International Trade and Economic Development Concepts

International Political Economy

Study of trade and economic relations globally.

Benefits of Trade

Gains from specialization and efficient resource allocation.

Specialization

Division of labor in economic activities for efficiency. (ex: restaurant line)

Self-sufficiency

Economic state of not relying on trade.

Comparative Advantage

Producing goods at lower opportunity costs than others.

Absolute Advantage

Ability to produce more of a good than others.

Gains from Trade

Benefits realized through comparative advantage.

Heckscher-Ohlin Trade Theory

Explains countries will export what they can most efficiently and abundantly produce and import goods that are scarce domestically.

Relative Endowments

Factor endowments determining a country's comparative advantage.

Opportunity Cost

Cost of forgoing the next best alternative.

Factors of Production

Resources used to produce goods: land, labor, capital.

Labor

Unskilled workforce contributing to production.

Capital

Financial resources, technology, and equipment.

Human Capital

Skilled labor enhanced by education and training.

Protectionism

Measures to shield domestic producers from imports.

Trade Barriers

Impediments to foreign goods entering a market.

Tariff

Tax on imports paid by the importer.

Quota

Limit on quantity of foreign goods sold domestically.

Non-Tariff Barriers

Regulations targeting foreign goods, not taxes.

Stolper-Samuelson Theorem

The theorem examines how changes in the prices of goods (outputs) affect the prices of factors of production (like labor and capital).

Ricardo-Viner Theorem

Focus on specific industries affected by competition. (Car manufacturing requires factories and skilled labor specific to car-making. The country can’t switch to agriculture)

Trade War

Retaliatory tariffs imposed between two states.

General Agreement on Tariffs and Trade (GATT)

1947 agreement to reduce global trade barriers.

World Trade Organization (WTO)

Successor to GATT overseeing trade disputes. Added more structure and countries could negotiate trade barriers.

Dispute Settlement Body

WTO entity resolving trade rule violations.

Regional Trade Organizations (RTO)

Institutions reducing trade barriers among specific countries. (NAFTA)

Foreign Direct Investment (FDI)

Investment by a company in foreign facilities. (ex: Ford opening factories in Mexico)

Portfolio Investments

Financial investments (loans, stocks, and bonds) without management control.

Sovereign Lending

Loans provided to government entities.

Austerity

Policies reducing spending and increasing taxes, but can cause a recession

Bailouts

Financial support to prevent defaults.

International Monetary Fund (IMF)

Organization managing international monetary cooperation. It provides financial assistance and advice to member countries to stabilize their economies.

Structural Adjustment Program

IMF policy recommendations for debtor countries.

Concessional Finance

Loans at below-market interest rates.

Multinational Corporations (MNCs)

Companies operating in multiple countries where they can gain resources and avoid trade barriers.

Host Countries

Nations accommodating foreign investments which allow for new skills and jobs.

Collective Action Problems

Challenges in organizing groups for common interests.

Foreign Direct Investment (FDI)

Investment made by a company in one country in business interests in another country.

Bilateral Investment Treaties (BITs)

Agreements between two countries to protect investments.

International Migration

Movement of people across borders for economic reasons.

Refugees

Individuals fleeing persecution or danger in their home country.

Asylum Seekers

Individuals seeking protection in another country due to fear of persecution.

Unskilled Labor Export

Countries with abundant unskilled labor send workers abroad.

Unskilled Labor Import

Countries lacking unskilled labor bring in foreign workers.

Exchange Rate

Price of one currency relative to another currency.

Currency Appreciation

Increase in currency value against another currency. The goods of other countries become cheaper and makes travel cheap.

Currency Depreciation

Decrease in currency value against another currency.

Strong Exchange Rate

A currency's value allows more purchasing power abroad.

Weak Exchange Rate

A currency's value makes domestic goods cheaper for foreigners.

Determinants of Exchange Rates

Factors affecting currency value through supply and demand.

Monetary Policy

Government actions to control money supply and interest rates.

Interest Rates

Cost of borrowing money, influencing currency value.

Fixed Exchange Rate

Government maintains currency at a constant value against another currency.

Floating Exchange Rate

Currency value fluctuates based on market forces.

International Monetary Regime

Agreements governing currency relations among countries.

Gold Standard

Monetary system where currency value is tied to gold.

Bretton Woods System

Post-WWII monetary system tying currencies to the US dollar.

Euro Adoption

EU countries using a common currency since 2002.

Currency Crises

Fears of unsustainable exchange rates lead to currency sell-off.

Debt

Increased borrowing due to currency devaluation.

Recession

Economic decline following a currency crisis.

Notable Currency Crises

Examples include Europe 1992, Mexico 1994, Argentina 2001.

Cryptocurrency

Digital currency not issued by central authorities.

Bitcoin

First cryptocurrency launched in 2009.

Volatility

Frequent and significant price fluctuations in cryptocurrencies.

Per Capita Income

Average income earned per person in a specific area.

Economic Growth

Increase in a country's production of goods and services.

Quality of Life Measures

Indicators like life expectancy and literacy rates.

Poverty Line

Living on less than $1.90 a day.

Malnutrition Rate

⅓ of children under five in Sub-Saharan Africa.

Development Successes

Korea and Taiwan's economic improvements over 50 years.

Less Developed Countries (LDCs)

Nations with low economic development levels.

Geographic Disadvantages

Location-related challenges affecting economic development.

Public Goods Provision

Government's role in supplying essential services.

Private Property Protection

Safeguarding individual ownership rights by the government.

Wealth Transfer

Economic resources shifting from rural to urban elites.

Democracy vs Non-Democracy

Democracies provide more equitable public goods.

Resource Curse

Rich resources can hinder economic diversification and growth.

Impediments to Development

Barriers like colonialism and international trade dynamics.

Colonial Legacy

Historical institutions favoring extraction over development.

Unequal Terms of Trade

LDCs face disadvantages in global trade markets.

International Institutions Bias

Organizations favoring developed nations' interests over LDCs.

Farm Trade Policy

Agricultural trade barriers hinder LDCs' market access.

Free-riding

A situation where individuals or nations benefit from resources or services without paying for them, often highlighting the challenges of cooperation in international agreements. (Sugar farmers get subsidies without contributing to their cost.)

Import Substituting Industrialization (ISI)

Strategy protecting domestic industries through trade barriers. Mostly used by Latin America & India. Considered a failure. It aimed to reduce dependency on imports by promoting local production, but it often led to inefficiency and limited competition.

Export Oriented Industrialization (EOI)

Strategy focusing on producing for foreign markets for consumers. Associated with East Asia where countries had unprecedented levels of economic growth.

Commodity Cartels

Groups aiming to control prices of commodities.

Washington Consensus

Set of policies promoting trade liberalization, privatization and lower government spending.

Non-Aligned Movement

Coalition opposing alignment with major powers. It promoted independence and cooperation among developing countries.

Group of 77 (now 135)

Coalition of LDCs in the UN advocating for economic reform.

New International Economic Order

Proposal to revise trade agreements favoring LDCs.

Organization of Petroleum Exporting Countries (OPEC)

Most successful commodity cartel. They control the price of oil. Hard to replicate because there are less available substitutes for oil and only a small amount of actors.

Foreign Aid

The amounts of aid given are small and not likely to grow and aid is given for narrow purposes like geopolitical or military reasons.