International Economics Vocabulary

Flashcards containing vocabulary terms and definitions from the lecture notes on International Economics.

Economies of Scale

Average total costs decrease as industry quantity produced increases.

External Economies of Scale

The cost per unit of output depends on the size of the industry.

Internal Economies of Scale

The cost per unit of output depends on the size of the firm.

Dynamic Increasing Returns to Scale

exist if average costs fall as cumulative output over time rises

Dumping

The practice of charging a lower price for exported goods than for goods sold domestically.

Foreign Direct Investment (FDI)

Investment in which a firm in one country directly controls or owns a subsidiary in another country.

Multinational Corporation

A company owns at least 10% in a subsidiary across borders.

Greenfield FDI

A company builds a new production facility abroad.

Brownfield FDI

A domestic firm buys a controlling stake in a foreign firm.

Horizontal FDI

Affiliate replicates the production process elsewhere in the world.

Vertical FDI

Production chain is broken up, and parts of the production process are transferred to the affiliate location.

Foreign outsourcing/offshoring

Firm contracts with an independent firm to produce in the foreign location.

Local Content Requirement

Regulation that requires a specified fraction of a final good to be produced domestically

Specific Tariff

levied as a fixed charge on each imported unit

Ad Valorem Tariff

Levied as a fraction of the value of the imported goods.

Import Quota

A restriction on the quantity of a good that may be imported

Quota Rents

Extra revenues earned when selling imports at high prices goes to quota license holders

Voluntary Export Restraint

Quota is imposed by the exporting country rather than the importing country

Specific Subsidy

Payment per unit exported.

Ad Valorem Subsidy

Payment as a proportion of the value exported.

Trade Diversion

Low-cost imports from non-members are diverted to high-cost imports from member nations.

Trade Creation

High-cost domestic production is replaced by low-cost imports from other members.

GATT

General Agreement on Tariffs and Trade. Covers trade in goods.

MFN

Most Favored Nation. All WTO members get the best tariff rate offered by any countries.

Pollution Haven

A place where an economic activity that is subject to strict environmental controls in some countries is moved to (sold to) other countries with less strict regulations.

Environmental Kuznets Curve

As poor countries grow richer, possibly partly due to trade, they produce more and can consume more, leading to more environmental degradation.

Strategic Trade Policy

A government policy to give a domestic firm a strategic advantage in production