Key Concepts in International Trade and Economics

Comparative Advantage

The ability of a country or firm to produce a particular good or service more efficiently than it can produce other goods or services, such that its resources are most efficiently employed in this activity.

Absolute Advantage

The ability of a country or firm to produce more of a particular good or service than other countries or firms can produce with the same amount of effort and resources.

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.

Heckerscher-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.

Protectionism

The imposition of barriers to restrict imports.

Trade Barriers

Government limitations on the international exchange of goods. Examples include tariffs, quantitative restrictions (quotas), import licenses, requirements that governments buy only domestically produced goods, and health and safety standards that discriminate against foreign goods.

Tariff

A tax imposed on imports. Tariffs raise the domestic price of the imported good and may be applied for the purpose of protecting domestic producers from foreign competition.

Quantitative Restriction

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.

Stopler-Samuelson Theorem

The theorem that trade protection benefits the scarce factor of production.

Ricardo-Viner model

A model of trade relations that emphasizes the sector in which factors of production are employed rather than the nature of the factor itself.

Reciprocity

In international trade relations, a mutual agreement to lower tariffs and other barriers to trade.

Most-Favored-Nation

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

An institution created in 1995 to succeed the GATT and to govern international trade relations.

General Agreement on Tariffs and Trade

An international institution created in 1947 in which member countries committed to reducing barriers to trade and providing similar trading conditions to all other members. In 1995, the GATT was replaced by the WTO.

Regional Trade Agreements

Agreements among three or more countries in a region to reduce barriers to trade among themselves.

Portfolio Investment

Investment in a foreign country via the purchase of stocks, bonds, or other financial instruments. Portfolio investors do not exercise managerial control of the foreign operation.

Sovereign Lending

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

Foreign Direct Investment

Investment in a foreign country via the acquisition of a local facility or the establishment of a new facility. Direct investors maintain managerial 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.

Depression

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

Default

To fail to make payments on a debt.

Austerity

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

Bank for International Settlements

One of the oldest international financial organizations, created in 1930. Its members include the world's principal central banks, and under its auspices they attempt to cooperate in the financial realm.

International Monetary Fund

A major international economic institution established in 1944 to manage international monetary relations. It has gradually reoriented itself to focus on the international financial system, especially debt and currency crises.

Multinational Corporation

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

Global Supply Chains

A network of customers and suppliers involved in the production and distribution of a product. Parts of it may be inside a multinational corporation; parts may also invoke links between corporations.

Bilateral Investment Treaty

An agreement between two countries about the conditions for private investment across borders. Most of these treaties include provisions to protect an investment from government discrimination or expropriation without compensation as well as mechanisms to resolve disputes.

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 the 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 WW2 Allies in 1944, which lasted until the 1970s and which was based on a US 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 by adjustable rates. Governments are expected to keep their currencies fixed for extended 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 shared by most countries in the world economy to govern relations among their currencies.

Less developed Countries

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-Substituting Industrialization

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, subsides to manufacturing, and state ownership of basic industries.

Export-Oriented Industrialization

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

Group of 77

A coalition of developing countries in the UN, formed in 1964 with 77 members, that seeks changes to the international economic order to favor the developing world. It had grown to over 130 members but retains 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.

Human Rights

The rights possessed by all individuals by virtue of being human, regardless of their status as citizens of particular states or members of a group or organization.

Universal Declaration of Human Rights

A declaration, adopted by the UN General Assembly in 1948, that is defined as a 'common standard of achievement for all peoples' and forms the foundation of modern human rights law.

International Covenant on Civil and Political Rights

The agreement, completed in 1966 and in force from 1976, that details the basic civil and political rights of individuals and nations. The ICCPR and ICESCR together are known as the 'twin covenants.'

International Covenant on Economic, Social, and Cultural Rights

The agreement, completed in 1966 and in force from 1976, that specifies the basic economic, social, and cultural rights of individuals and nations. The ICCPR and ICESCR together are known as the 'twin covenants.'

International Bill of Rights

The UDHR, ICCPR, and ICESCR collectively. Together, these three agreements form the core of the international human rights regime.

Nonderogable Rights

Rights that cannot be suspended for any reason, including in cases of social or public emergency.

Prisoners of Conscience

Individuals imprisoned solely for the peaceful expression of their beliefs. The term was coined by the human rights organization Amnesty International.

Individual Petition

A right that permits individuals to petition appropriate international legal bodies directly if they believe a state has violated their rights.

International Criminal Court

A court of last resort for human rights cases that possesses jurisdiction only if the accused is a national of a state party, the crime took place on the territory of a state party, or the UN Security Council has referred the case to the prosecutor.