Term
| International Economic Integration |
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Definition
| The degree of integration is measured by trade flows, capital flows, people flows, and the similarity of prices in separate markets. |
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| Gross Domestic Product - the market value of all final goods and services produced in a year inside a nation. |
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| The extent to which an economy is open to trade, and sometimes also to inflows and outflows of international investment. |
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| The extent to which an economy is open to trade, and sometimes also to inflows and outflows of international investment. |
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Foreign Direct Investment - flows of capital representing physical assets
such as real estate, factories, and
businesses
( A second type of capital flow) |
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Definition
| flows of financial capital representing paper assets such as stocks, bonds, currencies, and bank accounts. The second type is FDI |
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| Shallow Economic Integration |
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Definition
| reduction of tariffs, elimination of quotas and other explicit policy barriers |
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| Deep Economic Integration |
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Definition
| negotiations over domestic policies that impact international commerce(more contentious and harder to accomplish) |
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Term
| International Institutions |
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Definition
| Rules and organizations that govern and constrain behavior |
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| Written sets of rules that explicitly state what is and is not allowed |
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| Customs or traditions that define appropriate behavior, but without legal enforcement |
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Definition
| IMF is the central monetary institution in today’s international economy. The most visible role for the IMF is to intercede, by invitation, whenever a nation experiences a crisis in its international payments and is running low on foreign exchange reserves. |
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| During WW2, the U.S. Great Britain, and several other nations held regular discussions about the shape of post war economic order to avoid the mistakes of the 1920s-30s. The culmination of the talks was held in July 1944 in Bretton Woods, New Hampshire and led directly to the creation of the IMF and the IRBD, which later became the World Bank. |
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| Foreign Exchange Reserves |
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Definition
| Dollars, yen, pounds, euros or another currency (or gold) that is accepted internationally. |
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Definition
| Main function today is to finance development projects and programs in developing countries. |
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| Acronym for four large low-income countries, Brazil, Russia, India, and China |
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| General Agreements of Tariffs and Trade: the GATT functions through a series of trade rounds in which countries periodically negotiate a set of incremental tariff reductions. |
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| Loans are made with strings attached, IMF usually requires a borrower to make fundamental changes in the relationship between gov't and markets in order to qualify for IMF funds. |
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| A set of multilateral negotiations, held under the auspices of the GATT and WTO, in which countries exchange commitments to reduce tariffs and agree to extensions of the GATT rules. Most recent were the Kennedy, Tokyo, Uruguay, and Doha Rounds |
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Definition
| Discussions of issues in agriculture, textiles, and apparel, the increased importance of nontariff trade barriers, negotiations began in 1986 and created the World Trade Organization in 2005. |
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| Trade issues of importance to developing countries. The key issues are farm subsidies and agricultural protection and trade in services. |
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| the requirement that foreign goods are treated similarly to the same domestic goods once they enter a nation's market. |
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Term
| Nondiscrimination/ MFN Status |
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Definition
| Embodied in the concept of most favored nation status. MFN requires all WTO members to treat eachother as they treat their most-favored trading partner. |
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Definition
| Operates on three principles: 1) Nondiscrimination 2) Reciprocity 3) Dispute Settlement |
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| (PTA) Two or more countries agree to drop trade barriers in a selected group of product categories such as steel or autos |
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| (FTA) Nations trade goods and services across international boundaries without paying a tariff and without the limitations imposed by quotas |
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| Regional Trade Agreements: between two or more countries are an important institution. An example would be NAFTA and the EU. They are allowed as long as trade creation > trade diversion |
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| A group of countries that are somehow closely associated in international trade, usually in some sort of PTA |
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CU(type of RTA): An FTA plus a common external tariff (CET)
– European Union in the 1970s and 1980s
– MERCOSUR in South America |
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Definition
(Type of RTA)A CU plus an agreement to allow the free mobility of inputs, such as labor and capital.
- The European Union in the 1990s |
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Definition
(Type of RTA) A common market with coordination of macroeconomic policies(including common currency, harmonization of standards and regulations)
– United States
– Canada
– European Union members participating in the Euro currency zone |
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Term
| Role of Economic Institutions |
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Definition
Provide order and reduce uncertainty
Order and Certainty are public goods.
Private markets fail to provide public goods due to free riding. |
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Term
| Role of Economic Institutions |
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Definition
Provide order and reduce uncertainty
Order and Certainty are public goods.
Private markets fail to provide public goods due to free riding. |
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Definition
| Nonexcludable, and nonrival or nondiminishable. The normal price mechanism does not work as a way of excluding access, and they cannot be diminished by consumption. EX: Radio broadcasts |
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Definition
| there is no incentive to pay for public goods because people cannot be excluded from consumption. In most cases, governments step in as providers and use their powers to tax as a means to force people to pay for the goods. |
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| A criticism of international institutions: International institutions can violate national sovereignty by “imposing” unwanted domestic economic policies |
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| Criticism of International Institutions: concerns are based on questions about the mechanism with which decisions are made within an international institution (serves the interests of developed countries) |
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| Criticism of International Institution: the advice and technical assistance provided to developing countries reflect the biases and wishes of developed countries' interests. |
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| Implementation and Adjustment Costs |
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Definition
| When agreements are reached that combine developed and developing countries, there are often asymmetries in the ability to absorb the associated costs. |
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| The improvement in national welfare, the increase in consumption made possible by specialization and trade. |
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A country’s wealth is measured by its holdings of precious metals.
• A country should maintain a positive trade balance (that is, export more than it imports).
• Substantial regulation of the domestic economy, including
– governmental granting of monopolies
– control of labor through guilds.
– policies to ensure low wages
– policies to discourage imports and encourage exports |
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Definition
| In 1776, Adam Smith published the first modern statement of economic theory, An Inquiry into the Nature and Causes of the Wealth of Nations. It was an attack on mercantilist thinking and policies. |
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| One nation's gain is another nation's loss. |
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| Ideal assumptions that markets are competitive, technology is constant, labor is perfectly mobile between industries but not across national borders. |
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| the amount of output obtained from a unit of input. |
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Units of output per hours worked
(Units of output)/(hours worked) |
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| Absolute Productivity Advantage |
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Definition
| The country can produce more goods or output per hours worked |
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| Having a higher labor productivity. If each country has an absolute productivity advantage in one of the goods, both benefit by specializing in that good and trading it for the other good. |
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Definition
| If a country's opportunity costs of producing a good are lower than those of its trading partners. The concept is based on the idea that nations maximize their material well-being when they use their resources where they have their highest value. |
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| Comparative Advantage = Competitive Advantage |
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Definition
| When the prices of both inputs and outputs are an accurate indication of their relative scarcity. |
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| Comparative Adv ≠ Competitive Adv |
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Definition
when the markets fail to correctly value the price of inputs and outputs
- Imbalances result from govt policies, such as subsidies or protection. |
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| Changes in the economy that may require some industries to grow and others to shrink or disappear |
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trade adjustment assistance is designed to help those who are hurt by import competition and face economic restructuring. It provides extended
unemployment benefits and worker retraining. |
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Definition
| the value of the best forgone alternative to the activity actually chosen. |
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| Production Possibilities Curve |
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Definition
| shows the trade-offs a country faces when it chooses its combination of two different goods outputs. |
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Definition
| opportunity cost. If no trade takes place, then the relative price of a good must be equal to its opportunity cost in production. |
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Definition
| The complete absence of foreign trade. Total self-sufficiency of a national economy. |
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Term
| Comparative Productivity Advantage |
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Definition
| When the opportunity costs of producing a good are lower than those of its trading partners. The concept - nations maximize their material well-being when they use their resources where they have their highest value. |
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Definition
| The ability to sell a good at the lowest price. Competitive adv may be the result of high productivity and a comparative adv. Alternatively, it may be the result of gov't subsidies for insufficient industries. |
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Term
| Harmonization of Standards |
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Definition
| Refers to the case where two or more countries share a common set of standards in an area of concern, such as product safety, labor, environment, fair competition, etc. |
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| Mutual Recognition of Standards |
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Definition
| Countries keep their own product and process standards, but accept the standards of others as equally valid and sufficient. |
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| Countries keep their own standards and refuse to recognize those of anyone else. |
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| downward pressure on labor, environmental, or other standards that comes about through price competition |
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| International Labor Organization: responsible for researching international labor conditions and providing technical assistance in the area of labor conditions and standards. |
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Definition
1) Prohibition of forced labor
2) Freedom of association
3) The right to organize and bargain collectively
4) An end to the exploitation of child labor
5) Nondiscrimination in employment |
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Definition
| Captures behavior of producers |
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| High price = High price received, more incentive to produce more, if prices go down they produce less |
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Measured by trade to GDP ratio
(Exports + Imports)/ GDP |
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| Views state as necessarily predator and the private sector as inherently rent seeking, strict separation from state and private business. |
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| Corporatist vision, state and private business are allies, and cooperate in pursuit of common objects. |
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| Assumes that each country would have its own technology, climate, and resources, and that these differences would give rise to productivity differences (and thus differences in comparative advantage) |
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| Neoclassical Trade Theory |
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Definition
| comparative advantage of a country depends on it’s endowments of inputs (factors of production) to produce goods |
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| Price is relatively less. EX: More labor means cheap labor. |
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Definition
| whats available in the domestic |
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Term
| External Economies of Sale |
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Definition
| Scale economies that are external to a firm, but internal to an industry. Consequently, all the firms in an industry experience declining average costs as the size of the industry increases. |
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| An economy has more of a particular factor in relation to some other factor and by comparison to another economy. Relative factor scarcity implies the opposite. |
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| A decline in average costs whole the number of units produced increases. |
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| Internal Economies of Scale |
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| The idea that an individual firm experiences a decline in its average cost of production as it increases the number of units produced. |
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| International trade between two or more divisions of the same company that are located in different countries. |
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| Exports and imports of the same category of goods and/or services. |
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| The argument for trade protection based on the false belief that high-wage countries will be harmed by imports from low-wage countries. |
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| A young industry. An argument for tariff protection is often made based on the belief that a particular industry is incapable of competing at present but that it will soon grow into a mature and competitive industry that no longer needs protection. |
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| Selling in a foreign market at less than fair value. |
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| Demand for a good/service from the demand of something else. EX: the demand for labor is derived from the demand for goods and services. |
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| A tariff on imports that is levied in retaliation against foreign subsidies. |
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| The total output of an economy |
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| (ADD) A tariff levied on imports in retaliation for selling below fair value. |
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| An increase in a currency's value under a floating exchange rate system. |
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| The tax on imports of a particular good, expressed in either percentages or absolute amounts. |
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| The movement of some or all of a firm's activities to a foreign country. |
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| A model of the determinants of foreign direct investment that is based on the key variables Ownership-Location-Internalization |
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| A market with so few producers that each firm can influence the market price |
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| Shifting of procurement from within a firm to outside a firm. Often used to refer to services purchased abroad, such as the procurement of business services in India by a firm in Europe or the U.S. |
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| Countries that compete for investment by advertising their low environmental standards |
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| A numerical limit on the volume of imports |
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| Any activity by firms, individuals or special interests that is designed to alter the distribution of income to their favor. (Lobbying) |
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| The economic and/or political problems caused by an abundance of one valuable natural resource such as petroleum. |
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| A clause in the U.S. trade legislation that requires the U.S. trade representative to take action against any nation that persistently engages in what is considered unfair trade practices. |
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| A trade model that allows for mobile and immobile factors of production. |
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