Section 4.1, 4.2, & 4.3 Trade & Protectionism Vocabulary

absolute advantage

The ability to produce a good using fewer inputs than another producer.

comparative advantage

The ability to produce a good at a lower opportunity cost than another producer.

exports

Goods produced domestically and sold abroad.

imports

Goods produced abroad and sold domestically.

free trade

Trade based on the absence of trade barriers, or restrictions on foreign trade and based on the notion of comparative advantage.

gains from trade (GFT)

Refers to net benefits to agents from allowing an increase in voluntary trading with each other. In technical terms, it is the increase of consumer surplus plus producer surplus from liberalizing trade.

factor endowment

Is commonly understood as the amount of land, labor, capital, and entrepreneurship that a country possesses and can exploit for manufacturing.

specialization

Concept that a nation should produce and export a limited assortment of goods for which it is particularly suited in order to use its resources most efficiently.

protectionism

Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition.

globalization

Is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Advances in transportation, telecommunications and infrastructure, are major factors in its development.

non-tariff barriers (NTB)

Any measure other than high import duties (tariffs) employed to restrict imports.

exchange rate controls

Types of controls that governments put in place to ban or restrict the amount of foreign currency or local currency that is allowed to be traded or purchased.

tariff

A tax on goods produced abroad and sold domestically.

world price

The price of a good that prevails in the world market for that good.

import quota

A government-imposed trade restriction that limits the number, or in certain cases the value, of goods and services that can be imported or exported during a particular time period.

production subsidy

Is a payment made by the government to a producer to increase the output of a product. The goal is to increase production without raising the final price to consumers.

administrative barriers

Countries are sometimes accused of using their various administrative rules (e.g. regarding food safety, environmental standards, electrical safety, etc.) as a way to introduce barriers to imports.

infant (sunrise) industry

The supposition that emerging domestic industries need protection against international competition until they become mature and stable.

anti-dumping duties

A protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.

dumping

Selling the same good to a foreign country at a lower price, often below production cost, than that charged to the domestic buyers.

balance of payments

The difference between the funds received by a country and those paid by a country for all international transactions.

World Trade Organization (WTO)

Is a global international organization dealing with the rules of trade between nations. The organization administers multilateral trade agreements, provides a forum for trade negotiations, handles trade disputes, monitors national trade policies, and provides technical assistance and training for developing countries.

Foreign Direct Investment (FDI)

Investment made by a foreign company in the economy of another country.

export-oriented Industrialization (EOI)

Is a trade and economic policy aiming to speed up the industrialization process of a country by exporting goods for which the nation has a comparative advantage.

import-substitution Industrialization (ISI)

Is a trade and economic policy that advocates replacing foreigs) n imports with domestic production.

Multinational Corporations (MNCs)

An organization that manufactures and markets products in many different countries and has a multinational stock ownership and multinational management.

Interdependence

A relationship between countries in which they rely on one another for resources, goods, or services

sunset industries

industries declining in both output and employment

export subsidies

government payments made to domestic firms to encourage exports

Economically least developed country (ELDC)

Is a developing country with low income and severe structural impediments to development.