Charts the changing policy landscape from traditional trade
Trade Review
“International economics teaching at the undergraduate and master’s level generally sequences trade theory, trade policy, exchange rate determination and balance of payments, and international monetary adjustment under alternative exchange rate regimes – more or less in that order – with applications to countries, regional arrangements, and institutions brought into the discussion throughout. This clearly written volume focuses on the first two dimensions of international economics in the real-sector context. In chapter 1, Smith (Univ. of Minnesota) covers traditional Ricardian and factor-endowment-based trade models; she develops partial and general trade equilibria in chapter 2 and intra-industry and intra-firm trade in chapter 3. This discussion is thoroughly up-to-date and highlights the gap in conceptual elegance between inter-industry and intra-industry trade models. In part 2, Smith applies partial and general equilibrium constructs to trade policy, starting with tariffs and proceeding to subsidies and quotas and other quantitative restrictions, then compares the welfare consequences of alternative trade interventions. The book’s real value comes in part 4 on the trade consequences of all kinds of domestic policies whose consequences (and often intent) include distorting trade. This covers a “dog’s breakfast” of measures often hard to sort out (e.g., policies on labor standards, the environment, human rights). Summing Up: Highly recommended. Upper-division undergraduate and graduate students.”
– I. Walter, New York University.
(Choice, May 2014)
Table of Contents
Acknowledgments xi
List of Tables xv
List of Figures xvii
Preface xxi
Part One Trade Theory as Guidance to Trade Policy 1
1 Preliminaries: Trade Theory 3
1.1 What Are the Core Questions Asked by International Trade Economists? 3
1.2 How Can Trade Theory Provide Guidance to Trade Policy? 4
1.3 How Has International Trade Evolved over Time in Practice? 5
1.4 How Has Trade Theory Evolved over Time? 6
1.5 How Is the Book Organized? 9
Further Reading 11
2 Inter-industry Trade 13
2.1 What Are the Effects of Trade in the Long Run, When Countries Differ in Technologies? 14
2.1.1 What are the production possibilities? 15
2.1.2 What are the relative costs and prices in autarky? 16
2.1.3 What are the world prices with trade and patterns of trade? 17
2.1.4 What are the gains from trade? 20
2.1.5 What are the effects of liberalizing trade policy? 22
2.2 What Are the Effects of Trade in the Long Run, When Countries Differ in Endowments? 24
2.2.1 How are endowments and outputs related? 28
2.2.2 How are goods prices and factor prices related? 29
2.2.3 What are the production possibilities? 32
2.2.4 What are the relative costs and prices in autarky? 32
2.2.5 What are the world prices with trade and the patterns of trade? 33
2.2.6 What are the gains from trade? 35
2.2.7 What are the effects of liberalizing trade policy? 37
2.2.8 How does factor mobility change the trade patterns? 38
2.3 What Are the Effects of Trade in the Short Run, When Countries Differ in Immobile Endowments? 39
2.3.1 What are the production possibilities? 40
2.3.2 What are the relative costs and prices in autarky? 42
2.3.3 What are the world prices with trade? 46
2.3.4 What are the patterns of trade? 47
2.3.5 What are the gains and income distribution effects of trade? 47
2.3.6 What are the effects of liberalizing trade policy? 50
2.4 Summary Remarks 51
Applied Problems 54
Further Reading 55
3 Intra-Industry and Intra-Firm Trade 57
3.1 What Is Intra-Industry Trade and Its Effects? 58
3.1.1 What are the patterns and gains from intra-industry trade? 60
3.2 What Is Intra-Firm Trade and Its Effects? 65
3.2.1 What are the patterns and motives for foreign direct investment? 66
3.2.2 How is trade related to foreign direct investment? 68
3.2.3 What are the patterns and motives for outsourcing and offshoring? 69
3.3 Summary Remarks 71
Applied Problems 74
Further Reading 76
Notes 78
Part Two Trade Policies and Their Effects 81
4 Preliminaries: Trade Policy and Welfare Considerations 83
4.1 What Are Traditional Trade Policies? 83
4.2 What Approaches Are Used to Examine Trade Policy? 84
4.3 What Are the Welfare Effects of Liberalizing Trade Policy? 85
4.4 How Is Part Two Organized? 88
Further Reading 89
Note 90
5 Tariffs 91
5.1 What Are Tariffs, Their Types and Purpose? 91
5.2 What Are the Effects of Tariffs? 92
5.2.1 Case 1: What are the effects of a tariff imposed by a large importer? 95
5.2.2 Case 2: What are the effects of a tariff imposed by a small importer? 100
5.2.3 Case 3: What are the effects of a tariff when export supply is inelastic relative to import demand? 103
5.2.4 How is the burden of the tariff allocated across countries and agents? 106
5.3 What Are the Effects of Tariff Liberalization? 107
5.4 How Protective Are Tariffs of the Domestic Industry? 109
5.4.1 How does tariff escalation affect the protection of the domestic industry? 110
5.5 Summary Remarks 111
Applied Problems 115
Further Reading 116
Notes 117
6 Export Subsidies 119
6.1 What Are Export Subsidies, Their Types and Purpose? 119
6.2 What Are the Effects of Export Subsidies? 120
6.2.1 Case 1: What are the effects of an export subsidy imposed by a large exporter? 122
6.2.2 Case 2: What are the effects of an export subsidy imposed by a small exporter? 127
6.2.3 Case 3: What are the effects of an export subsidy when export supply is elastic relative to import
demand? 129
6.2.4 Case 4: What are the effects of an export subsidy imposed by a large country with a comparative
disadvantage? 132
6.2.5 How is the burden of the export subsidy allocated across countries and agents? 136
6.3 What Are the Effects of Liberalizing Export Subsidies? 137
6.4 Summary Remarks 138
Applied Problems 142
Further Reading 143
Note 143
7 Quantitative Restrictions 145
7.1 What Are Quantitative Restrictions, Their Types and Purpose? 145
7.2 What Are the Effects of Quantitative Restrictions? 147
7.2.1 Case 1: What are the effects of an import quota imposed by a large importer? 149
7.2.2 Case 2: What are the effects of an export quota (or voluntary export restriction) imposed by a
large exporter? 153
7.2.3 Case 3: What are the effects of a ban imposed between two large countries? 154
7.3 Summary Remarks 157
Applied Problems 160
Further Reading 160
8 Policy Comparisons 163
8.1 What Are Policy Equivalents, and Their Purpose? 163
8.2 What Are the Relative Effects of Policy Equivalents? 164
8.2.1 What are the relative effects of tariffs, quotas, and VERs? 164
8.2.2 What are the relative effects of bans? 168
8.2.3 What are the relative effects of export subsidies? 168
8.2.4 How do the policies compare? 169
8.3 What Are the Relative Effects of Liberalizing Policies? 172
8.4 What Are the Effects of Substituting Policies? 174
8.5 Summary Remarks 176
Applied Problems 180
Further Reading 182
Note 182
Part Three Trade-Related Policies 183
9 Preliminaries: Trade-Related Policies and Trade in Services 185
9.1 What Are Trade-Related Policies? 185
9.2 How Have Trade-Related Policies Evolved over Time in Practice? 186
9.3 How Have Trade Policies Toward Services Evolved over Time in Practice? 188
9.4 How Is Part Three Organized? 190
Further Reading 191
Notes 192
10 Intellectual Property Rights 193
10.1 What Are Intellectual Property Rights, Their Types, and Purpose? 193
10.2 What Are the Effects of Intellectual Property Rights? 196
10.2.1 What are the domestic effects of intellectual property rights? 196
10.2.2 What are the effects of country differences in intellectual property rights? 197
10.2.3 What are the relative effects of intellectual property rights on trade, foreign direct investment,
and licensing? 200
10.3 How Have Intellectual Property Rights Evolved over Time in Practice? 202
10.4 What Are the Intellectual Property Rights Issues on the Policy Frontier? 206
10.5 Summary Remarks 208
Applied Problems 211
Further Reading 212
Notes 214
11 Environmental Policies 215
11.1 What Are Trade-Related Environmental Policies, Their Types and Purpose? 215
11.2 What Are the Effects of Trade Policy on the Environment? 216
11.3 What Are the Effects of Environmental Policy on Trade? 219
11.4 What Are the Implications of Using Trade Policy to Address Environmental Externalities? 221
11.4.1 Case 1: Can trade policy correct a negative production externality in a small exporter? 223
11.4.2 Case 2: Can trade policy correct a negative consumption externality in a small importer? 228
11.5 Summary Remarks 232
Applied Problems 235
Further Reading 237
Notes 238
12 Labor Policies 239
12.1 What Are Trade-Related Labor Policies, Their Types, and Purpose? 239
12.2 What Are the Effects of Trade Policy on Labor? 241
12.2.1 What are the long-run effects of trade on wages? 242
12.2.2 What are the short-run effects of trade on wages? 254
12.3 How Can the Gains and Losses from Trade Be Redistributed within Countries? 264
12.4 What Are the Effects of Labor Policy on Trade? 265
12.5 Summary Remarks 267
Applied Problems 270
Further Reading 271
Notes 272
13 Growth and Development Policies 273
13.1 What Are Trade-Related Development and Growth Policies, Their Types, and Purpose? 273
13.2 What Are the Effects of Trade on Development and Growth? 275
13.2.1 What are the effects of trade on country welfare? 275
13.2.2 What are the effects of trade on growth? 282
13.2.3 What are the effects of trade on income distribution? 286
13.3 What Are the Effects of Growth on Development (or Welfare) in the Presence of Trade? 287
13.3.1 What are the effects of economic growth on relative outputs? 288
13.3.2 What are the effects of output changes on the terms of trade? 288
13.3.3 What are the effects of terms of trade changes on welfare? 292
13.4 Summary Remarks 295
Applied Problems 298
Further Reading 299
Notes 301
Part Four Trade Arrangements 303
14 Regional and Multilateral Arrangements 305
14.1 What Are the Institutional Arrangements for Trade Policy? 306
14.1.1 What are the prominent multilateral arrangements for trade policy in practice? 308
14.2 What Are the Effects of Alterative Arrangements for Trade Policy? 310
14.2.1 What are the effects of regional liberalization? 311
14.2.2 What are the effects of multilateral liberalization? 315
14.2.3 What are the effects of country exclusion from multilateral arrangements? 317
14.3 Are Regional Arrangements Stepping Stones or Stumbling Blocks to Multilateral Liberalization? 321
14.4 Summary Remarks 323
Applied Problems 327
Further Reading 329
Notes 331
References 333
Index 339
