DescriptionNobel Prize–winning economist Paul Krugman and renowned researcher Maurice Obstfeld set the standard for international economics courses with the text that remains the market leader in the U.S. and around the world.
International Economics: Theory and Policy is a proven approach in which each half of the book leads with an intuitive introduction to theory and follows with self-contained chapters to cover key policy applications. The Eighth Edition integrates the latest research, data, and policy in hot topics such as outsourcing, economic geography, trade and environment, financial derivatives, the subprime crisis, and China’s exchange rate policies.
New for the Eighth Edition, all end-of-chapter problems are integrated into MyEconLab, the online assessment and tutorial system that accompanies the text. Students get instant, targeted feedback, and instructors can encourage practice without needing to grade work by hand. For more information visit MyEconLab .
—Alan Deardorff, University of Michigan
“Krugman and Obstfeld present material in a clear and intuitive manner, leaving aside as much of the technical detail as possible. Students find the graphical analysis to be extremely helpful in understanding the material.”
—Robert G. Murphy, Boston College
“This is the leading undergraduate textbook in international economics. It offers a comprehensive and understandable exposition of the major topics in international economics by
two of the top scholars in the field.”
—Gerald Willmann, University of Kiel
“Krugman and Obstfeld is the leading textbook in the field because it approaches all aspects of international economics by utilizing both analytical and quantitative methods.”
—Iordanis Petsas, University of Scranton
- The book is divided into trade and finance. Within each half, core theory chapters are followed by a series of application chapters that confront policy questions using the newest empirical work, data, and policy debates.
- Coverage of international trade features:
- An integrated treatment and empirical evidence of the latest models of trade, such as the gravity, Ricardian, factor endowments, and imperfect competition models.
- A thorough discussion of the causes and effects of trade policy focuses on the income-distribution effects of trade.
- An emphasis on the potential substitutability of international trade and international movements of factors of production in Chapter 7, featuring an analysis of international borrowing and lending as intertemporal trade—the exchange of present consumption for future consumption.
- Coverage of international finance includes:
- A unified model of open-economy macroeconomics that provides students with a cohesive approach to the theory, based on an asset-market approach to exchange rate determination with a central role for expectations.
- A discussion of the international monetary experience that stresses the idea that different exchange rate systems lead to different policy coordination problems.
- Tools to help students master the material include the following:
- Learning Goals begin each chapter and list the essential concepts so students understand what they need to take away from each chapter.
- Case Studies illustrate theory using real-world applications and provide important historical context.
- Special Boxes offer vivid illustrations of points made in the text. Topics include the political backdrops of Ricardo’s and Hume’s theories; the story of Bolivian hyperinflation; and adjustments to asymmetric shocks.
- End-of-chapter Problems, many of which cite real data or policies, range from routine computational drills to more analytical questions and problems. New for the Eighth Edition, all end-of-chapter problems are included in MyEconLab so that instructors can assign homework without needing to grade students’ work by hand.
- Further Reading sections end each chapter, providing annotated bibliographies of both seminal works and recent articles to make it easier to develop course syllabi and encourage students to explore the material.
New to This Edition
- The latest data, examples, and applications are integrated throughout, providing students with critical illustrations to the theory.
- Every end-of-chapter problem is now included in MyEconLab so instructors can assign these problems for homework without needing to grade work by hand. Students get instant feedback, guidance in identifying what topics they need to review, and tutorial support to master those areas. For more information, contact your local sales representative or visit MyEconLab.
- In Chapters 2–11 on international trade, the authors integrate the latest data, research, and applications, as well as specific content revisions including:
- Chapter 2 includes increased coverage on outsourcing and offshoring.
- Chapter 6 includes coverage of economic geography.
- Chapter 7 contains a discussion on immigration that follows the discussion on labor migration.
- Chapter 9 is significantly revised to include:
- A thorough update on the state of the political economy.
- Revised coverage of trade and the environment.
- Current topics such as globalization, trade and agriculture, intellectual property rights, and medicinal drug use.
- In Chapters 12–22 on international finance, the authors have updated the figures, tables, data, and research, along with specific content revisions. These revisions include:
- Chapter 12 includes a new discussion on financial derivatives.
- Chapter 13 includes a revised discussion of hedging and financial derivatives as well as a new box titled Non-deliverable Forward Exchange Trading in Asia.
- Chapter 14 contains new case study titled Can Higher Inflation Lead to Currency Appreciation? The Implications of Inflation Targeting.
- Chapter 17 includes a new treatment of international reserves and a new case study titled The Demand for International Reserves.
- Chapter 19 contains a new discussion of world savings glut theory.
- Chapter 20 discusses the idea of a Gulf currency union and Canada’s recent experience under a very strong, single currency.
- Chapter 21 includes new coverage of hedge funds and the subprime crisis.
- Chapter 22 contains a new discussion on China’s exchange rate policies.
Table of Contents
Chapter 1. Introduction
What Is International Economics About?
International Economics: Trade and Money
Part I. International Trade Theory
Chapter 2. World Trade: An Overview
Who Trades with Whom?
The Changing Pattern of World Trade
Do Old Rules Still Apply?
Chapter 3. Labor Productivity and Comparative Advantage: The Ricardian Model
The Concept of Comparative Advantage
A One-Factor Economy
Trade in a One-Factor World
Misconceptions About Comparative Advantage
Comparative Advantage with Many Goods
Adding Transport Costs and Nontraded Goods
Empirical Evidence on the Ricardian Model
Chapter 4. Resources, Comparative Advantage, and Income Distribution
A Model of a Two-Factor Economy
Effects of International Trade Between Two-Factor Economies
The Political Economy of Trade: A Preliminary View
Empirical Evidence on the Heckscher-Ohlin Model
Appendix: Factor Prices, Goods Prices, and Input Choices
Chapter 5. The Standard Trade Model
A Standard Model of a Trading Economy
International Transfers of Income: Shifting of the RD Curve
Tariffs and Export Subsidies: Simultaneous Shifts in RS and RD
Appendix: Representing International Equilibrium with Other Curves
Chapter 6. Economies of Scale, Imperfect Competition, and International Trade
Economies of Scale and International Trade: An Overview
Economies of Scale and Market Structure
The Theory of Imperfect Competition
Monopolistic Competition and Trade
The Theory of External Economies
External Economies and International Trade
Economic Geography and Interregional Trade
Appendix: Determining Marginal Revenue
Chapter 7. International Factor Movements
International Labor Mobility
International Borrowing and Lending
Direct Foreign Investment and Multinational Firms
Appendix 1: Finding Total Output from the Marginal Product Curve
Appendix 2: More on Intertemporal Trade
Part II. International Trade Policy
Chapter 8. The Instruments of Trade Policy
Basic Tariff Analysis
Costs and Benefits of a Tariff
Other Instruments of Trade Policy
The Effects of Trade Policy: A Summary
Appendix 1: Tariff Analysis in General Equilibrium
Appendix 2: Tariffs and Import Quotas in the Presence of Monopoly
Chapter 9. The Political Economy of Trade Policy
The Case for Free Trade
National Welfare Arguments Against Free Trade
Income Distribution and Trade Policy
International Negotiations and Trade Policy
The Doha Disappointment
Appendix: Proving That the Optimum Tariff Is Positive
Chapter 10. Trade Policy in Developing Countries
Results of Favoring Manufacturing: Problems of Import-Substituting Industrialization
Trade Liberalization Since 1985
Export-Oriented Industrialization: The East Asian Miracle
Chapter 11. Controversies in Trade Policy
Sophisticated Arguments for Activist Trade Policy
Globalization and Low-Wage Labor
Globalization and the Environment
Part III. Exchange Rates and Open-Economy Macroeconomics
Chapter 12. National Income Accounting and the Balance of Payments
The National Income Accounts
National Income Accounting for an Open Economy
The Balance of Payments Accounts
Chapter 13. Exchange Rates and the Foreign Exchange Market: An Asset Approach
Exchange Rates and International Transactions
The Foreign Exchange Market
The Demand for Foreign Currency Assets
Equilibrium in the Foreign Exchange Market
Interest Rates, Expectations, and Equilibrium
Appendix: Forward Exchange Rates and Covered Interest Parity
Chapter 14. Money, Interest Rates, and Exchange Rates
Money Defined: A Brief Review
The Demand for Money by Individuals
Aggregate Money Demand
The Equilibrium Interest Rate: The Interaction of Money Supply and Demand
The Money Supply and the Exchange Rate in the Short Run
Money, the Price Level, and the Exchange Rate in the Long Run
Inflation and Exchange Rate Dynamics
Chapter 15. Price Levels and the Exchange Rate in the Long Run
The Law of One Price
Purchasing Power Parity
A Long-Run Exchange Rate Model Based on PPP
Empirical Evidence on PPP and the Law of One Price
Explaining the Problems with PPP
Beyond Purchasing Power Parity: A General Model of Long-Run Exchange Rates
International Interest Rate Differences and the Real Exchange Rate
Real Interest Parity
Appendix: The Fisher Effect, the Interest Rate, and the Exchange Rate Under the Flexible-Price Monetary Approach
Chapter 16. Output and the Exchange Rate in the Short Run
Determinants of Aggregate Demand in an Open Economy
The Equation of Aggregate Demand
How Output Is Determined in the Short Run
Output Market Equilibrium in the Short Run: The DD Schedule
Asset Market Equilibrium in the Short Run: The AA Schedule
Short-Run Equilibrium for an Open Economy: Putting the DD and AA Schedules Together
Temporary Changes in Monetary and Fiscal Policy
Inflation Bias and Other Problems of Policy Formulation
Permanent Shifts in Monetary and Fiscal Policy
Macroeconomic Policies and the Current Account
Gradual Trade Flow Adjustments and Current Account Dynamics
Appendix 1: Intertemporal Trade and Consumption Demand
Appendix 2: The Marhsall-Lerner Condition and Empirical Estimates of Trade Elasticities
Chapter 17. Fixed Exchange Rates and Foreign Exchange Intervention
Why Study Fixed Exchange Rates?
Central Bank Intervention and the Money Supply
How the Central Bank Fixes the Exchange Rate
Stabilization Policies with a Fixed Exchange Rate
Balance of Payments Crises and Capital Flight
Managed Floating and Sterilized Intervention
Reserve Currencies in the World Monetary System
The Gold Standard
Appendix 1: Equilibrium in the Foreign Exchange Market with Imperfect Asset Substitutability
Appendix 2: The Timing of Balance of Payments Crises
Part IV. International Macroeconomic Policy
Chapter 18. The International Monetary System, 1870–1973
The Interwar Years, 1918–1939
The Bretton Woods System and the International Monetary Fund
Analyzing Policy Options Under the Bretton Woods System
The External Balance Problem of the United States
Worldwide Inflation and the Transition to Floating Rates
Chapter 19. Macroeconomic Policy and Coordination Under Floating Exchange Rates
The Case for Floating Exchange Rates
The Case Against Floating Exchange Rates
Macroeconomic Interdependence Under a Floating Rate
What Has Been Learned Since 1973?
Are Fixed Exchange Rates Even an Option for Most Countries?
Directions for Reform
Appendix: International Policy Coordination Failures
Chapter 20. Optimum Currency Areas and the European Experience
How the European Single Currency Evolved
The Euro and Economic Policy in the Euro Zone
The Theory of Optimum Currency Areas
The Future of EMU
Chapter 21. The Global Capital Market: Performance and Policy Problems
The International Capital Market and the Gains from Trade
International Banking and the International Capital Market
Regulating International Banking
Chapter 22. Developing Countries: Growth, Crisis, and Reform
Income, Wealth, and Growth in the World Economy
Structural Features of Developing Countries
Developing-Country Borrowing and Debt
East Asia: Success and Crisis
Lessons of Developing-Country Crises
Reforming the World’s Financial “Architecture”
Understanding Global Capital Flows and the Global Distribution of Income: Is Geography Destiny?
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About the Author(s)
Nobel Prize–winning economist Paul R. Krugman
is a professor of economics and international affairs at the Woodrow Wilson School at Princeton University and is a regular op-ed columnist for the New York Times
. He received his BA from Yale University and his PhD from the Massachusetts Institute of Technology. After working on the White House Council of Economic Advisors from 1982–1983, Krugman earned the prestigious John Bates Clark Medal for his work on the “new trade theory” in 1991. In addition to Princeton, Krugman has taught at Yale, MIT, and Stanford. His Nobel Prize
, awarded in 2008, recognizes his work in international trade patterns and economic geography.
Maurice Obstfeld is a professor of economics at the University of California, Berkeley, where he is also the director of CIDER, the Center for International and Development Economics Research. He is on the advisory board of the Journal of Monetary Economics and the editorial boards of International Economic Review and Review of International Economics. He received his BA from the University of Pennsylvania; his MA from King’s College at Cambridge University in Cambridge, UK; and his PhD from the Massachusetts Institute of Technology. In addition to his current position at UC Berkeley, Obstfeld has taught at Harvard University, the University of Pennsylvania, and Columbia University.
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