 workers in Foreign. Find the effect of free movement of labor from Home to Foreign on employment, production, real wages, and the income of landowners in each country. 2. Suppose that a labor-abundant country and a land-abundant country both produce labor- and land-intensive goods with the same technology. Drawing on the analysis in Chapter 4, first analyze the conditions under which trade between the two countries eliminates the...
The MarshallLerner Condition and Empirical Estimates of Trade Elasticities
The chapter assumed that a real depreciation of a countryVcurrency improves its current account. As we noted, however, the validity of this assumption depends on the response of export and import volumes to real exchange rate changes. In this appendix we derive a condition on those responses for the assumption in the text to be valid. The condition, called the Marshall-Lerner condition, states that, all else equal, a real depreciation improves the current account if export and import volumes...
Problems Own
1. Show how an expansion in the central bank's domestic assets ultimately affects its balance sheet under a fixed exchange rate. How are the central bank's transactions in the foreign exchange market reflected in the balance of payments accounts 2. Do the exercises in the previous question for an increase in government spending. 3. Describe the effects of an unexpected devaluation on the central bank's balance sheet and on the balance of payments accounts. 4. Explain why a devaluation improves...
Info Lzv
Source Organization for Economic Cooperation and Development. Main Economic Indicators Historical Statistics, 1964-1983. Paris OECD, 1984. Figures are percentage increases in each year's end-of-year money supply or international reserves over the level at the end of the previous year. Official reserves are measured net of gold holdings. , inflation was imported into Germany through the Bundesbank's purchases of dollars in the foreign exchange market. The acceleration of German money growth...
International Factor Movements
Up to this point we have concerned ourselves entirely with international trade. That is, we have focused on the causes and effects of international exchanges of goods and services. Movement of goods and services is not, however, the only form of international integration.This chapter is concerned with another form of integration, international movements of factors of production, or factor movements. Factor movements include labor migration, the transfer of capital via international borrowing...
e Theory of Optimum Currency Areas
There is little doubt that the European monetary integration process has helped advance the political goals of its founders by giving the European Union a stronger position in international affairs. The survival and future development of the European monetary experiment depend more heavily, however, on its ability to help countries reach their economic goals. Here the picture is less clear because a country's decision to fix its exchange rate can in principle lead to economic sacrifices as well...
Key Terms Kyo
Basel Committee, p. 650 debt instrument, p. 640 emerging markets, p. 652 equity instrument, p. 640 Eurobank, p. 644 Eurocurrencies, p. 644 Eurodollar, p. 644 international banking international capital market, p. 636 lender of last resort LLR , p. 649 moral hazard, p. 654 offshore banking, p. 643 offshore currency trading, p. 644 portfolio diversification, p. 639 risk aversion, p. 638 securitization, p. 653 reserve currency, This argument is made in The Euro-Dollar Market An Interpretation,...
sssons of Developing Country Crises
The emerging market crisis that started with Thailand's 1997 devaluation produced what might be called an orgy of finger-pointing. Some Westerners blamed the crisis on the policies of the Asians themselves, especially the crony capitalism under which businessmen and politicians had excessively cozy relationships. Some Asian leaders, in turn, blamed the crisis on the machinations of Western financiers even Hong Kong, normally a bastion of freemarket sentiment, began intervening to block what it...
Info Pdz
Source International Monetary Fund, international Financial Statistics. The real exchange rate measures are based on indexes of net output prices called value-added deflators. Source International Monetary Fund, international Financial Statistics. The real exchange rate measures are based on indexes of net output prices called value-added deflators. Use the clues we have given about the British economy to explain the rise and fall of the pound's real effective exchange rate between 1978 and...
irchasing Power Parity
The theory of purchasing power parity states that the exchange rate between two countries' currencies equals the ratio of the countries' price levels. Recall from Chapter 14 that the domestic purchasing power of a country's currency is reflected in the country's price level, the money price of a reference basket of goods and services. The PPP theory therefore predicts that a fall in a currency's domestic purchasing power as indicated by an increase in the domestic price level will be associated...
In Munich A Bratwurst Costs 2 Euros A Hot Dog Costs 1 At Boston S Fenway Park.
1. In Munich a bratwurst costs 2 euros a hot dog costs 1 at Boston's Fenway Park. At an exchange rate of 1,50 per euro, what is the price of a bratwurst in terms of hot dogs All else equal, how does this relative price change if the dollar appreciates to 1.25 per euro Compared with the initial situation, has a hot dog become more or less expensive relative to a bratwurst 2. A U.S. dollar costs 7.5 Norwegian kroner, but the same dollar can be purchased for 1.25 Swiss francs. What is the...
Interest Parity
Economics makes an important distinction between nominal interest rates, which are rates of return measured in monetary terms, and real interest rates, which are rates of return measured in real terms, that is, in terms of a country's output. Because real rates of return often are uncertain, we usually will refer to expected real interest rates. The interest rates we discussed in connection with the interest parity condition and the determinants of money demand were nominal rates, for example,...
Summary Fxm
1. Although few countries practice free trade, most economists continue to hold up free trade as a desirable policy. This advocacy rests on three lines of argument. First is a formal case for the efficiency gains from free trade that is simply the cost-benefit analysis of trade policy read in reverse. Second, many economists believe that free trade produces additional gains that go beyond this formal analysis. Finally, given the difficulty of translating complex economic analysis into real...
Info Hla
In 1997 Ireland and the Netherlands both had inflation rates no more than 1.5 percent above the average of the three lowest EU inflation rates. Subsequently, however, both countries violated that norm, which is one of the Maastricht Treaty's tests for admission to the euro club. and enterprising. Given that labor remains relatively immobile within Europe, the European Union's success in liberalizing its capital flows may have worked perversely to worsen the economic stability loss due to the...
Summary Eqb
1. Some new arguments for government intervention in trade emerged in the 1980s and 1990s. In the 1980s the new theory of strategic trade policy offered reasons why countries might gain from promoting particular industries. In the 1990s a new critique of globalization emerged, focused on the effects of globalization on workers in developing countries. 2. Activist trade policy arguments rest on two ideas. One is the argument that governments should promote industries that yield technological...
loney Defined A Brief Review
We are so accustomed to using money that we seldom notice the roles it plays in almost all of our everyday transactions. As with many other modern conveniences, we take money for granted until something goes wrong with it In fact, the easiest way to appreciate the importance of money is to imagine what economic life would be like without it. In this section we do just that. Our purpose in carrying out this thought experiment is to distinguish money from other assets and to describe the...
Counterpart Immobile Factors One Yard Of Cloth For Every Pound Of Food
1. The standard trade model derives a world relative supply curve from production possibilities and a world relative demand curve from preferences. The price of exports relative to imports, a country's terms of trade, is determined by the intersection of the world relative supply and demand curves. Other things equal, 3 rise in a country's terms of trade increases its welfare. Conversely, a decline in a country's terms of trade will leave the country worse off, 2. Economic growth means an...
Problems Sri
1. We stated in this chapter that GNP accounts avoid double counting by including only the value affinal goods and services sold on the market. Should the measure of imports used in the GNP accounts therefore be defined to include only imports of final goods and services from abroad What about exports 2. Equation 12-2 tells us that to reduce a current account deficit, a country must increase its private saving, reduce domestic investment, or cut its government budget deficit. In the 1980s, many...
Problems 1
c. U.S. engineers develop a fusion reactor that replaces fossil fuel electricity plants. d. A harvest failure in Russia. e. A reduction in Japan's tariffs on imported beef and citrus fruit, 4. Countries A and B have two factors of production, capital and labor, with which they produce two goods, X and K Technology is the same in the two countries. X is capital intensive A is capital abundant. Analyze the effects on the terms of trade and the welfare of the two countries of the following a. An...
Summary Hjd
1. In contrast to our earlier analysis, which stressed the general equilibrium interaction of markets, for analysis of trade policy it is usually sufficient to use a partial equilibrium approach. 2. A tariff drives a wedge between foreign and domestic prices, raising the domestic price but by less than the tariff rate. An important and relevant special case, however, is that of a small country that cannot have any substantial influence on foreign prices. In the small country case a tariff is...
Problems Ice
1. How does the DD schedule shift if there is a decline in investment demand 2. Suppose the government imposes a tariff on all imports. Use the DD-AA model to analyze the effects this measure would have on the economy. Analyze both temporary and permanent tariffs. 3. Imagine that Congress passes a constitutional amendment requiring the U.S. government to maintain a balanced budget at all times. Thus, if the government wishes to change government spending, it must change taxes by the same...
Further Reading Jxv
Rudiger Dornbusch, Stanley Fischer, and Paul Samuelson. Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods. American Economic Review 1977 . This paper, cited in Chapter 2, also gives a clear exposition of the role of nontraded goods in establishing the presumption that a transfer improves the recipient's terms of trade. J. R. Hicks. The Long Run Dollar Problem Oxford Economic Papers 2 1953 . pp. 117-135. The modern analysis of growth and trade has its...
Problems Ngl
1. Suppose there is a reduction in aggregate real money demand, that is, a negative shift in the aggregate real money demand function. Trace the short-run and long-run effects on the exchange rate, interest rate, and price level. 2. How would you expect a fall in a country's population to alter its aggregate money demand function Would it matter if the fall in population were due to a fall in the number of households or to a fall in the average size of a household 3. The velocity of money, V,...
A Permanent Fiscal Expansion
A permanent fiscal expansion not only has an immediate impact in the output market but also affects the asset markets through its impact on long-run exchange rate expectations. While the exchange rate initially overshoots in the case shown in Figure 16-15, overshooting does not have to occur in all circumstances. Effects of a Permanent Fiscal Expansion Because a permanent fiscal expansion changes exchange-rate expectations, it shifts AA leftward as it shifts DD1 to the right. The effect on...
Problems Ped
1. Which portfolio is better diversified, one that contains stock in a dental supply company and a candy company or one that contains stock in a dental supply company and a dairy product company 2. Imagine a world of two countries in which the only causes of fluctuations in stock prices are unexpected shifts in monetary policies. Under which exchange rate regime would you expect the gains from international asset trade to be greater, fixed or floating 3. The text points out that covered...
Problems Ujt
1. Japan's experience makes the infant industry case for protection better than any theory. In the early 1950s Japan was a poor nation that survived by exporting textiles and toys. The Japanese government protected what at first were inefficient, high-cost steel and automobile industries, and those industries came to dominate world markets. Discuss critically. 2. A country currently imports automobiles at 8000 each. Its government believes domestic producers could manufacture autos for only...
Short RunThe AA Schedule
We have now derived the first element in our account of short-run exchange rate and income determination, the relation between the exchange rate and output that is consistent with the equality of aggregate demand and supply. That relation is summarized by the DD schedule, which shows all exchange rate and output levels at which the output market is in short-run equilibrium. As we noted at the beginning of the preceding section, however, equilibrium in the economy as a whole requires equilibrium...
Study Guide Instructors Manual and Web Site
International Economics Theory and Policy is accompanied by a Study Guide written by Linda S. Goldberg of the Federal Reserve Bank of New York, Michael W. Klein of Tufts University, and Jay C Shambaugh of Dartmouth College. The Study Guide aids students by providing a review of central concepts from the text, further illustrative examples, and additional practice problems. An Instructor's Manual, also by Linda S. Goldberg, Michael W. Klein, and Jay C. Shambaugh, includes chapter overviews,...
The Place of This Book in the Economics Curriculum
Students assimilate international economics most readily when it is presented as a method of analysis vitally linked to events in the world economy, rather than as a body of abstract theorems about abstract models. Our goal has therefore been to stress concepts and their application rather than theoretical formalism. Accordingly, the book does not presuppose an extensive background in economics. Students who have had a course in economic principles will find the book accessible, but students...
Introduction
You could say that the study of international trade and finance is where the discipline of economics as we know it began. Historians of economic thought often describe the essay Of the balance of trade by the Scottish philosopher David Hume as the first real exposition of an economic model. Hume published his essay in 1758, almost 20 years before his friend Adam Smith published The Wea th of Nations. And the debates over British trade policy in the early nineteenth century did much to convert...
Info Qbe
a. Suppose that the price of good 2 relative to that of good 1 is 2. Determine graphically the wage rate and the allocation of labor between the two sectors. b. Using the graph drawn for problem 2, determine the output of each sector. Then confirm graphically that the slope of the production possibility frontier at that point equals the relative price. c. Suppose that the relative price of good 2 falls to 1. Repeat a and b . d. Calculate the effects of the price change on the income of the...
The Case of the Missing Trade In an influential recent paper Daniel Trefler0
Daniel Trefler, The case of the missing trade and other mysteries, American Economic Review, 85 December 1995 , pp. 1029-1046. production, this predicts not only the direction but the volume of that trade. Factor trade in general turns out to be much smaller than the Heckscher-Ohlin model predicts. A large part of the reason for this disparity comes from a false prediction of large-scale trade in labor between rich and poor nations. Consider the United States, on one side, and China on the...
Key Terms
absolute advantage, p, 15 comparative advantage, p. 12 derived demand, p. 29 gains from trade, p. 19 general equilibrium analysis, p. 17 nontraded goods, p, 31 opportunity cost. p. 11 partial equilibrium analysis, p. 16 pauper labor argument, p. 24 production possibility frontier, p. 12, 13 relative demand curve, p. 17 relative supply curve, p. 17 relative wage, p. 22 Ricardian model, p. 12 unit labor requirement, p. 12 1. Home has 1200 units of labor available. It can produce two goods, apples...