VOCAB - 4. International Trade

Free trade

trade without restrictions or barriers

Specialization

Concentration of production on one or a few goods and services

Absolute advantage

ability of one country to produce a good at lower costs (using fewer resources) than another country

Comparative advantage

ability of one country to produce a good at lower opportunity costs than another country

Trade protection

government intervention in international trade to prevent the free entry of imports into a country

Tariffs (customs duty)

taxes on imported goods

Import quota

legal limit to the quantity of imported goods over a particular time period (1 yr)

Production subsidy

payment by the government to a firm for each unit of output produced

Export subsidy

payment by the government to a firm for each unit of output exported

Administrative barriers

regulations such as customs procedures and inspections preventing the free flow of imports into a country

Unfair Competition

practices abused by countries in order to unfairly increase their exports at the expense of other countries; dumping, administrative barriers, undervalued currencies

Infant industry

argument justifying trade protection: protecting a new domestic industry that is not yet capable to compete with foreign industries

Anti-dumping

argument justifying trade protection: protecting against a country suspected of dumping (selling a good in international markets at a price below the cost of production)

Trade Liberalisation

policy removing trade protection and barriers to trade in order to promote free trade among nations

Economic Integration

economic interdependence between countries, usually by agreeing to reduce or eliminate trade barriers to various degrees

Preferential Trade Agreement (PTA)

type of economic integration: agreement between two or more countries to lower trade barriers on particular products

Trading Blocs

type of economic integration: agreement between a group of countries to reduce barriers of trade

Free Trade Area (FTA)

type of trading bloc: agreement between a group of countries that are usually geographically close to reduce barriers of trade

Customs Unions

type of trading bloc: agreement between a group of countries that fulfill the requirements of a FTA and in addition adopt a common policy towards all non-member countries

Common Market

type of trading bloc: agreement between a group of countries that fulfill the requirements of a customs union and in addition eliminate all restrictions on the movement of FoP within the group

Trade Creation

replacement of higher cost products by lower cost imports due to formation of trading bloc

Trade Diversion

replacement of lower cost products by higher cost imports due to formation of trading bloc

Monetary Union

type of economic integration: agreement between a group of countries to adopt a single currency along with a common monetary policy by a single central bank

Bilateral Trade Agreement

agreement between two countries

Multilateral Trade Agreement

agreement between multiple countires

Regional Trade Agreement

agreement between countries in a geographical region

World Trade Organization

international organization providing a framework for negotiating trade agreements and resolving trade disputes among member countries

Foreign Exchange

foreign national currencies

Exchange Rate

value of a currency expressed in terms of another currency

Appreciation (of a currency)

increase in the value of a currency in a floating or managed exchange rate system

Depreciation (of a currency)

decrease in the value of a currency in a floating or managed exchange rate system

Revaluation (of a currency)

increase in the value of a currency in a fixed or pegged exchange rate system

Devaluation (of a currency)

decrease in the value of a currency in a fixed or pegged exchange rate system

Currency Speculation

buying and selling currencies in hope of making profit

Floating Exchange Rate System

type of exchange rate system: exchange rates are determined by free market forces

Fixed Exchange Rate System

type of exchange rate system: exchange rates are fixed by central bank

Managed Exchange Rate System

type of exchange rate system: exchange rates mostly float freely, with some central bank intervention

Overvaluation (of a currency)

currency whose value is higher than its free market value

Undervaluation (of a currency)

currency whose value is lower than its free market value

Balance of Payments

record of all transactions between residents of a country and residents of foreign countries; current account + capital account + financial account

Credits

payments received from other countries (+ in BoP)

Debits

payments to other countries (- in BoP)

Current Account

balance of trade in goods + balance of trade in services + net income + net current transfers

CA Surplus

Credits > Debits

CA Deficit

Credits < Debits

Balance of Trade in Goods

part of CA: value of exported goods - value of imported goods

Balance of Trade in Services

part of CA: value of exported services - value of imported services

Current Transfers

part of CA: inflows and outflows of gifts, foreign aid, and pensions

Capital Account

Net capital transfers (debt forgiveness, non-life insurance claims) + purchase or use of non-produced natural resources

Financial Account

FDI + portfolio investment + reserve assets + official borrowing

Foreign Direct Investment (FDI)

investment by foreign firms (MNCs) to firms in the host country, with control of at least 10% of the firm in the host country

Portfolio Investment

investment in stocks and bonds

Reserve Assets (Official Reserves)

foreign currency reserves maintained by the central bank

Official Borrowing

government borrowing from abroad

Capital Flight

large scale transfer of private financial capital to another country due to uncertainty of holding domestic assets

Credit Rating

assessment of the ability of a borrower to pay back loans

Expenditure Reducing Policies

policy to fix CA deficit: decreasing expenditures to decrease imports

Expenditure Switching Policies

policy to fix CA deficit: switching consumption away from imported goods and towards domestic goods

Economic Development

increases in standards of living of a population, particularly in developing countries, involving increasing income levels, decrease in poverty, decrease in inequality, decrease in unemployment

Composite Indicators

summary measure of more than one indicator to measure economic development

Human Development Index (HDI)

a composite indicator in three dimensions: GNI, levels of health, levels of education

Inequality-adjusted HDI (IHDI)

a composite indicator in three dimensions, each adjusted for inequality: GNI, levels of health, levels of education

Gender Inequality Index (GII)

a composite indicator measuring gender inequality in three dimensions: reproductive health, empowerment, labor market participation

Happy Planet Index (HPI)

a composite indicator measuring sustainable development in four dimensions: life expectancy, well-being, inequality, ecological footprint

Infrastructure

physical capital resulting from investments which lower costs of production and increase productivity

Appropriate technology

technology which is suited to the country’s particular economic, geographical, and climate conditions

Informal Economy

part of an economy outside the formal economy which is not registered nor legally regulated

Debt Relief

cancellation or forgiveness of all or a portion of a country’s debt

Property Rights

laws and regulations that define rights to use, possess, and transfer property

Land Rights

laws and regulations that define rights to use, possess, and occupy land

Import Substitution

growth strategy where a country reduces its reliance on foreign imports by encouraging and protecting the production of domestically manufactured goods; more diversification

Export Promotion

growth strategy where a country expands its exports by encouraging the production of their exports; more specialization

Diversification

when a country broadens the range of goods and services they produce; opposite of specialization

Specialization

when a country concentrates production on a few goods and services; opposite of diversification

Social Enterprise

a firm which aims to improve people’s well-being and promote social change

Multinational Corporation

a firm that operates in multiple countries and hence initiates FDI

Foreign Aid

transfer of funds and goods and services to developing countries with the aim to improve their economic, social, or political conditions

Humanitarian Aid

type of foreign aid; aid to regions with emergencies due to conflicts or natural disasters

Development Aid

type of foreign aid; aid intended to help developing countries achieve economic growth

Official Development Assistance (ODA)

type of foreign aid; aid that comes from a foreign government, mostly in the form of grants or concessional loans (softer than market rates)

Non-Governmental Organization (NGO)

type of foreign aid; non-profit organization that provides a large range of humanitarian services

Multilateral Development Assistance

lending to developing countries on non-concessional terms (same as market rates)

World Bank

multilateral organization; organization that makes long-term loans to developing country governments in order to promote economic development and social change

International Monetary Fund

multilateral organization; financial institution that makes short-term loans to developing country governments on non-concessional terms in order to stabilize exchange rate, their balance of payments, and their debt obligations

Microfinance (Microcredit)

small loans (credit) to people who normally do not have access to credit due to lack of collateral

Financial Account