International Trade and Theories

Vocabulary flashcards covering Unit I: International Trade and Theories from BAFIN 102.

International Trade

The exchange of goods and services between individuals, firms, or governments located in different countries.

Goods (in International Trade)

Physical items exchanged across national borders, such as smartphones, oil, or food.

Services (in International Trade)

Non-physical work provided across national borders, such as consulting, banking, or software development.

Resource & Production Efficiency

A major driver of international trade where countries trade to obtain products they either cannot produce locally or cannot produce efficiently.

Access to Larger Markets

A driver of international trade allowing businesses to scale beyond saturated domestic markets to drastically increase revenues and lower per-unit production costs.

Imports

Goods or services brought into a country from abroad, such as buying electronics made in Japan.

Exports

Goods or services sold out to another country, such as selling home-grown agricultural products to Europe.

Domestic Trade

Trade occurring within a single nation that follows a single set of national laws, operates in one local currency, and moves across borders without checks or tariffs.

Foreign Currency Exchange

The conversion of payments between different currencies (e.g., PHP to USD or EUR) required in international trade, creating exchange rate risk.

Tariffs

Taxes placed directly on imported goods by a government to make foreign products more expensive and support local industries against foreign competition.

Quotas

Strict physical limits placed by a government on the quantity of a specific product that can enter a country within a set timeframe.

Customs Procedures

Border regulatory checks requiring extensive documentation such as bills of lading, certificates of origin, tariff classification forms, and import/export permits.

Economies of Scale

A financial benefit of business expansion where expanding production volume causes the cost per unit to decrease.

Technology Transfer

The international trade benefit facilitating the sharing and acquisition of technologies, management practices, software, advanced machinery, and scientific methods.

ASEAN (Association of Southeast Asian Nations)

A regional trade agreement entity that encourages regional peace and economic cooperation across Southeast Asia.

Exchange Rate Volatility

Unexpected financial uncertainty caused when a home currency weakens against a foreign payment currency between order time and invoice payment.

Supply Chain Disruptions

External delays in global shipping routes triggered by natural disasters, port congestion, extreme weather, fuel shortages, or geopolitical blockades.

Philippine Export Items

Key export goods and services from the Philippines, including electronic components, coconut products, bananas, pineapples, marine products, and Business Process Outsourcing (BPO) services.

Philippine Import Items

Key imported goods into the Philippines, including petroleum, machinery, vehicles, medical equipment, wheat, and industrial raw materials.

Mercantilism Theory

A 16th–18th century economic theory stating that a nation's wealth and power are measured by its gold and silver holdings, promoting maximized exports and minimized imports.

Zero-Sum Game

An economic limitation of Mercantilism where trade is viewed as a scenario where one country gains only at the direct expense of another.

Absolute Advantage Theory

A theory by Adam Smith asserting that a country should specialize in producing and exporting goods it can make more efficiently (using fewer resources) than any other nation.

Positive-Sum Game

An economic concept promoted by Adam Smith asserting that both trading partners win through specialization and trade.

Comparative Advantage Theory

A theory by David Ricardo stating that trade is mutually beneficial if each country specializes in producing goods at the lowest opportunity cost, focusing on relative efficiency.

Heckscher-Ohlin Theory

Also known as Factor Endowment Theory, this theory states that trade patterns are determined by a nation's natural endowments (land, labor, capital, resources), leading nations to export goods using abundant factors.

Product Life Cycle Theory

A theory by Raymond Vernon stating that as a product matures, its optimal manufacturing location shifts across high-income, maturing, and developing nations.

New Product Stage

The first stage in Vernon's Product Life Cycle Theory where a newly invented product is manufactured in a high-income country.

Maturing Product Stage

The second stage in Vernon's Product Life Cycle Theory where international demand grows, mass production begins, and competitors emerge.

Standardized Product Stage

The final stage in Vernon's Product Life Cycle Theory where production shifts to low-cost developing nations as manufacturing becomes routine, turning the inventor nation into an importer.

New Trade Theory

A theory developed by Paul Krugman in the 1970s–1980s asserting that trade occurs due to economies of scale and first-mover advantages in industries with huge initial setup costs.

Porter's Diamond Theory

A theory stating that a nation's competitive advantage in an industry depends on four interconnected attributes: Factor Conditions, Demand Conditions, Related & Supporting Industries, and Firm Strategy, Structure & Rivalry.

Factor Conditions

An attribute in Porter's Diamond referring to specialized skills, infrastructure, and technology available in a nation.

Demand Conditions

An attribute in Porter's Diamond referring to sophisticated domestic buyers who force local firms to innovate.

Related & Supporting Industries

An attribute in Porter's Diamond referring to the presence of strong local suppliers and connected networks.

Firm Strategy, Structure & Rivalry

An attribute in Porter's Diamond referring to fierce domestic competition that drives continuous improvement among companies.