Trade Policies and Foreign Direct Investment Overview

studied byStudied by 0 people
0.0(0)
learn
LearnA personalized and smart learning plan
exam
Practice TestTake a test on your terms and definitions
spaced repetition
Spaced RepetitionScientifically backed study method
heart puzzle
Matching GameHow quick can you match all your cards?
flashcards
FlashcardsStudy terms and definitions

1 / 89

encourage image

There's no tags or description

Looks like no one added any tags here yet for you.

90 Terms

1

Free trade

The absence of barriers to the free flow of goods and services between countries.

New cards
2

General Agreement on Tariffs and Trade (GATT)

International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO.

New cards
3

Trade policy instruments

Uses 8 main instruments: tariffs, bans, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies, and antidumping duties.

New cards
4

Import tariffs

A tax levied on imports of goods or services. Pro-producer and anti-consumer. Reduce the efficiency of the world economy because it encourages firms to produce at home.

New cards
5

Specific tariffs

A tariff levied as a fixed charge for each unit of good imported.

New cards
6

Ad valorem tariffs

A tariff levied as a proportion of the value of an imported good.

New cards
7

Export tariff

A tax placed on the export of a good. Discriminate against exporting in order to ensure there is sufficient supply of a good within a country.

New cards
8

Export ban

A policy that partially or entirely restricts the export of a good.

New cards
9

Subsidy

Government financial assistance to a domestic producer. Take many forms like cash grants, low-interest loans, tax breaks, and government equity participation.

New cards
10

Import quota

A direct restriction on the quantity of a good that can be imported into a country.

New cards
11

Tariff rate quota

Lower tariff rates applied to imports within the quota than those over the quota.

New cards
12

Voluntary export restraint (VER)

A quota on trade imposed from the exporting country's side, instead of the importer's; usually imposed at the request of the importing country's government.

New cards
13

Quota rent

Extra profit producers make when supply is artificially limited by an import quota. Supply goes down, price goes up.

New cards
14

Local content requirement (LCR)

A requirement that some specific fraction of a good be produced domestically.

New cards
15

Administrative trade policies

Administrative policies, typically adopted by government bureaucracies, that can be used to restrict imports or boost exports.

New cards
16

Dumping

Selling goods in a foreign market for less than their cost of production or below their 'fair' market value.

New cards
17

Antidumping policies

Designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition.

New cards
18

Countervailing duties

Antidumping duties.

New cards
19

Austerity

Cutting government spending.

New cards
20

Infant industry argument

New industries in developing countries must be temporarily protected from international competition to help them reach a position where they can compete on world markets with the firms of developed nations.

New cards
21

Strategic trade policy

Government policy aimed at improving the competitive position of a domestic industry and/or domestic firm in the world market.

New cards
22

Reasons for government intervention

Political or economic reasons including protecting jobs and industries, national security, retaliating, consumer safety, furthering foreign policy objectives, and human rights.

New cards
23

Smoot-Hawley Act

Enacted in 1930 by the U.S. Congress, this act erected a wall of tariff barriers against imports into the United States.

New cards
24

WTO

Where we go to settle disputes with trade.

New cards
25

Antidumping Policies

Policies aimed at preventing the sale of products at prices lower than their normal value.

New cards
26

Protectionism in Agriculture

Government actions and policies that restrict international trade to support domestic industries.

New cards
27

Protection of Intellectual Property

Legal rights that provide creators protection for their inventions, designs, and artistic works.

New cards
28

Market Access for Nonagricultural products

Tariff reduction aimed at improving the ability of nonagricultural products to enter a market.

New cards
29

Bilateral or Multilateral Trade Agreements

Reciprocal trade agreements between two or more partners.

New cards
30

Foreign Direct Investment (FDI)

When a firm invests directly in facilities to produce or market a good or service in a foreign country.

New cards
31

Multinational Enterprise

An entity that has 10% or more in a foreign investment.

New cards
32

Flow of FDI

The amount of foreign direct investment undertaken over a given time period (normally one year).

New cards
33

Stock of FDI

Total accumulated value of assets owned by firms domiciled in a nation outside of that nation's borders at a given time.

New cards
34

Outflows of FDI

Flow of foreign direct investment out of a country.

New cards
35

Inflows of FDI

Flow of foreign direct investment into a country.

New cards
36

Reasons for Growth of FDI

Decline of trade barriers, political and economic changes in developing nations, globalization of the world economy, and desire to have production facilities near major customers.

New cards
37

Greenfield Investment

Establishing a new operation in a foreign country.

New cards
38

Acquiring and Merging

Acquiring and merging with an existing firm in the foreign country.

New cards
39

Platform FDI

Buying a Japanese restaurant for a company owned by Japan that wants to leave the US because it doesn't like US food.

New cards
40

Eclectic Paradigm

Argument that combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI.

New cards
41

Exporting

Sale of products produced in one country to residents of another country.

New cards
42

Licensing

Occurs when a firm (the licensor) licenses the right to produce its product, use its production processes, or use its brand name or trademark to another firm (the licensee).

New cards
43

Royalty Fee

Fee collected by the licensor on every unit the licensee sells.

New cards
44

Internalization Theory

Marketing imperfection approach to foreign direct investment.

New cards
45

Lean Production

Producing higher quality products at a lower cost than global rivals.

New cards
46

Market Imperfections

Imperfections in the operation of the market mechanism.

New cards
47

Market Failure

Occurs when one or more of the following conditions holds: when the firm has valuable know-how that a licensing contract cannot adequately protect, when the firm needs tight control over a foreign entity to maximize its market share and earnings in that country, or when a firm's skills and know-how are not amenable to licensing.

New cards
48

Oligopoly

An industry composed of a limited number of large firms.

New cards
49

Multipoint Competition

When two or more enterprises encounter each other in different regional markets, national markets, or industries.

New cards
50

Location-specific Advantages

Advantages that arise from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets.

New cards
51

Externalities

Knowledge spillovers.

New cards
52

Pragmatic Nationalism

A stance between a radical position that is hostile toward all inward FDI and a noninterventionist principle of free market, where policy is based on cost vs benefits.

New cards
53

Radical View (Marx)

The perspective that multi-national enterprises exploit host nations for the benefits of the home nation, viewing FDI by MNE as an instrument of imperialism.

New cards
54

Free Market View

The belief that international production among countries should be based on comparative advantage, increasing overall efficiency of the world economy.

New cards
55

Foreign Exchange Market

A market for converting the currency of one country into that of another country.

New cards
56

Exchange Rate

The rate at which one currency is converted into another.

New cards
57

Foreign Exchange Risk

The risk that changes in exchange rates will hurt the profitability of a business deal.

New cards
58

Currency Speculation

Involves short-term movement of funds from one currency to another in hopes of profiting from shifts in exchange rates.

New cards
59

Carry Trade

A kind of speculation that involves borrowing in one currency where interest rates are low and then using the proceeds to invest in another currency where interest rates are high.

New cards
60

Hedging

When a firm insures itself against all foreign exchange risk.

New cards
61

Spot Exchange Rate

The exchange rate at which a foreign exchange dealer will convert one currency into another that particular day.

New cards
62

Forward Exchange

When two parties agree to exchange currency and execute a deal at some specific date in the future.

New cards
63

String of Pearls

A strategy involving buying ports.

New cards
64

Belt and Road Initiative (BRI)

A global development strategy adopted by China involving infrastructure development and investments in countries across Europe, Asia, and Africa.

New cards
65

First Criteria for FDI

Political, economic, and legal stability.

New cards
66

High Tech Industries

Industries that tend to cluster firms that have valuable know-how not amenable to licensing.

New cards
67

Global Oligopolies

Industries characterized by a limited number of firms competing globally.

New cards
68

Intense Cost Pressure Industries

Industries where firms face significant pressure to minimize costs.

New cards
69

Coal Network (Ramish)

A system involving buying coal, selling coal, and hiding coal.

New cards
70

Forward exchange rates

The exchange rate governing a forward exchange transaction.

New cards
71

Currency swap

Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

New cards
72

Arbitrage

The purchase of securities in one market for immediate resale in another to profit from a price discrepancy.

New cards
73

Law of one price

In competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in the same currency.

New cards
74

PPP

Basket of goods should cost roughly the same in every country when adjusted by exchange rate. Measured by US dollar.

New cards
75

Efficient market

A market where prices reflect all available information.

New cards
76

Fisher effect

Nominal interest rates (i) in each country equal the required real rate of interest (r) and the expected rate of inflation over the period of time for which the funds are to be lent (l). That is, i = r + I.

New cards
77

International fisher effect (IFE)

For any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between countries.

New cards
78

Bandwagon effect

Movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions.

New cards
79

Inefficient market school

Argues that companies can improve the foreign exchange markets estimate of future exchange rates by investing in forecasting services.

New cards
80

Inefficient market

One in which prices do not reflect all available information.

New cards
81

Freely convertible

A country's currency is freely convertible when the government of that country allows both residents and nonresidents to purchase unlimited amounts of foreign currency with the domestic currency.

New cards
82

Externally convertible

Limitations on the ability of residents to convert domestic currency, though nonresidents can convert their holdings of domestic currency into foreign currency.

New cards
83

Nonconvertible

A currency is not convertible when both residents and nonresidents are prohibited from converting their holdings of that currency into another currency.

New cards
84

Capital flight

Converting domestic currency into a foreign currency; everyone converts out of a failing currency.

New cards
85

Countertrade

The trade of goods and services for other goods and services.

New cards
86

Transaction exposure

The extent to which income from individual transactions is affected by fluctuations in foreign exchange values.

New cards
87

Translation exposure

The extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values.

New cards
88

Economic exposure

The extent to which a firm's future international earning power is affected by changes in exchange rates.

New cards
89

Lead strategy

Collecting foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

New cards
90

Lag strategy

Delaying the collection of foreign currency receivables if that currency is expected to appreciate and delaying payables if that currency is expected to depreciate.

New cards
robot