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Über dieses Buch

In the curricula of highly ranked MBA programs, two areas of discussion are conspicuously absent: International Trade, and Global Macroeconomic Policy. In this post-financial crisis environment, as the US and other advanced economies continue to experience sluggish growth, persistently high unemployment, and political agitation for increasingly protectionist policies, discussions pertaining to trade, currencies, and international capital flows are often fraught with emotion, tension, and hysteria. This book cuts through the emotions and superficial “solutions” and provides the reader with a thorough understanding of the hard-hitting theoretical models that drive the global flow of goods, services, and capital in the real world. A key feature of this volume is the presentation of the theoretical models, and the discussion of their implications in the context of real-world applications. This text is uniquely designed for current and future business leaders who are, or will be, engaged in the global economy. Armed with an understanding of the theoretical underpinnings driving goods, capital and ideas across national boundaries, readers will learn to anticipate the effects of trade and macroeconomic policy changes, and will have the tools to make sound, informed decisions for themselves and their global organizations.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract
In this post-financial crisis environment, as the USA and other advanced economies continue to experience sluggish growth (at best), persistently high unemployment, and political agitation for increasingly protectionist and sometimes xenophobic policies, discussions pertaining to free trade are often fraught with emotion, tension, and hysteria. Armed with an understanding of the theoretical underpinnings driving goods, capital, and ideas across national boundaries, readers will learn to foresee the effects of trade and macroeconomic policy changes, and will have the tools to make sound, informed decisions for themselves and their global organizations.
Farrokh Langdana, Peter T. Murphy

International Trade Theory

Frontmatter

Chapter 2. The Origins of International Trade Theory

Abstract
For centuries prior to the late eighteenth century, trade was driven by the concept of mercantilism, whereby countries gain specie (precious metals) through exports, and essentially lose by importing, and a net positive balance of trade was sought by all. Adam Smith introduced the notion of absolute advantage, whereby countries could gain by specializing in the goods they produced less expensively than the rest of the world and trading openly. David Ricardo’s concept of comparative advantage took this idea one step further: countries needn’t be the cheapest producer, only the most efficient with respect to the opportunity cost to produce their goods. Ricardo showed that between two trading countries, each will always by mathematical identity have a comparative advantage in something. Ricardo’s restricting assumptions are detailed; these will be relaxed in later chapters.
Farrokh Langdana, Peter T. Murphy

Chapter 3. The Ricardian Trade Model

Abstract
The journey into the main “engine room” of free trade, the Ricardian trade model, begins with a very necessary overview of some essential microeconomic building blocks, starting with the production possibilities frontier (PPF). Consumer preferences as represented by indifference curves are explained in detail with examples. The autarky production and consumption points are determined by the intersection of the production possibilities frontier with the highest possible indifference curve. Application of the Ricardian trade model shows that two trading countries can both consume on a higher indifference curve than was possible without trade. Through intra-industry trade, even countries with the same factor endowments and tastes can benefit from open trade.
Farrokh Langdana, Peter T. Murphy

Chapter 4. Factor Intensity

Abstract
In this chapter we delve deeper into Ricardian theory. Heckscher and Ohlin integrated the notion of factor abundance with the fact that different goods and services employ different levels of factor intensities. Simply stated, the Heckscher -Ohlin theorem (HOT) demonstrates that a country has a comparative advantage in the good that employs its abundant factor intensely. The Stolper-Samuelson theorem (SST) shows us how each trading country's abundant factor will benefit from trade. We see how Ricardo, HOT and SST working in tandem can increase the overall welfare of both trading partners. Finally, we see the Mundell Hypothesis in-action, where movement of products and services can take the place of the migration of workers.
Farrokh Langdana, Peter T. Murphy

Chapter 5. Stripping Away Ricardo’s Assumptions

Abstract
Finally we strip away David Ricardo’s restrictive assumptions one by one to find out: does Ricardian theory hold up even without these assumptions, in the real world? We explore the Production Life Cycle hypothesis, where countries move up the value chain, initially moving from agriculture into simple manufactures as they open up to trade, and progress through to higher and higher levels of production over time. We see how intra-industry trade, which accounts for a significant portion of the world’s trade overall, fits nicely within the Ricardian model. We present the Boeing 787 Dreamliner as a case study in intra-industry trade.
Farrokh Langdana, Peter T. Murphy

Chapter 6. Trade Barriers and Protectionism

Abstract
In Chapter 6 we leave the clean world of free trade and dive into trade barriers in their many incarnations, including tariffs, quotas, hassle-factors, and export subsidies. We see how tariffs harm overall welfare in both the importing and exporting countries. As bad as tariffs are, we see that quotas are even worse. Strategic trade - the protection of infant industries and champion industries - is explored at some length. Any distortive policy implemented by Country A is certain to face retaliation by Country B in the form of dumping claims and countervailing duties (CVDs). We see how these exacerbate the already bad effects of the initial barriers imposed by Country A. Finally, we take on two huge challenges to the notion of the beneficial nature of free trade: the Immiserization hypothesis, and Paul Samuelson's attack on free trade.
Farrokh Langdana, Peter T. Murphy

Global Macroeconomics Policy Demystified

Frontmatter

Chapter 7. Global Macroeconomics

Abstract
In Chapter 7, we open our discussion of Global Macroeconomics with an explication of the fundamental driver of trade flows: the National Savings Identity (NSI). We see how this equation drives the supply and demand for loanable funds (SLF and DLF), and links the “twin deficits” (the fiscal deficit and the trade deficit).
Farrokh Langdana, Peter T. Murphy

Chapter 8. Exchange Rates

Abstract
The purchase of goods and services, or of assets, from overseas generally cannot be done with one’s home currency. Overseas entities demand payment in their home currency, as this is what they use in their day-to-day transactions. Enter the exchange rate, which is simply the price of a unit of foreign currency in terms of units of one’s own currency. We discuss the spot, forward, and expected exchange rates and see how spot and expected/forward exchange rates interact. We review floating versus managed and fixed (pegged) exchange rates. Armed with our knowledge of exchange rates, we enter the world of hot capital flows and see how huge sums are earned and lost in the exchange rate market. We review the example of Iceland’s 2008 currency collapse.
Farrokh Langdana, Peter T. Murphy

Chapter 9. The ISLM-BOP Model: The Goods Market, the Money Market, and the Balance of Payments

Abstract
This chapter introduces “the engine room” of global trade and macroeconomics, the ISLM-BOP model. The ISLM-BOP model is a powerful tool that will allow us to synthesize the various components of the global macroeconomy and analyze the effects of a multitude of events and policy changes.
Farrokh Langdana, Peter T. Murphy

Chapter 10. Exports and Imports, Real Exchange Rates

Abstract
World exports in 2010 included approximately US $14.9 trillion in merchandise and $3.7 trillion in services, meaning that of the world’s US $63 trillion of output, approximately 24 % involved goods and 6 % involved services traded across borders.
Farrokh Langdana, Peter T. Murphy

Chapter 11. Incorporating Inflation into the Model

Abstract
We now add inflation into our ISLM-BOP model and explore in greater detail the relationship between exchange rates and interest rates.
We see how inflation can manifest itself not only in the consumer price index, but in asset prices, as we explore speculative asset price (SAP) bubbles. We move on to explore how currency pegs can “explode” when the pegging Country A has lashed itself to the currency of a Country B whose economic cycle is out of synch with Country A, with devastating consequences. We see how this played out in Southeast Asia in 1997–1998. The Impossible Trinity tells us that we cannot have a pegged exchange rate, control over interest rates, and perfectly mobile capital. We see that one of the three variables must give. Can a pegged-exchange rate country escape the cycle of boom and bust? We follow the actions of Singapore in the late 1990’s and find an answer.
Farrokh Langdana, Peter T. Murphy

Chapter 12. Capital Flows: Perfectly and Imperfectly Mobile Capital

Abstract
While most advanced Western countries allow the free movement of overseas capital in and out of their economies, many countries, particularly in the developing world, impose restrictions. In fact, the current dominance of freely floating rates is a relatively new historical development. Significant restrictions on capital mobility have been the norm until the globalization era which began in the 1980s. We apply the BOP equilibrium for Imperfectly Mobile Capital to the ISLM-BOP and examine how the results differ from those attained under Perfectly Mobile Capital. Here we see the applicability of the Keynesian multiplier. We move on to discuss fiscal budget sustainability and the Dornbusch model, which leads us into the history and evolution of the Euro. The current state and future of the Euro are discussed here. We discuss speculative currency attacks and their related phenomena of overshooting. We ask: how are private actors able to drive markets in the fact of powerful central banks? We explore the sources and limits of a central bank’s power.
Farrokh Langdana, Peter T. Murphy

Chapter 13. The Global Monetary System

Abstract
In this final chapter we apply much of what we have previously learned as we examine several contemporary policy topics. We explore the policy of foreign exchange sterilization, and its contribution to the global imbalances that have built up in the early part of this century. The US dollar-Chinese yuan saga and controversy are explored at length. We discuss the US dollar's role as the world's reserve currency, and the potential challengers to the dollar's dominance. Finally, we explore a topic that has garnered attention in recent years as central banks have taken to increasingly unorthodox experimentation: fiat currency and the gold standard.
Farrokh Langdana, Peter T. Murphy

Backmatter

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