Krugman's economic thought

What I found (and studied, by the way):

Krugman's main areas of academic research are international trade, international finance, currency crises, exchange rate theory, and the theory of economics and geography.

1. New International Economic Theory

1.1 7 Themes of International Economics:

1.1.1 Gains from Trade International trade benefits both parties to a transaction, but can harm certain interest groups. Price is the most important terms of trade.

1.1.2 Patterns of trade Three patterns of trade: first, a pattern of trade formed by the influence of differences in production efficiency; second, a pattern of trade formed in connection with the relative abundance and relative intensity of various factors of production (land, labor); and third, a pattern of trade formed by a fairly random factor.

1.1.3 Trade protection Trade protection is usually the result of a contest between different domestic interest groups.

1.1.4 Balance of Payments Balance of Payments analysis must refer to the trade balance, the current account balance and the capital and financial account balance. It must also be analyzed in the context of the overall economic background of each country, i.e., in the context of the relationship between international capital flows, international trade and national income accounts, and the various aspects of international monetary policy.

1.1.5 Exchange Rate Determination Interest rate parity, i.e., changes in the exchange rate due to differences in the level of interest rates that affect the international movement of short-term capital.

1.1.6 International Capital Markets The importance of international capital markets is increasing day by day.

1.1.7 International Policy Coordination

1.2 International Trade Models

1.2.1 Traditional Models - Ricardian Model Also known as the Comparative Advantage Theory model, it is a theory that international trade is uniquely determined by the productivity of labor internationally. However, it is under the assumption of completely free competition, does not take into account the monopoly factor, fails to reflect the reality, and ignores the impact of international trade on the domestic income distribution factors.

1.2.2 Traditional Model - Heckscher-Ohlin Model Also known as the factor endowment theory, developed after the Ricardo model. Differences in factor resources (labor and land) across countries can also trigger international trade, and the model also reveals a general conclusion: countries tend to export domestically abundant resource-intensive products.

1.2.3 Standard Trade Model The two traditional models are special cases of the standard model. The cause of a country's economic growth is caused by an increase in a country's resources and the rational allocation and effective use of resources, while scientific progress and the quality of the labor force also cause economic growth. Secondly, in reality, a country's economic growth is always biased and not all sectors develop in tandem. This bias can categorize a country's economic growth into export-biased growth and import-biased growth, while having an impact on international trade flows.

Export-biased growth worsens the country's terms of trade to the benefit of other countries, while import-biased growth favors the improvement of the country's terms of trade to the detriment of the rest of the world. Based on this conclusion, some economists have pointed out that "export-biased growth in developing countries will cause their terms of trade to deteriorate even further, to the point where their level of welfare is lower than it was before economic growth"

1.3 Various Phenomena in International Trade

1.3.1 Economies of Scale It refers to the economies of scale as the Expansion of production capacity, the process of unit cost reduction of economic efficiency, through large-scale purchase of raw materials to reduce costs, can promote the very technical staff specialization, technologization, and is conducive to the unity of product specifications, standardization, and is conducive to enhancing the competitive strength of enterprises. Divided into internal economies of scale (individual manufacturers) and external economies of scale (industry or region) internal economies of scale can easily lead to monopoly and imperfect competition, external economies of scale produce perfect competition. Economies of scale are also important in generating international trade, which can explain that the same countries also trade with each other.

1.3.2 International division of labor is the division of labor between countries in the world, is the producers of countries through the world market to form the labor force links, is the trend of socialization of production to the internationalization of the development of production, but also the basis for the emergence of trade between the countries of the world, there are generally three types: vertical, horizontal and mixed, and its development is generally dependent on the social conditions of each country and the natural economic conditions. The pattern of the international division of labor is not only influenced by the economic characteristics of a country, but also by historical contingencies, which are important factors in shaping the international division of labor. The temporary protection of industry can be transformed into a permanent comparative advantage for him.

1.3.3 Imperfect Competition. In the market, perfect competition can not be maintained, because there will be at least one buyer (or seller) who reaches the attention to influence the market price exists. In reality, the situation of complete monopoly basically does not occur, oligopolistic competition situation is more common. Each producer has a certain amount of monopoly power, but there is intense competition between them.

1.3.4 International trade and imperfect competition. Economies of scale inevitably lead to imperfect competition. The study of international trade is more scientific than the model of perfect competition.

1.3.5 Monopolistic competition model - The most basic model of imperfect competition. The extreme is monopolistic competition, refers to a model of competition that contains monopolistic behavior that excludes and restricts free competition, he has the characteristics of a greater degree of competition in the market and a smaller degree of monopoly. Monopolistic competition also generates international trade promotion.

1.3.6 International dumping. Dumping conditions for one is the market for imperfect competition, the second is the domestic and foreign markets are relatively independent. Monopoly manufacturers engaged in dumping can bring more profits. Domestic and foreign markets have different levels of price sensitivity, and when a manufacturer does not have an absolute dominant position in the market, it can expand production by increasing exports to increase its price advantage and earn more profits. Exactly the same products can also produce dumping in international trade.

1.3.7 External Economies The concentration of many individual manufacturers in one location is a type of economies of scale. The formation of external economies is conducive to the formation of specialized markets, the mobility of labor, and just spillover. External economies can facilitate international trade, but at the same time can cause a country to fall into a "fixed" mode of production, unable to change to the detriment of.

2 International Factor Mobility

2.1 Labor Factor in International Trade

2.1.1 Labor Factor Mobility Labor factor mobility in the form of migration is more constrained and prone to political problems. The following trends in the movement of labor factors: First, the movement of labor increased year by year, the countries labor normal gradually relaxed; Second, to encourage the movement of skilled personnel, the quality of the labor force more and more demanding; Third, the flow of labor force to change

2.1.2 Labor Force Mobility and International Trade The main factor of labor force mobility is the difference in factor endowment, between the two countries, in the same industry, there are relative abundance and relative lack of labor in the same industry between two countries. Labor mobility will have a strong impact on the distribution of income across countries and can lead to the undermining of the interests of some groups. The mobility of labor factors can sometimes be substituted for international trade and can increase total world output to the benefit of all countries.

2.2 Capital flows in international trade. The transfer of capital between the international (including one-way, two-way, multi-directional flow), including international lending, investment, foreign exchange trading, securities issuance and circulation, divided into long-term and short-term capital flows.

2.2.1 The main features of international capital flows are: diversification of the main body of international investment; the amount of capital flows to increase, speed up, but the huge amount of short-term capital is prone to a country's economic order has an adverse impact; countries generally use the form of transnational corporations for direct investment.

2.2.2 One of the forms of international capital flows - international lending, refers to one country to another country to borrow consumption. Any society is faced with a choice between current and future consumption

2.2.3 Multinational Corporations and Capital Flows The biggest difference between multinational corporations and international borrowing is that behind it lies a hidden purpose of the parent company, which is to expand corporate control. Multinational corporations can not only decentralize and control capital through multinational subsidiaries, but also increase control over local resources and markets through multinational subsidiaries. That is to say, on the one hand it achieves the full utilization of capital, and on the other hand it internalizes the resources of other countries into its own resources, thus gaining more benefits. In addition, through the form of multinational corporations, the parent company can produce and sell its products locally, bypassing inter-country trade barriers, thus increasing the competitiveness of its products, which is also very beneficial for its products to enter the local market. Formally based on these many advantages, the parent company will actively expand abroad and set up a large number of multinational subsidiaries.

2.2.4 Multinational corporations and international trade The existence of multinational corporations promotes the transfer of capital between countries, and strengthens the international integration of resources, so that the use of resources in each country is more effective, and secondly, in a broad sense, multinational corporations and the factor of labor and international trade have the same role in the development of international economy, and all can contribute to the economic integration between countries.

3 International Trade Policy

3.1 Free Trade in International Trade. Krugman refers to free trade as trade conducted without the constraints of import tariffs, export subsidies, domestic production subsidies, trade quotas or import licenses. Freedom of trade will not only provide an unparalleled opportunity for countries to integrate into the world economy, but it will also bring welfare improvements to all parties involved in trade.

3.2 Whether countries want free trade. The advantages of free trade generally outweigh the disadvantages.

3.2.1 Free trade is good for efficiency

3.2.2 Free trade brings additional gains. One of the additional gains of free trade is economies of scale

3.2.3 Free trade can serve some interest groups

3.2.4 Free trade is not conducive to the improvement of the terms of trade of developing countries.

3.2.5 Free trade harms some interest groups

3.3 Tariffs

3.3.1 Classification of tariffs Quantitative tariffs vs. ad valorem tariffs

3.3.2 Characteristics of tariffs. The goods and articles which have been imported or exported from or to the country by the government of a country are the objects of taxation and are taxed uniformly; they can regulate the import and export trade; they are a means for the government to carry out the unified foreign policy.

3.3.3 The impact of tariffs on international trade. The imposition of tariffs will raise the revenue of the government of the importing country; the imposition of tariffs will increase the price of imported products and reduce their sales; the imposition of tariffs will cause losses to consumers in the importing country; the imposition of tariffs will bring profits to producers in the importing country; the imposition of tariffs will benefit consumers in the exporting country.

3.3.4 Two major problems in international trade of developing countries. Import substitution industrialization and the problem of dualistic economy.

Import substitution industrialization: a country to take various measures to restrict the import of certain foreign industrial products, promote the production of domestic industrial products, and gradually replace imports with domestic products on the domestic market to create favourable conditions for the development of domestic industry and achieve industrialization. To avoid excessive support, otherwise harmful.

Dualization of economic problems refers to a state of affairs in developing countries, in which a relatively backward agricultural sector coexists with a more modern industrial sector. The problem of dualization is closely related to the international trade policy of the same country. A country's trade policy may exacerbate the problem of dualization, as in the case of import-substituting industrialization, which may result in a large wage gap between manufacturing and agriculture and exacerbate dualization.

Export-oriented industrialization. This means that the state takes various measures to promote the export of industrial goods to developed countries for the purpose of actively developing related industrial sectors, thereby expanding foreign trade and diversifying export products in order to promote national economic development.

4 Theory of Exchange Rates

4.1 Exchange Rates

4.1.1 Exchange rate is the price of one currency expressed in another currency, and exchange rates have a central role in international trade because they enable us to compare the prices of goods and services in different countries.

4.1.2 The role of the exchange rate in international trade is mainly price comparison and regulation of leverage (the exchange rate directly affects the cost and price of the commodity in the international market, affecting the international competitiveness of goods). If back to drastic changes, will increase the risk of engaging in international trade transactions, it is for this reason, many developing countries will be a long time to adopt a fixed exchange rate system externally, and the European Union will also be within its internal promotion of a unified euro area.

4.2 Foreign exchange market

4.2.1 Characteristics of the foreign exchange market. Extremely high volume of transactions (1.2 trillion per day in 2001 doubled from 89); operates 24 hours a day; mainly exchanged against the dollar; carries some risk.

4.2.2 The role of the foreign exchange market in international trade. Can hedge; can speculate on foreign exchange; can provide capital financing

4.3 Exchange Rates and Interest Rates

4.3.1 The Relationship Between Exchange Rates and Interest Rates

In the foreign exchange market, exchange rates, like other commodities, are determined by market supply and demand. Interest rates will affect the demand for money. "Interest rates rise, the currency is strong; interest rates fall, the currency is weak."

In the foreign exchange market, in addition to the interest rate affecting the exchange rate, expected exchange rate changes will also affect the exchange rate

4.3.2 The relationship between the money supply and the exchange rate in the short and long term

Permanent increase in the money supply causes many prices in the economy to rise in the long term, and the rise in the price of foreign currencies as measured in the country's own currency is one of them. An increase in the money supply causes the country's currency to depreciate in the foreign exchange market and vice versa.

4.4 Fixed Exchange Rate Regime

4.4.1 Characteristics of Fixed Exchange Rate Regime. On the one hand, it can ensure the stability of the exchange rate, block the speculative activities of international lobbying, and avoid the risk of exchange rate fluctuations; on the other hand, it can not use the exchange rate changes to adjust the balance of payments situation, and even sometimes destroy the internal economic balance.

4.4.2 In countries with fixed exchange rates, the central bank fixes the exchange rate through foreign exchange transactions in order to maintain the balance of the asset market, thus fixing the exchange rate at a certain level, and usually also uses exchange rate policy, monetary policy, and fiscal policy **** with the same role in stabilizing the value of the currency.

4.4.3 Fixed exchange rate countries will "suddenly" use the exchange rate policy, in order to improve the country's trade balance and increase employment. After the exchange rate is adjusted, the central bank must re-trade in the foreign exchange market in order to maintain the new fixed exchange rate.