Key terms unit 3

Balance of trade

The balance between exports and imports in an economy.

Current account

Records trade in goods and services, income, and unrequited transfers (e.g., foreign aid, workers’ remittances) over a specific period.

Code of conduct

A non-binding intergovernmental instrument that regulates certain behaviors of governments or private corporations.

Capital account

Records currency inflows and outflows due to international dealings in financial assets such as investments and loans.

Balance of payment

A statistical summary of a country’s total trade, economic transactions, and financial flows at a given time.

Anti-dumping laws

Laws designed to protect domestic producers, while competition laws protect consumers and importers.

Theory of competitive advantage

States that firm or industry success depends on cost advantages in standardized products or advantages in differentiated products.

Competition policy

Government approaches to promoting and protecting competition, mainly to benefit consumers.

Globalization

The increasing integration of national economies through growth in international trade, investment, and capital flows.

Commercial policy

Government acts, policies, and practices that influence trade in goods and services.

Internationalization

Extending economic activities across borders to benefit from lower costs, with countries specializing in stages of production.

Protectionism

Prevents domestic producers from being exposed to international competition.

Trade liberalization

The gradual removal of barriers to trade in goods and services.

Bilateral trade agreement

An agreement between two countries outlining conditions for trade between them.

Trade policy

A framework of laws, regulations, agreements, and negotiating stances used to secure market access for domestic firms.

Multilateralism

Conduct of international trade based on cooperation, equal rights, non-discrimination, and participation of many countries as equals.

Multilateral trade agreement

An intergovernmental agreement to expand and liberalize trade under predictable, transparent, non-discriminatory conditions.

Common market

A group of countries pursuing a common external trade policy.

Floating exchange rate

A system where currency value changes continuously according to supply and demand.

Free trade (barrier definition)

The absence of barriers to the free flow of goods and services between countries.

Mixed economy

An economy where some sectors are privately owned and market-driven, while others have significant government ownership or planning.

Globalization of markets

Moving away from distinct national markets toward integrated global markets.

Horizontal FDI

Foreign direct investment in the same industry abroad as the firm operates domestically.

Infant industry argument

States that new industries in developing countries need temporary protection from international competition.

Local content requirement

A rule requiring that a certain fraction of a product be produced domestically.

Voluntary export restraint (VER)

A quota on exports imposed by the exporting country, usually at the request of the importing country.

Tax haven

A country with exceptionally low or zero income taxes.

Mercantilism

An economic philosophy promoting exports and restricting imports.

Minimum efficient scale

The output level at which most plant-level scale economies are exhausted.

Polycentric staffing

A staffing policy where host-country nationals manage subsidiaries while parent-country nationals hold key headquarters positions.

Positive-sum game

A situation where all countries can benefit, even if some benefit more than others.

Price elasticity of demand

a measure of how responsive demand for a product is to changes in price.