International Economics

Citation

Salvatore, D., & Hepp, R. (2026). International Economics (14th ed.). Wiley.

Chapter Summary

The 14th edition has 21 chapters in four parts, about 750 pages in all according to the publisher, with a glossary and indexes. In the introductory chapter the authors describe the plan: the book starts at an abstract, theoretical level and becomes more applied and policy oriented, and each part moves from simple concepts to the more difficult ones. Most chapters have six to eight numbered sections, a summary, key terms, review questions, problems and one or more appendices; the appendices carry the more rigorous proofs and are optional. The publisher counts 126 case studies, and the contents list them chapter by chapter. The summaries below follow the chapter titles and section headings.

Chapter 1: Introduction

The opening chapter covers the globalization of the world economy, international trade and living standards, and the international flow of goods, services, labor and capital, including the gravity model. It then lists the field's current problems and challenges and explains the book's organization and method. An appendix presents basic international trade data and sources.

Part 1, Chapters 2-7: International Trade Theory

Chapter 2, "The Law of Comparative Advantage", moves from the mercantilists through Adam Smith's absolute advantage to Ricardo, with opportunity costs, the gains from trade and empirical tests of the Ricardian model. Chapter 3, "The Standard Theory of International Trade", introduces increasing costs, community indifference curves and equilibrium in isolation before the basis for and gains from trade. Chapter 4 covers demand and supply, offer curves and the terms of trade. Chapter 5 turns to factor endowments and the Heckscher-Ohlin theory, including factor-price equalization and its empirical tests. Chapter 6 presents economies of scale, imperfect competition and intra-industry trade, and Chapter 7 relates economic growth to international trade.

Part 2, Chapters 8-12: International Trade Policy

Chapter 8 analyses tariffs, in partial and general equilibrium, and the optimum tariff. Chapter 9, "Nontariff Trade Barriers and the New Protectionism", covers quotas, other barriers, the political economy of protectionism, strategic trade and industrial policies, the history of U.S. commercial policy and the multilateral trade rounds. Chapter 10 treats economic integration through customs unions and free trade areas. Chapter 11 considers trade and economic development, and Chapter 12 international resource movements and multinational corporations, including labor migration.

Part 3, Chapters 13-15: The Balance of Payments, Foreign Exchange Markets, and Exchange Rates

Chapter 13 explains balance-of-payments accounting and the international investment position. Chapter 14 describes how foreign exchange markets work, including hedging, speculation and the offshore markets. Chapter 15 sets out exchange-rate determination through purchasing-power parity, the monetary approach, the portfolio balance model and exchange-rate dynamics. The authors call a clear grasp of these three chapters crucial for Part 4.

Part 4, Chapters 16-21: Open-Economy Macroeconomics and the International Monetary System

Chapters 16 and 17 treat the price and income adjustment mechanisms and synthesise the automatic adjustments. Chapter 18 covers adjustment policies, with appendices deriving the IS, LM and BP curves. Chapter 19 develops aggregate demand and aggregate supply for an open economy. Chapter 20 compares flexible and fixed exchange rates and discusses the European monetary system and policy coordination, and Chapter 21 surveys the international monetary system from the gold standard through Bretton Woods to the present, with case studies on currency crises, the 2008-2009 global financial crisis and the COVID-19 pandemic.

Key Concepts

Chapters 1-12: Trade theory and policy

• Comparative advantage: the law set out in Chapter 2, with opportunity costs and the gains from trade.
• Heckscher-Ohlin theory: trade patterns explained by factor endowments, with factor-price equalization (Chapter 5).
• New trade theories: economies of scale, imperfect competition and intra-industry trade (Chapter 6).
• Tariffs and nontariff barriers: the instruments of protection and the optimum tariff (Chapters 8-9).
• Economic integration: customs unions and free trade areas (Chapter 10).

Chapters 13-21: International finance and open-economy macroeconomics

• Balance of payments: the accounts that record a country's international transactions (Chapter 13).
• Purchasing-power parity and the monetary approach: models of exchange-rate determination (Chapter 15).
• Adjustment mechanisms: price and income channels through which payments imbalances are corrected (Chapters 16-17).
• Fixed versus flexible exchange rates: the regime choice and macroeconomic policy coordination (Chapter 20).
• International monetary system: its history and present functioning (Chapter 21).

Critical Analysis

Strengths

• Both halves of the field in one text. The four parts cover trade theory, trade policy, international finance and open-economy macroeconomics, so one volume supports a full course in international economics.
• Two levels of rigor. According to the authors, the main text explains theories intuitively while the optional appendices at the end of most chapters give more rigorous proofs that need intermediate microeconomics and macroeconomics. The same example is followed through the chapters that deal with a single concept, and actual numbers are used.
• Many applied cases. The publisher counts 126 case studies with graphs and figures. The contents show them covering topics from the Big Mac Index to the eurozone crisis and the 2020-2021 pandemic.
• Clear sequencing. The introduction states that each part starts with simple concepts and proceeds to the difficult ones, and the theory-first order is explained as a deliberate choice.

Limitations

• Length. At about 750 pages, the book is more than most one-semester courses can cover; the authors themselves note that a shorter and simpler version can be tailored for students with a single principles course.
• Theory before application. Because the book starts abstract, readers interested chiefly in exchange rates and policy reach those topics only after Part 1 and Part 2 unless the course reorders them.
• Strong U.S. emphasis in places. Several sections and case studies are organised around the United States, such as the international transactions and balance of payments of the United States, the history of U.S. commercial policy and U.S. fiscal and monetary policy; readers elsewhere may want to supplement them with data for their own country.

Where It Fits in the Course

Salvatore and Hepp is the comprehensive undergraduate text in the international economics list. Feenstra and Taylor's Essentials of International Economics is the one-semester treatment of the same two halves, using current data and policy episodes, and suits a shorter course or a first pass. Krugman, Obstfeld and Melitz's International Economics: Theory and Policy is another undergraduate text covering both trade and finance, so the choice between them is mainly one of course preference and style.

Rodrik's The Globalization Paradox is a non-technical account of the economics and politics of globalisation and works well as companion reading to Parts 2 and 4. Feenstra's Advanced International Trade and Uribe and Schmitt-Grohé's Open Economy Macroeconomics are the graduate-level treatments of the trade and open-economy macro halves, respectively, and they assume more mathematics than this book's appendices require.

How to Use This Book

The book is meant for undergraduate and graduate students in economics, international trade, finance and business courses, in the publisher's words. Principles of microeconomics and macroeconomics are the expected background; the appendices call for intermediate-level theory.

A practical plan for a full course: read Chapter 1 for the overview, then Part 1 in order, since comparative advantage (Chapter 2) underlies everything after it. Chapters 8-10 are the core of the policy part; Chapters 11 and 12 can be chosen according to interest in development or multinationals. Take Part 3 (Chapters 13-15) as a unit before Part 4. For a finance-oriented course, Chapters 13-15 and 20-21 are the essential path. Use the end-of-chapter questions and problems for practice, read the case studies as quick applications, and leave the appendices for a second pass or for advanced students.