M08_KRUG8276_08_IM_C08 -

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Overview of Section II: International Trade Policy Section II of the text is comprised of four chapters: Chapter 8 The Instruments of Trade Policy Chapter 9 The Political Economy of Trade Policy Chapter 10 Trade Policy in Developing Countries Chapter 11 Controversies in Trade Policy n Section II Overview Trade policy issues figure prominently in current political debates and public policy discussions. The first two chapters of this section of the text are concerned with the instruments of trade policy and the arguments for free trade and managed trade. The second two chapters consider these concepts in the context of specific sets of countries that face common problems. Throughout, the use of case studies provides the student with real world examples that clearly illustrate the theoretical arguments. Chapter 8 discusses various instruments of trade policy including tariffs, quotas, voluntary export restraints, and local content requirements. The effects of these policies on prices and trade volumes are determined in the context of a partial equilibrium framework. The chapter reviews the analytical tools of consumer and producer surplus, and uses these tools to consider the welfare effects of various protectionist measures. The specific incidents of trade restrictions presented as case studies include import quotas on sugar entering United States markets, voluntary export restraints on Japanese autos, and oil import quotas. Chapter 9 presents the set of ideas known as the political economy of trade theory. These ideas enable you to understand why certain trade restrictions exist, despite the force of general economic arguments which suggest that they reduce aggregate welfare. Possible motivations for trade restrictions are identified as those which increase national welfare, such as the optimum tariff, and those which foster either income redistribution or the preservation of status quo. While sometimes politically popular, these motivations for trade restrictions ignore the possibility of retaliation and usually fail tests based upon basic welfare analysis. Trade agreements of the 1990s are discussed, including the Uruguay Round, and distinctions are made between Free Trade Areas and Customs Unions as well as between trade creation and trade diversion. Chapter 10 considers the possible uses of trade policies to promote the growth of developing economies. The chapter reviews the relative successes of different development strategies. It examines arguments for and the results of import-substituting industrialization. It also discusses the decline of import-substituting industrialization and the increase in trade liberalization in developing countries since the mid-1980s. The chapter concludes with a discussion of export led growth and the experience of the high performing Asian economies.
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31 Krugman/Obstfeld • International Economics: Theory and Policy, Eighth Edition Chapter 11 considers recent controversies in trade policy. The first part of the chapter considers the
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This note was uploaded on 05/19/2009 for the course ECON jungminiss taught by Professor Hmhmyt during the Spring '09 term at Stanford.

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M08_KRUG8276_08_IM_C08 -

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