International Business: Trade Theory, Government Policy, FDI, Integration, and Foreign Exchange

Comprehensive vocabulary flashcards covering international trade theory, government trade policy instruments, foreign direct investment, levels of regional economic integration, and core foreign exchange market concepts.

Absolute Advantage

The situation when a country is more efficient than any other country in producing a certain product; it is not a zero-sum game.

Comparative Advantage

The ability of a person, firm, or country to produce a good or service at a lower opportunity cost than a trading partner, operating as a positive-sum game.

Mercantilism

An economic trade philosophy advocating that a country export more than it imports, viewing trade as a zero-sum game.

Zero-Sum Game

A situation in which a gain by one country results in a loss by another.

Factor Endowments

The extent to which a country is endowed with resources such as land, labor, and capital.

Heckscher–Ohlin Theory

A theory promoting unrestricted free trade that argues comparative advantage reflects differences in national factor endowments, predicting countries will export goods that intensively use locally abundant factors and import goods that use locally scarce factors.

Product Life-Cycle Theory

A theory stating that as products mature in both location of sales and optimal production, the location changes, affecting trade flows; products become standardized and price becomes the main competitive weapon.

New Trade Theory

An economic theory stating that trade can increase the variety of goods available to consumers and decrease the average cost of goods.

Economies of Scale

Unit cost reductions associated with large-scale output, where average cost per unit falls as production volume increases.

First-Mover Advantages

Economic and strategic advantages that accrue to early entrants into an industry.

Basic Factor Endowments

A category of factor endowments in Porter's diamond framework consisting of natural resources, climate, location, and demographics.

Advanced Factor Endowments

A category in Porter's diamond framework including communication infrastructure, skilled labor, research facilities, and knowledge, which are better for creating competitive advantage.

Demand Conditions

A determinant in Porter's diamond referring to home demand for a product, where strong domestic demand pushes companies to be more innovative and competitive.

Related and Supporting Industries

A component of Porter's diamond referring to the presence of supplier and related industries that are internationally competitive and whose investments can spill over to aid other industries.

Tariff

A tax levied on imports that effectively raises the cost of imported products relative to domestic products.

Specific Tariff

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

Ad Valorem Tariff

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

Subsidy

A government payment to a domestic producer designed to help them compete against low-cost foreign imports.

Import Quota

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

Quota Rent

The extra profit that domestic producers make when supply is artificially limited by an import quota.

Voluntary Export Restraint (VER)

A quota on trade imposed by the exporting country, typically at the request of the importing country's government.

Local Content Requirement

A trade rule demanding that some specific fraction of a good be produced domestically.

Dumping

Selling goods in a foreign market below their cost of production or below their "fair" market value.

Antidumping Policy

Rules designed to punish foreign firms that engage in dumping, thus protecting domestic producers from unfair foreign competition.

Administrative Trade Policies

Bureaucratic rules designed to make it difficult for imports to enter a country.

Exporting

Producing goods at home and then shipping them to a receiving country for sale.

Licensing

Granting a foreign entity the right to produce and sell a firm's product in return for a royalty fee on every unit the foreign entity sells.

Foreign Direct Investment (FDI)

An entry mode in which a firm invests directly in new facilities to produce or market in a foreign country.

Free Trade Area

The level of regional economic integration where member countries remove trade barriers with each other, but each country keeps its own trade policy toward outsiders.

Customs Union

A level of economic integration that eliminates trade barriers between member countries and adopts a common external trade policy.

Common Market

A level of economic integration with no barriers to trade between member countries, a common external trade policy, and the free movement of the factors of production.

Economic Union

A level of economic integration where countries commit to the free flow of products and factors of production, adopt a common currency, harmonize tax rates, and pursue a common external trade policy.

Political Union

The highest level of economic integration in which member countries essentially become one sovereign political entity.

Law of One Price

The economic principle stating that in competitive markets free of transportation costs and trade barriers, identical products or assets must sell for the same price across different markets when converted to a common currency.

Purchasing Power Parity (PPP)

The theory that exchange rates between currencies should adjust so that an identical basket of goods and services costs the same in different countries once converted to a common currency.

Exchange Rate

The rate at which one currency is converted into another.

Spot Exchange Rate

The rate at which a foreign exchange dealer converts one currency into another currency on a particular day.

Forward Exchange Rate

An agreed-upon exchange rate where two parties agree to exchange currency and execute the deal at some specific date in the future.