IB Exam 2 – International Trade & Investment Vocabulary

Vocabulary flashcards covering key theories, policies, agreements, and terms for the IB Exam 2 on international trade and investment.

Free Trade

International trade conducted without tariffs, quotas, or other government restrictions.

Mercantilism

Economic theory advocating government intervention to achieve trade surpluses and protect domestic industries.

Absolute Advantage

When a country can produce a good more efficiently (using fewer resources) than another country.

Comparative Advantage

Ricardo’s theory that nations benefit by specializing in goods with the lowest opportunity cost.

Heckscher-Ohlin Theory

Proposes countries export goods that intensively use their abundant factors of production.

Product Life Cycle Theory

States production locations shift internationally as a product moves from introduction to maturity.

New Trade Theory

Suggests economies of scale and network effects can lead to global industry dominance even without factor advantages.

Porter’s Diamond

Model identifying factor endowments, demand conditions, related industries, and firm strategy/rivalry as sources of national competitive advantage.

Tariff

A tax placed on imported goods to protect domestic producers or raise revenue.

Subsidy

Government financial assistance to domestic firms to enhance their competitiveness.

Import Quota

A numerical limit on the quantity of a good that may be imported.

Voluntary Export Restraints (VERs)

Self-imposed export limits by an exporting country to appease importing countries.

Local Content Requirement

Rule mandating a specified percentage of a product be produced domestically.

Antidumping Policies

Measures to prevent foreign firms from selling below fair market value to gain market share.

Administrative Trade Policies

Bureaucratic rules or procedures that hinder imports from entering a country.

Infant Industry Argument

Claim that emerging industries need temporary protection from global competition to develop.

Strategic Trade Policy

Government support for firms in industries where economies of scale are significant.

Smoot-Hawley Act

1930 U.S. law that raised tariffs on thousands of imports, worsening global trade tensions.

WTO (World Trade Organization)

Global body that enforces trade agreements, reduces barriers, and settles disputes.

TRIPS Agreement

WTO accord on Trade-Related Aspects of Intellectual Property Rights requiring members to protect IP.

Uruguay Round

GATT negotiations (1986-94) that created the WTO and broadened trade rules.

Leontief Paradox

Empirical finding that the U.S. exported labor-intensive goods despite being capital-abundant, contradicting Heckscher-Ohlin.

FDI (Foreign Direct Investment)

Investment by a firm in production or marketing facilities in another country.

Outflows of FDI

Capital leaving the home country as firms invest abroad.

Greenfield Investment

Establishing new operations in a foreign country from the ground up.

Mergers & Acquisitions (M&A)

Entering a foreign market by buying or merging with an existing firm.

Portfolio Investment

Investment in foreign securities without managerial control, such as stocks or bonds.

Ownership Restrictions

Limits placed on the percentage of a domestic firm that foreign investors may own.

Performance Demands

Conditions (e.g., local hiring, tech transfer) imposed on foreign investors by host governments.

Regional Economic Integration

Agreements among nations to reduce trade barriers and coordinate economic policy.

Levels of Economic Integration

Stages: Free Trade Area, Customs Union, Common Market, Economic Union, Political Union.

NAFTA

1994 trade pact among the U.S., Canada, and Mexico reducing trade barriers.

USMCA

2018 agreement replacing NAFTA, adding rules on digital trade, labor, and environment.

European Union (EU)

Political and economic union promoting integration among European member states.

Treaty of Rome

1957 treaty creating the European Economic Community (EEC).

Treaty of Maastricht

1992 treaty establishing the EU and paving the way for the euro.

Treaty of Lisbon

2009 treaty reforming EU institutions and strengthening the European Parliament.

EURO

Common currency adopted by many EU nations to facilitate trade and stability.

Countries Not Using the EURO

EU members like Great Britain (pre-Brexit), Denmark, and Sweden retain their own currencies.

Quota Rent

Extra profit domestic producers earn when import quotas restrict competition.

Dumping

Selling goods abroad below cost or fair market value to gain market share.

Ad Valorem Tariff

Tariff assessed as a percentage of the imported good's value.

Specific Tariff

Fixed fee charged per unit of an imported good.

Compound Duty

Tariff combining both specific and ad valorem components.

Nigel Farage

UK politician who led the campaign for Britain’s exit from the EU (Brexit).

Trade Retaliation

Imposing trade barriers in response to another country’s unfair practices.

Protecting Consumers

Use of trade barriers to shield citizens from unsafe or substandard imports.

Protecting Human Rights

Applying trade policy to pressure countries to improve human rights practices.