International economics: a European focus

359 Pages·2003·5.846 MB·English

by  Ingham, Barbara

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International Economics
International
A European Focus Barbara Ingham
www.booksites.net
Economics
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This new international economics text
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reflects the unprecedented changes Key features n
which have occurred in the world a A European Focus
• Takes a European perspectiveand focuses on the
economy over the past quarter century. t
Rooted in classical analysis and the issues which will affect the whole of Europe – io
transition economies, economic integration,
doctrine of comparative advantage, the
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WTO, etc.
book covers the central components of a Barbara Ingham
an international economics course in a • An emphasis throughout on the dynamics of trade.
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stimulating and student-friendly way.
• A comprehensive treatment of trade policy, including E
the political economy of trade protection, social c
This introductory, concise and non-
objectives, fair trade and the role of the WTO.
technical approach to international o
economics deals with issues in the • Clear and simple models of exchange rate n
international environment which are of determination. o
relevance to UK/European students,
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• Explanations of first, second and third generation
relating international economics to the
models of currency crises, as well as the potential
European experience wherever it is i
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role of ‘early warning systems’ and ‘safety zones’.
appropriate to do so.
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• Full discussion of the principles of economic
International Economicsis supported by a management in the euroarea.
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website at www.booksites.net/ingham
• A strong emphasis on the political and international E
relationscontext in which trade takes place. u
The book is aimed at undergraduate ro
students taking a course in international • Many case studies from the Financial Times. p
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economics. As well as students a
• An optional geometric appendixintroduces students
specialising in economics, the book will n
to the offer curve, the box diagram and the contract
be useful to students on business F
curve. o
studies, management and social science c
programmes. u
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Dr Barbara Inghamis Reader in
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Economics in the School of Management n
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at the University of Salford, Greater h
Manchester, UK. a
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an imprint of www.booksites.net www.pearson-books.com www.booksites.net
International Economics
A European Focus
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International Economics
A European Focus
Barbara Ingham
Reader in Economics
University of Salford
Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world
Visit us on the World Wide Web at:
www.pearsoned.co.uk
First published 2004
© Pearson Education Limited 2004
The right of Barbara Ingham to be identified as author of this work has been asserted
by her in accordance with the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without either the prior written permission of
the publisher or a licence permitting restricted copying in the united Kingdom issued
by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP.
All trademarks used herein are the property of their respective owners. The use of any
trademark in this text does not vest in the author or publisher any trademark ownership
rights in such trademarks, nor does the use of such trademarks imply any affiliation
with or endorsement of this book by such owners.
ISBN 0 273 65507 8
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
10 9 8 7 6 5 4 3 2 1
08 07 06 05 04
Typeset in 10/13 pt Century Book by 68
Printed by Ashford Colour Press Ltd., Gosport
The publisher’s policy is to use paper manufactured from sustainable forests.
Contents
Foreword xiii
Preface xv
Acknowledgements xix
1 Introduction and overview 1
Why international economics? 1
Why a European focus? 3
Overview 4
Part 1 Trade theory and policy
2 The theory of trade 7
Introduction 7
Objectives 8
Mercantilism 9
Adam Smith and absolute advantage 10
David Ricardo and comparative advantage 13
Opportunity cost and the pure theory of trade 15
Factor endowments 18
Testing the Ricardian and Heckscher–Ohlin models 22
The influence of the free trade doctrine 25
Summary 27
Key concepts 27
Questions for discussion 28
Suggested reading 28
3 Developments in the theory of trade 29
Introduction 29
Objectives 30
Technology and trade 30
Patterns of demand 32
Imperfect competition 33
Increasing returns 35
Spatial concentration and trade 37
Case study 3.1 38
Case study 3.2 39
v
Contents
Gravity trade models 40
Summary 43
Key concepts 43
Questions for discussion 43
Suggested reading 44
4 Theory of trade protection 45
Introduction 45
Objectives 47
Tariffs and non-tariff barriers 47
Exchange and capital controls as barriers to trade 50
Welfare effects of a tariff 51
‘Old’ arguments for protection 54
External economies and research and development 57
Imperfect competition and the transfer of
monopoly profit 59
Political economy of trade policy 61
Self-interest and the prisoner’s dilemma 63
Income distribution and social objectives 66
Case study 4.1 67
Case study 4.2 68
Summary 69
Key concepts 70
Questions for discussion 71
Suggested reading 71
5 International trade policy 72
Introduction 72
Objectives 73
Economic theory versus international
political economy 74
From GATT to the WTO 75
The WTO 77
WTO and the environment 78
Social issues and the WTO 80
Market access 82
Case study 5.1 83
Trade blocs and the WTO 84
The EU and the WTO 85
Summary 87
Key concepts 88
Questions for discussion 88
Team project on the WTO 88
Suggested reading 89
vi
Contents
6 Trade and growth, past and present 90
Introduction 90
Objectives 92
Static and dynamic effects of trade 92
Vent for surplus and staples theory 95
Is trade an engine of growth? 98
Trade liberalisation 102
Trade policy reform in transition economies 104
Regional trade arrangements versus liberalisation 105
Case study 6.1 108
Growth, trade and de-industrialisation 110
Summary 111
Key concepts 112
Questions for discussion 112
Suggested reading 113
7 International factor mobility 114
Introduction 114
Objectives 115
Capital and labour flows in history 116
Theory of capital movements 118
Multinational enterprises and factor mobility 120
Europe’s foreign direct investment 123
Labour migration 125
Migration in Europe 129
Case study 7.1 130
Case study 7.2 132
Summary 133
Key concepts 133
Questions for discussion 134
Suggested reading 134
Part 2 International monetary economics
8 Balance of payments accounts 137
Introduction 137
Objectives 138
The UK balance of payments 138
The UK current account 140
The UK capital account 143
The UK financial account 144
Errors and omissions 146
vii
Contents
The UK international investment position 147
The euro area balance of payments 149
Summary 152
Key concepts 153
Questions for discussion 153
Suggested reading 154
9Foreign exchange markets 155
Introduction 155
Objectives 156
The mechanism of international payments 156
Exchange rates, swaps, futures and options 158
The determination of the equilibrium
exchange rate 162
Case study 9.1 164
Purchasing-power parities 167
Arbitrage 169
International financial flows 170
Financial markets and the foreign exchange market 173
Case study 9.2 175
Summary 176
Key concepts 177
Questions for discussion 177
Suggested reading 178
10The exchange rate and economic policy 179
Introduction 179
Objectives 180
The gold standard (1880–1914) 180
The Bretton Woods system (1946–71) 184
Managed flexibility 187
Case study 10.1 189
Money supply, output, inflation and the exchange rate
under managed flexibility 190
The volatility of exchange rates 192
Choice of exchange rate regime 193
Case study 10.2 195
The currency board system 196
Summary 198
Key concepts 199
Questions for discussion 199
Suggested reading 199
viii
Contents
11Capital flows and financial crises 201
Introduction 201
Objectives 202
Case study 11.1 202
Portfolio theory and diversification 204
Financial crises 206
The crisis in Asia 208
The 1998 Russian crisis 211
Contagion 212
Herd behaviour 213
Early warning systems 214
Safety zones for emerging markets 215
Summary 217
Key concepts 218
Questions for discussion 218
Suggested reading 218
Part 3 The global economy
12The European Union in the global economy 221
Introduction 221
Objectives 222
Chronology of the European Union 223
The Treaty of Rome and the internal market 224
Case study 12.1 225
The European Monetary System and the Exchange Rate Mechanism 226
Case study 12.2 229
European Monetary Union 230
Case study 12.3 231
Economic management in the euro area 233
Case study 12.4 237
Case study 12.5 238
Accession countries and the euro 239
Summary 241
Key concepts 241
Questions for discussion 242
Suggested reading 242
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