INTRO TO INTERNATIONAL RELATIONS EXAM #2

 Comparative Advantage

The ability of a country or firm to produce a good more efficiently than another; forms the basis for trade benefits

Protectionism

The use of trade barriers to restrict imports and protect domestic industries

Trade Barriers

Government-imposed regulations such as tariffs, quotas, or subsidies that restrict international trade

Tariff

A tax imposed on imported goods to protect domestic industries or raise government revenue

Quota

 A quantitative limit on the amount of a foreign good that can be imported.

Nontariff Barrier

An obstacle to imports other than tariffs, such as production restrictions or licensing requirements.

Heckscher–Ohlin Theory

Countries export goods that use their abundant factors of production and import goods that use their scarce factors.  

Stopler–Samuelson Theorem

Trade protection benefits the scarce factor of production and hurts the abundant factor.  

Factor Price Equalization

Trade tends to equalize wages and returns to capital across countries.

Trade Liberalization

The removal or reduction of barriers to trade among nations.  

World Trade Organization (WTO) — An international institution created in 1995 to govern trade relations and promote free trade

⭐ Foreign Direct Investment

Investment in a foreign country through acquisition of a local facility or establishment of a new one.  

Portfolio Investment

Purchase of stocks, bonds, or financial instruments in a foreign country without control of the business.  

Sovereign Lending

Loans from private financial institutions in one country to sovereign governments in another.  

IMF Conditionality

Policy requirements imposed by the International Monetary Fund as conditions for receiving loans.  

Debt Crisis

When a country is unable to service its external debt obligations.

Austerity

Policies to reduce government spending and raise taxes to address budget deficits.  

Default

Failure to make scheduled payments on a debt.  

Multinational Corporation

A firm that owns and controls facilities or subsidiaries in multiple countries.  

Expropriation

Government seizure of private property, usually without fair compensation.

⭐ Exchange Rate

The price of one currency in terms of another.

Appreciation

 An increase in a currency’s value relative to others.

Depreciation

A decrease in a currency’s value relative to others.  

Fixed Exchange Rate

Government commitment to keep the national currency’s value fixed against another currency or commodity. 

Floating Exchange Rate

Currency value determined by market forces of supply and demand.  

Bretton Woods System

 A post-WWII monetary order (1944–1971) based on fixed exchange rates linked to the U.S. dollar and gold. 

Monetary Policy Autonomy

 A government’s ability to set interest rates and control its money supply.  

Currency Crisis

A sudden collapse in a currency’s value leading to financial instability. 

Capital Mobility

 The ease with which financial assets move across borders. 

⭐ Trilemma

Countries cannot simultaneously maintain monetary policy autonomy, exchange rate stability, and free capital movement.  

⭐ Import-Substituting Industrialization

Economic strategy promoting domestic production to replace foreign imports. 

Export-Oriented Industrialization

Strategy to develop industries that compete in global markets through exports.

Structural Adjustment Programs

IMF and World Bank economic policies requiring liberalization and austerity as loan conditions. 

Resource Curse

 Countries rich in natural resources often grow slower and develop less due to corruption and volatility.

Terms of Trade

Ratio of export prices to import prices; declining terms hurt developing countries.  

Dependency Theory

The idea that underdevelopment results from exploitation by wealthy countries through unequal exchange.

Colonial Legacy

Long-term economic, social, and political effects of colonial rule.  

Foreign Aid

Financial assistance from one country or organization to another for development or humanitarian purposes.

Official Development Assistance

Government aid to promote economic growth and welfare in developing countries.  

Microfinance

Small-scale financial services for low-income individuals lacking access to traditional banks.  

Millennium Development Goals

Eight UN goals (2000) to reduce poverty and promote human development by 2015.  

Sustainable Development Goals

Seventeen UN goals (2015) to achieve economic prosperity and environmental protection by 2030.  

Specialization

•a division of labor where different segments of society focus on different economic activities.

absolute advantage

the ability to produce something better than others.

Ricardo-Viner

shifts the focus from broad groups or classes to specific industries.

trade war

•occurs when State A imposes tariffs on goods of State B and State B retaliates with tariffs on goods of State A.