International Economics Vocabulary

Flashcards on International Economics

Trade Intensity

Measures an economy's integration with the world economy, calculated as (exports + imports) / GDP.

Free Trade Agreement

Formal agreements between two or more nations designed to break down trade barriers to facilitate trade.

Bilateral Trade Agreement

Exchange of goods between two countries designed to facilitate trade and investment by reducing tariffs, import quotas, and tariff restraints.

Multilateral Trade Agreement

Involves three or more countries who wish to regulate trade barriers.

Unprocessed Primary Goods

Homogenous goods that have not undergone any manufacturing process.

Simply Transformed Manufactures (STM)

Goods that undergo a simple manufacturing process, which adds value to the product.

Elaborately Transformed Manufactures (ETM)

Goods that undergo a complex manufacturing process, making it difficult to replicate in another country.

Absolute Advantage

The ability to produce a greater quantity of a good or service than competitors, using the same amount of resources.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than competitors.

Opportunity Cost

The cost of a unit of good measured in terms of the next best alternative good forgone.

Resource Endowment

A country's supply of factors of production, such as natural resources, labor, and capital.

Balance of Payments (BOP)

A record of all economic transactions between a country's residents and non-residents in one year.

Current Account

Captures the net flow of income that stems from a country's engagement in international trade.

Trade Balance

The value of goods and services that a country's residents export minus the value of goods and services it imports.

Primary Income Balance

Income a country's residents earn from overseas, minus the income they pay to the rest of the world from working and financial investments.

Secondary Income Balance

Transactions between a country and the rest of the world where one party provides something without receiving anything back, such as donations.

Capital Account

Captures transactions where one party transfers ownership of something to another party without receiving anything specific in return, e.g., forgiveness of debt.

Financial Account

Captures a country's net change in ownership of assets and liabilities.

Direct Investment

Transactions related to long-term capital investment (more than 10% ownership).

Portfolio Investment

Purchase of equity in a business (less than 10% ownership).

Financial Derivative

Purchase or sale of financial derivatives, based on the value of underlying contracts.

Reserve Assets

Purchase or sale of reserve assets held by the reserve bank.

Net Errors and Omissions (NEO)

Statistical adjustments to allow the capital & financial account and current account to total under a floating exchange rate system.

Terms of Trade (TOT)

An index that shows the relativity between import and export prices, measuring the purchasing power of exports in terms of imports.

Exchange Rate

The price of one country's currency in terms of another country's currency.

Trade Weighted Index (TWI)

The price of a country's currency in terms of a basket of foreign currencies of its most important trading partners, based on their share of trade.

Managed Exchange Rate System

Exchange rate system where a country participates in the foreign exchange market, but is subject to intervention from time to time.

Free Floating Exchange Rate System

Exchange rate system determined directly by market forces (supply and demand), allowing the exchange rate to fluctuate continually.

Jawboning

When a reserve bank talks down the value of the domestic currency to influence investors.

Protectionism

Government policies that give domestic producers an artificial advantage over foreign competitors, such as tariffs, subsidies, and import quotas.

Tariffs

Taxes imposed on imported goods or services, making them more expensive and reducing their competitiveness.

Subsidies

Financial assistance from the government to domestic producers, lowering their costs and increasing their competitiveness.

Import Quotas

Restrictions on the quantity of a good that can be imported, limiting foreign supply and raising domestic prices.

Trade Surplus

A situation where exports are greater than imports, leading to a surplus in the trade balance.

Trade Deficit

A situation where imports are greater than exports, resulting in a deficit in the trade balance.