International Economics, Globalization, and Policy

396 Pages·2009·4.927 MB·English

by  Philip King, Sharmila King

i
International Economics,
Globalization, and Policy
A READER
FIFTH EDITION
The McGraw-Hill Series
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iii
International Economics,
Globalization, and Policy
A READER
FIFTH EDITION
Philip King
Sharmila King
Boston Burr Ridge, IL Dubuque, IA New York
San Francisco St. Louis Bangkok Bogotá Caracas Kuala Lumpur
Lisbon London Madrid Mexico City Milan Montreal New Delhi
Santiago Seoul Singapore Sydney Taipei Toronto
iv
INTERNATIONAL ECONOMICS, GLOBALIZATION, AND POLICY: A READER
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies,
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1 2 3 4 5 6 7 8 9 0 DOC/DOC 0 9 8
ISBN 978-0-07-337581-6
MHID 0-07-337581-0
Publisher: Douglas Reiner
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Library of Congress Cataloging-in-Publication Data
International economics, globalization, and policy : a reader/[edited by] Philip King,
Sharmila King.—5th ed.
p. cm.
Revised ed. of: International economics and international economic policy.
Includes bibliographical references.
ISBN-13: 978-0-07-337581-6 (alk. paper)
ISBN-10: 0-07-337581-0 (alk. paper)
1. International trade. 2. International finance. 3. International economic
relations. I. King, Philip, 1956- II. King, Sharmila. III. International economics and
international economic policy.
HF1379.I57 2009
337—dc22
2008020241
www.mhhe.com
Table of Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix
International Trade
Section I Issues in Trade and Protectionism
Chapter 1 How Costly Is Protectionism?
ROBERTC. FEENSTRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2 Grain Drain: The Hidden Cost of U.S. Rice Subsidies
DANIELGRISWOLD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
3 International Trade: Why We Don’t Have More of It
EDITHOSTAPIKANDKEI-MUYI . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Section II Outsourcing, the WTO, and the Environment
4 Bridging the Trade-Environment Divide
DANIELC. ESTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
5 Labor Standards: Where Do They Belong on the International Trade
Agenda?
DRUSILLAK. BROWN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
6 Beyond the Outsourcing Angst: Making America More Productive
THOMASF. SIEMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
7 Offshoring: The Next Industrial Revolution?
ALANS. BLINDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
8 Trade in Health Care: Changing Paradigms in a Global Economy
ANOSHUACHAUDHURI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98
Section III NAFTA, FDI, and Other Trade Issues
9 Trade in the Americas From NAFTA to Bilateralism
JOANNAMOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
10 Does Foreign Direct Investment Help Emerging Economies?
ANILKUMAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125
11 Have U.S. Import Prices Become Less Responsive to Changes in the
Dollar?
REBECCAHELLERSTEIN, DEIRDREDALY, ANDCHRISTINAMARSH . .135
vi
Section IV Immigration
12 Global Migration: Two Centuries of Mass Migration Offers Insights into
the Future of Global Movements of People
JEFFREYG. WILLIAMSON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147
13 America’s Stake in Immigration: Why Almost Everybody Wins
GIOVANNIPERI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155
Section V Globalization
14 The Global Governance of Trade as if Development Really Mattered
DANIRODRIK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .164
15 Are We Underestimating the Gains from Globalization for the United States?
CHRISTIANBRODAANDDAVIDWEINSTEIN . . . . . . . . . . . . . . . . . .190
16 What’s So Special About China’s Exports?
DANIRODRIK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .200
International Finance
Section VI Trade Deficit Disorder
17 Twin Deficits, Twenty Years Later
LEONARDOBARTOLINIANDAMARTYALAHIRI . . . . . . . . . . . . . . . .219
18 Why a Dollar Depreciation May Not Close the U.S. Trade Deficit
LINDAGOLDBERGANDELEANORWISKEDILLON . . . . . . . . . . . . . .228
19 Trade Deficits Aren’t as Bad as You Think
GEORGEALESSANDRIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .238
Section VII Exchange Rate Regimes and Macroeconomic
Stabilization Policies
20 Does the Exchange Rate Regime Matter for Inflation and Growth?
ATISHR. GHOSH, JONATHAND. OSTRY, ANNE-MARIEGULDEAND
HOLGERC. WOLF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .253
21 China’s Controversial Exchange Rate Policy
SHARMILAKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .261
22 To Float or Not to Float? Exchange Rate Regimes and Shocks
MICHELECAVALLO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .266
23 Moving to a Flexible Exchange Rate: How, When, and How Fast?
RUPADUTTAGUPTA, GILDAFERNANDEZANDCEMKARACADAG . .270
24 Official Dollarization and the Banking System in Ecuador and El Salvador
MYRIAMQUISPE-AGNOLIANDELENAWHISLER . . . . . . . . . . . . . .281
Section VIII Europe and the Euro Zone
25 The Euro: Ever More Global
AXELBERTUCH-SAMUELSANDPARMESHWARRAMLOGAN . . . . . .300
26 Integration and Globalization: The European Bellwether
JASONL. SAVING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .307
vii
Section IX Financial Crises and Capital Flows
27 Asia Ten Years After
DAVIDBURTONANDALESSANDROZANELLO . . . . . . . . . . . . . . . . .318
28 Financial Crises of the Future
PAOLOMAUROANDYISHAYYAFEH . . . . . . . . . . . . . . . . . . . . . . . .326
29 Financial-Sector Foreign Direct Investment and Host Countries: New
and Old Lessons
LINDAGOLDBERG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .333
30 Appraising the IMF’s Performance: A Review of the First Three Studies
by the New Independent Evaluation Office
PETERB. KENEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .349
31 Sovereign Wealth Funds
PHILIPKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .356
Section X Foreign Aid
32 Aid and Growth
STEVENRADELET, MICHAELCLEMENS, ANDRIKHILBHAVNANI . .364
33 Microfinance: Banking for the Poor
INAKOTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .371
Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .376

Preface
The title of the fifth edition in this and when other countries will consider the
reader has been changed to Interna- U.S. a bad risk, particularly as the U.S. fi-
tional Economics, Globalization, nancial system fits Hyman Minsky’s theory
and Policy for a couple of reasons. First, of Ponzi finance all too well.
the original title, International Economics Our section on financial crises focuses
and International Economic Policy: A on issues that we believe will be critical over
Reader, was always too long and clunky. the next few years. It has often been re-
Phil proposed it to McGraw-Hill over marked that every financial crisis is differ-
twenty years ago and it stuck, despite some ent, though there are certainly lessons to be
misgivings. The new title is briefer and yet learned. For example, the Asian financial
more descriptive, since the term “globaliza- crisis involved huge current account imbal-
tion” has been added to reflect the content ances as well as borrowing short (subject to
of the book, which is also used in courses fluctuations in short-term interest rates) and
devoted to globalization, particularly the lending long, and also currency movements.
economic aspects of globalization. Many of these elements will undoubtedly
As with previous editions, this one is play a role in future crises.
basically all new, with 80 percent of the ar- China is also clearly an increasingly
ticles different from the previous edition. In important topic. China’s importance in the
the last edition the Doha round loomed world continues to grow and it has recently
large, trade agreements were considered taken on the role of creditor to the U.S. as
extremely important, and the Asian finan- well as becoming a major manufacturing
cial crisis was receding. As this edition goes power (producing, for example, 80 percent
to print, the housing crisis and the U.S. dol- of the world’s toys; as new parents we notice
lar are key headline issues. If one had to these things).
capture the theme we have looked for in the As with previous editions, this reader
fifth edition, we would say that debt, par- focuses on real debates within the disci-
ticularly U.S. debt, is the salient issue of the pline of economics and political economy,
day. The U.S. savings rate is negative (as of not on phony “pro-con” debates which of-
the spring of 2008), the U.S. budget deficit ten obscure the real issues. In some cases,
is growing, and the U.S. current account has such as agricultural subsidies in rich coun-
been negative (and growing) for decades. In tries, there really is very little debate
our opinion, this debt level is unsustainable. among economists, on the left or the
It is also odd that China, a poor country, has right—agricultural subsidies in rich coun-
become a net lender to the U.S. This con- tries hurt the world’s poor and do little to
founds what one would expect from eco- benefit anyone other than rich farmers and
nomic theory. It also makes us wonder if agribusiness. This statement, though quite
x
strong, would find almost universal sup- McGraw-Hill graciously offered to
port among economists who have studied do the formatting of this text as well as
the issue seriously. On the other hand, the publishing, which has made our life
though most economists see globalization much easier. Anne Hilbert, the Economics
as a positive, there are serious dissenters, Editor at McGraw-Hill, has always made
such as Dani Rodrik of Harvard, and these herself available to us and has been ex-
views are presented. tremely responsive to our needs. She has
All of the articles were chosen for an paid careful attention to detail, which is
advanced undergraduate or masters level unusual for someone in her role, typically
course in international trade or finance, or a more managerial than editorial. Phil
course on globalization. We have tried to Dunn helped with the permissions while
present a wider array of perspective than is he trained for the Beijing Olympics.
available in a text as well as discussion with Kathryn Mikulic and Deb Darr helped with
a wealth of case specific information. production.