The Global Economy/International Trade Definitions

international trade

exchange of capital, goods, and services across international borders/territories, which could involve the activities of the government and individual

exports

goods and services produced in one country and purchased by consumers in another country

imports / import expenditure

value of goods and services purchased domestically that are produced abroad

foreign sector

in an open economy, refers to exports and imports

world price

the price of a good/service in any other country except one's own

absolute advantage

if country can prod more of g with same resources as another country, or if it can prod the same amt of it using fewer resources than another country

comparative advantage

a country has comparative advantage in the production of a good if it can produce it at lower opportunity cost compared to another country

factor endowments

natural resources, factors of production and technology possessed by a country that determines its absolute and comparative advantage

free trade

international trade that is not subject to trade barriers (e.g. tariffs, quotas)

trade control / trade protection

government intervention aiming to limit imports and/or encourage exports by setting up trade barriers that protect domestic firms from foreign competition

trade barrier

any regulation or policy that restricts international trade (e.g. tariffs, quotas)

protectionism

trade restrictions (e.g. tariffs, quotas) imposed to protect domestic firms from foreign competition

tariff

legal payments to governments imposed on imports to protect domestic industries from foreign competition + to raise government revenue

quota

an import barrier that limits the quantity / value of imports that may be imported to a country

production subsidy

government payments to a firm, per unit of output, to lower production costs and thus encourage production, and provide the firm an advantage over foreign competition

export subsidy

government payments to exporting firms, per unit of output exported, to encourage export of goods that are produced locally, and provide the firm an advantage over foreign competition

administrative barriers

trade barriers in the form of regulations that aim to limit imports to a country; may take the form of product safety standards, sanitary standards, pollution standards; may include more stringent than necessary application of customs procedures

unfair competition

practices of countries trying to gain an unfair advantage in international trade through methods such as undervalued exchange rates

retaliation

action taken by a country whose exports are adversely affected by protectionist / trade restricting measures by another country

trade war

imposition of a trade barrier by one country which results in (a series of) retaliations by (a) trade partner(s)

export competitiveness

export competitiveness of a country refers to its market development and possession ability and profit-making ability in the international market

diversification

process resulting in an increase in the variety of goods and services produced to avoid risks associated with overspecialisation

infant industry / sunrise industry

new and developing industry that should be protected from foreign competition until it is large enough to achieve EoS that will allow it to be internationally competitive

sunset industry

old and declining industry that is less successful and making less profit than previously

economically least developed countries (ELDCs)

low-income countries (low GNI per capita) facing severe structural constraints to sustainable development, with low levels of human assets, highly vulnerable to economic and environmental shocks and low HDI value

dumping

sale of goods in foreign markets at artificially low prices below the marginal cost of production (may be due to large production subsidies, large surpluses)

predatory dumping

dumping done purposely by foreign firms to drive out domestic firms, forcing domestic firms to shut down

anti-dumping

tariffs that aim to raise the artificially low price of a dumped imported good to the level of the higher domestic price

trade deficit

occurs when a country imports more than it exports

economic integration

economic interdependence between countries and coordination of their economic policies, leading to increased economic links between them; unification of economic policies between different states through partial / full abolition of tariff and non-tariff restrictions on trade taking place among them prior to integration

trade liberalisation

process of reducing barriers to international trade

trading bloc

group of countries that have agreed to reduce protectionist measures (e.g. tariffs, quotas) between them

bilateral trade agreement

trade agreement between 2 countries which aims to lower trade barriers / increase trade

preferential trade agreement (PTA)

type of economic integration that removes / reduces trade barriers for certain products to countries within the agreement

free trade area (FTA)

an agreement between countries to phase out / eliminate trade barriers between them; members of the agreement are free to maintain their own trade policy towards non-members

customs union

agreement between countries to phase out / eliminate trade barriers between them and establish a common external trade policy towards non-members

common market

agreement between countries to phase out / eliminate trade barriers between them and establish a single market with free movement of goods and services, labour, and capital, as well as a common external trade policy towards non-members

economic and monetary union

common market involving 2 or more countries with a common currency and a common central bank

world bank

an int'l organisation that provides loans and advice to ELDCs for the purpose of promoting economic development and reducing poverty

world trade organisation (WTO)

an int'l body that sets rules for global trading and resolves disputes between member countries. it also hosts negotiations concerning the reduction of trade barriers between member nations

trade creation

occurs when higher cost imports are replaced by lower cost imports due to the formation of a trading bloc / trade agreement

trade diversion

occurs when lower cost imports are replaced by higher cost imports due to the formation of a trading bloc / trade agreement

foreign exchange rate

the value of one currency expressed in terms of another currency

free float / floating exchange rate

exchange rate system where the exchange rate is determined solely by market demand and market supply of the currency in the foreign exchange market without any central bank intervention

fixed / pegged exchange rate

exchange rate system where the exchange rate is fixed / pegged to the value of another currency / to the average value of a selection of currencies, and maintained at the fixed rate with appropriate central bank intervention

managed float / managed exchange rate

exchange rate that fluctuates in foreign exchange markets within a target band, but is subject to periodic intervention by domestic monetary authorities, in order to prevent undesirable fluctuations

appreciation of currency

rise in price / external value of a currency in terms of another currency in a free float exchange rate system

depreciation of currency

fall in price / external value of a currency in terms of another currency in a free float exchange rate system

speculation

process where something is bought or sold with a view to making short term profit e.g. currency speculation: currencies bought or sold so short term profit can be made when the exchange rate changes

speculators

people who trade currencies to make capital gains

multinational corporation (MNC)

a firm with productive units in more than 1 country / a firm that carries out foreign direct investment (FDI) in another country (capital goods buying)

foreign direct investment (FDI)

when a firm (MNC) establishes productive facility(ies) in a foreign country / acquires controlling interest (at least 10% of the ordinary shares) in an existing foreign firm

portfolio investment

purchase of financial assets (e.g. shares, bonds) to gain a financial return in the form of interest or dividends; appears in the financial account of the BoP

devaluation of currency

fall in price / external value of a currency in terms of another currency in a fixed exchange rate system

revaluation of currency

rise in price / external value of a currency in terms of another currency in a fixed exchange rate system

undervaluation of currency

currency whose value / exchange rate is lower than its equilibrium exchange rate, usually achieved through central bank intervention in a fixed or managed exchange rate system

overvaluation of currency

currency whose value / exchange rate is higher than its equilibrium exchange rate, usually achieved through central bank intervention in a fixed or managed exchange rate system

official reserves / foreign reserves / reserve assets

foreign currencies and precious metals held by central banks as a result of international trade; may be used to maintain / influence the exchange rate for the country's currency; appear in the financial account of the BoP

official borrowing

international borrowing by a government, often undertaken to help cover a current account deficit

capital flows

transactions involving financial assets between international entities

balance of payments (BoP)

record of the value of all transactions of a country with the rest of the world over a period of time

credit items (inflows) (+)

transactions within the BoP of a country that lead to an inflow of currency

debit items (outflows) (-)

transactions within the BoP of a country that lead to an outflow of currency

current account

subaccount of the BoP that records the value of net exports in goods and services, net income transfers, and net current / unilateral transfers of a country over a given time period

balance of trade in goods

part of the current account of the BoP; the value of exports of goods of a country minus the value of imports of goods over a given time period

balance of trade in services

part of the current account of the BoP; the value of exports of services of a country minus the value of imports of services over a given time period

unilateral / current transfers

entry in the current account that records payments between residents and non-residents of a country without something of economic value being received in return, and that directly affect the level of disposable income (e.g. remittances, pensions, aid, grants, etc.)

remittances

non-commercial transfer of money across international borders (without corresponding exchange of goods and services i.e. unilateral)

income transfers

entry in the current account that records earnings of residents of a country from FoPs owned abroad (e.g. rent from overseas land, profit repatriation)

profit repatriation

ability of a firm to send foreign-earned profits / financial assets back to the firm's home country

current account deficit

exists when the sum of net exports of goods and services plus net income plus net current transfers is negative / when debits or outflows are greater than credits or inflows

current account surplus

when credits or inflows are greater than debits or outflows

capital account

subaccount of the BoP that includes credit and debit entries for non-produced, non-financial assets (e.g. ownership rights) as well as capital transfers (e.g. debt forgiveness, non-life insurance claims, investment grants) between residents and non-residents

capital transfers

include financial or non-financial assets for items including debt forgiveness, investment, non-life insurance claims; appear in the capital account of the BoP

financial account

subaccount of the BoP that records net inflows and outflows of portfolio and FDI funds over a given time period, official borrowing, and changes in reserve assets

BoP surplus

exists when the sum of the current, capital, and financial accounts of the BoP is positive / when credits or inflows are greater than debits or outflows, leading to new inflow of reserve assets

BoP deficit

exists when the sum of the current, capital, and financial accounts of the BoP is negative / when debits or outflows are greater than credits or inflows, leading to new outflow of reserve assets

external balance

situation where the value of a country's exports is balanced by the value of its imports over a period of time, such that a current account surplus / deficit does not persist over long periods

credit rating

grade assigned by certain agencies on the borrowing risks that a prospective issuer of debt presents to lenders

expenditure reducing

contractionary demand-side policies aiming at decreasing national income and thus expenditures on imports so that a current account deficit narrows

expenditure switching

policies aimed at switching expenditures away from imports towards domestically produced goods and services by making imports more expensive in order to narrow a current account deficit; includes lowering exchange rate and adopting trade protection

marshall-lerner condition

a condition where depreciation / devaluation of a currency will lead to an improv in the current account balance if PED exports + PED imports > 1

J-curve

following sharp depreciation / devaluation of a currency, a trade deficit will typically widen in the short run before it starts improving in the long run (thus tracing the letter 'J' if plotted against time), because the marshall-lerner condition is satisfied only after a period of several months following the decreased value of the currency

price elasticity of demand for exports (PEDX)

measure of the responsiveness of the quantity demanded for exports to a change in their price

price elasticity of demand for imports (PEDM)

measure of the responsiveness of the quantity demanded for imports to a change in their price

import substitution

growth strategy where dom prod is substituted for imports to shift prod away from the primary sector and industrialise; requires that dom indus is protected from foreign import competition

exchange controls

government-imposed limitations on the purchase and/or sale of currencies to reduce exchange rate volatility and stabilise the economy

import controls

government-imposed limitations on the import of goods to a country to produce a direct expenditure switching effect on the BoP and thereby correct a BoP deficit by improving current account balance

export promotion

growth policies aiming at expansion of export revenues as the vehicle of economic growth

export revenue

revenues collected by exporting firms

economic development

multidimensional concept involving a sustained increase in material and non-material welfare, that implies higher levels of income and thus greater access to goods and services, better education and health, a better living environment, and individual empowerment

development aid

aid aimed at assisting developing countries in their development efforts (project aid, program aid, debt relief); concessional meaning there are low i/r and long repayment periods

sustainable development

degree to which the current generation is able to meet its current needs but still conserve resources to satisfy the needs of future generations

wealth

money / things of value that people own, such as savings deposits, stocks, bonds, land and houses

poverty

arises when the lack of material possessions / money prevents an individual / family from achieving a minimum satisfactory standard of living

poverty cycle / poverty trap

linked combination of factors which causes poverty to be self-perpetuating across generations, with low income as the cause

informal economy

part on an economy where activity is not officially recorded, regulated, or taxed; informal economy activities are not included in a country's national income figures

capital flight

occurs when money and other financial assets flow out of a country to seek a 'safe haven' in another country, as a result of low interest rates / depreciation of currency

property rights

legal ownership given to individuals / firms over resource / property holdings that include rights to possess, occupy, and use the resource / property

governance

process by which state and non-state actors interact to design and implement policies within a set of formal and informal rules that shape and are shaped by power