Exam 2- World Politics

comparative advantage

the ability of a country or firm to produce a particular good or service more efficiently than it can produce other goods and services (self vs. self)

absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources (country vs. country)

Neo-mercantilism

A belief that national economic policy should encourage exports and discourage imports, and that the country should aim to run a trade surplus (EXPORTS EXCEED IMPORTS).

Heckscher-Ohlin trade theory

The theory that a country will export goods that make intensive use of the factors of production in which it is well endowed. Thus, a labor-rich country will export goods that make intensive use of labor.

protectionism

the imposition of barriers to restrict imports

trade barriers

Government limitations on the international exchange of goods ex. tariffs, quantitative restrictions (quotas), import licenses...

Tariff

A tax imposed on imports (raises the price of the imported good)

quantitative restriction (quota)

A limit placed on the amount of a particular good that is allowed to be imported and sold domestically.

nontariff barriers to trade

Obstacles to imports other than tariffs (trade taxes). Examples include restrictions on the number of products that can be imported (quantitative restrictions, or quotas); regulations that favor domestic over imported products; and other measures that discriminate against foreign goods or services.

Stolper-Samuelson Theorem

The theory that protection benefits the scarce factor of production. This view flows from the Heckscher-Ohlin approach: if a country imports goods that make intensive use of its scarce factor, then limiting imports will help that factor. So in a labor-scarce country, labor benefits from protection and loses from trade liberalization.

Ricardo-Viner (specific-factors) model

emphasizes the sector in which factors of production are employed rather than the nature of the factor itself

reciprocity

a mutual agreement to lower tariffs and other barriers to trade

most-favored-nation (MFN) Status

A status established by most modern trade agreements guaranteeing that the signatories will extend to each other any favorable trading terms offered in agreements with third parties.

World Trade Organization (WTO)

encourages and polices the multilateral reduction of barriers to trade, and it oversees the resolution of trade disputes.

General Agreement on Tariffs and Trade (GATT)

member countries committed to reducing barriers to trade and providing similar trading conditions to all other members

Regional Trade Agreements (RTAs)

Agreements among three or more countries in a region to reduce barriers to trade among themselves. ex. USMC (NAFTA before)

portfolio investment

investment in a foreign country via the purchase of stocks, bonds or other financial instruments. They do not have control of the foreign operation

sovereign lending

loans from private financial institutions in one country to sovereign governments of other countries

Foreign Direct Investment (FDI)

Investment in a foreign country via the acquisition of a local facility or the establishment of a new facility. Direct investors have control of the foreign operation

World Bank

An important international institution that provides loans at below-market interest rates to developing countries, typically to enable them to carry out development projects

recession

a sharp slowdown in the rate of economic growth and economic activity

depresssion

a severe downturn in the business cycle, typically associated with major declines in economic activity, production and investment; a severe contraction of credit; sustained high unemployment

default

To fail to make payments on a debt (usually set by countries that cannot pay back a loan)

Austerity

The application of policies to reduce consumption, typically by cutting government spending, raising taxes and restricting wages.

Bank for International Settlements

Helps oversee relations between one of the world's most problematic debtor nations (Germany)

International Monetary Fund (IMF)

an international organization that acts as a lender of last resort, providing loans to troubled nations, and also works to promote trade through financial cooperation

Multinational Corporation (MNC)

An enterprise that operates in a number of countries, with production or service facilities outside its country of origin

Global Supply Chains

a feature of economic globalization where in different pieces of production are spread across geographic locations

Bilateral Investment treaty

An agreement between two countries about the conditions for private investment across borders

Exchange rate

The price at which one currency is exchanged for another

Appreciate

in terms of a currency, to increase in value relative to other currencies

Depreciate

In terms of a currency, to decrease in value relative to other currencies

Devalue

to reduce the value of one currency relative to other currencies

Monetary policy

An important tool of national governments to influence broad macroeconomic conditions such as unemployment, inflation, and economic growth. (Typically, governments alter their monetary policies by changing national interest rates or exchange rates.)

Central Bank

The institution that regulates monetary conditions in a country's economy, typically by raising or lowering interest rates and the quantity of money in circulation

Fixed-exchange rate

An exchange-rate policy under which a government commits itself to keeping its currency at or around a specific value relative to another currency or a commodity, such as gold

Gold Standard

The monetary system that prevailed between about 1870 and 1914, in which countries tied their currencies to gold at a legally fixed price

Floating- exchange rate

an exchange rate policy under which a government permits its currency to be traded on the open market without direct government control or intervention

Bretton Woods monetary system

The monetary order negotiated among the World War II allies in 1944, which was based on a U.S. dollar tied to gold. Other currencies were fixed to the dollar but were permitted to adjust their exchange rates.

adjustable peg

A monetary system of fixed but adjustable rates. Governments are expected to keep their currencies fixed for extensive periods but are permitted to adjust the exchange rate from time to time as economic conditions change.

International monetary regime

A formal or informal arrangement among governments to govern relations among their currencies; the agreement is shared by most countries in the world economy.

Less developed countries (LDC's)

countries at a relatively low level of economic development

Infrastructure

Basic structures necessary for social activity, such as transportation and telecommunications networks, and power and water supply

primary products

Raw materials and agricultural products, typically unprocessed or only slightly processed. The primary sectors are distinguished from secondary sectors (industry) and tertiary sectors (services)

Oligopoly

A situation in which a market or industry is dominated by a few firms

terms of trade

The relationship between a country's export prices and its import prices

Import Substitution Industrialization (ISI)

A set of policies, pursued by most developing countries from the 1930s through the 1980s, to reduce imports and encourage domestic manufacturing, often through trade barriers, subsidies to manufacturing, and state ownership of basic industries.

export-oriented industrialization

A set of policies, originally pursued starting in the late 1960s by several East Asian countries, to spur manufacturing for export, often through subsidies and incentives for export production.

Group of 77

A coalition of developing countries in the UN, formed in 1964 with 77 members; it has grown to over 130 members but maintains the original name.

commodity cartels

Associations of producers of commodities [raw materials and agricultural products] that restrict world supply of their products and thereby cause the price of their goods to rise

liberalization

reducing barriers to trade