International Trade & Economic Vocabulary

Vocabulary flashcards covering key concepts in international trade and economic theory.

Heckscher-Ohlin (H-O) Theory

A theory that emphasizes trade arising from differences in relative factor endowments between countries.

2x2x2 Model

A standard trade model depicting 2 countries, 2 goods, and 2 factors of production.

Assumptions of HO Model

Assumptions include perfect competition, identical technology, constant returns to scale, and no trade barriers.

Factor Intensity

The varying mix of labor (L) and capital (K) used in the production of different goods.

Stolper-Samuelson Theorem

Posits that an increase in the price of a good raises the real return of the factor used intensively in that good's production.

Rybczynski Theorem

States that an increase in the endowment of one factor leads to a proportionate increase in output of the sector that uses that factor intensively.

Factor Price Equalization

The theory that trade leads to the convergence of factor prices across countries under certain conditions.

Intraindustry Trade

Trade that occurs within the same industry, typically based on internal economies of scale.

Monopoly

A market structure where a single firm is the sole producer of a product with no close substitutes.

Monopolistic Competition

A market characterized by many firms producing differentiated products with some degree of market power.

Dumping

Selling a product in a foreign market at a price lower than its domestic price or production cost.

Foreign Direct Investment (FDI)

Investment in production or business operations in another country.

Horizontal FDI

Establishing the same type of business operation in a foreign country as in the home country.

Vertical FDI

Investing in a foreign company that is part of the supply chain.

Backward Vertical FDI

Investing in foreign firms that supply raw materials or components.

Forward Vertical FDI

Investing in foreign firms that distribute or retail products.

Outsourcing

Contracting out certain production processes or services to foreign firms.

Offshoring

Relocation of parts of the production chain abroad including both outsourcing and vertical FDI.

Economies of Scale

Cost advantages realized as output increases, leading to lower costs per unit.

Leontief Paradox

The unexpected finding that the U.S. exports labor-intensive goods instead of capital-intensive goods.