Econ of Glob Exam 1

Internationalization

The increasing involvement of a country's economy in international trade and economic activity.

Trade/GDP Ratio

Exports plus imports divided by GDP; used to measure how internationally connected an economy is.

Exports

Goods and services produced domestically and sold to other countries.

Imports

Goods and services produced in other countries and purchased domestically.

International Trade

The buying and selling of goods and services between countries.

Globalization

The increasing economic integration and interconnectedness of countries.

Migration

The movement of people from one country to another, often for employment or economic opportunities.

Trade as a Substitute for Migration

The idea that countries can trade goods produced by workers abroad instead of workers physically moving between countries.

Economic Integration

The process of countries becoming more economically connected through trade, investment, and other activities.

IMF

International Monetary Fund; promotes international monetary and financial stability and provides assistance to countries experiencing financial difficulties.

World Bank

International institution that provides financing and support for economic development and poverty reduction.

WTO

World Trade Organization; establishes and administers rules for international trade and provides a framework for trade negotiations and disputes.

GATT

General Agreement on Tariffs and Trade; an international agreement designed to reduce tariffs and other trade barriers before the WTO.

Bretton Woods Agreement/System

Post-World War II framework for international economic and monetary cooperation that led to institutions such as the IMF and World Bank.

Trade Round

A series of international negotiations designed to reduce trade barriers.

Regional Trade Agreement (RTA)

An agreement among a group of countries to reduce trade barriers between participating countries.

Trade Creation

When an agreement causes trade to shift toward a more efficient producer.

Trade Diversion

When trade shifts away from a more efficient nonmember country toward a less efficient member because of preferential trade treatment.

Public Good

A good that is generally non-rival and non-excludable.

Non-rival

One person's use does not substantially reduce the amount available to others.

Non-excludable

It is difficult or impossible to prevent people from benefiting from the good.

International Public Good

A public good whose benefits extend across countries, such as international financial stability or peace.

Protectionism

Government policies designed to protect domestic industries from foreign competition.

Trade Barrier

A government restriction that limits international trade, such as a tariff or quota.

Tariff

A tax placed on an imported good.

Quota

A limit on the quantity of a good that can be imported.

Mercantilism

A trade doctrine emphasizing exports, limiting imports, accumulating wealth, and government intervention in trade.

Mercantilists

Economists/policy thinkers who believed countries should promote exports and restrict imports to increase national wealth.

Adam Smith

Economist associated with the concept of absolute advantage and the benefits of specialization and trade.

David Ricardo

Economist associated with the principle of comparative advantage.

Absolute Advantage

The ability of a country to produce more of a good with the same resources, or produce it using fewer resources.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another country.

Opportunity Cost

The value of the next-best alternative that must be given up when making a choice.

Autarky

A situation in which a country does not participate in international trade.

Production Possibilities Curve (PPC)

A curve showing the maximum combinations of two goods a country can produce with its available resources and technology.

Linear PPC

A straight-line PPC showing constant opportunity cost.

Bowed-Out PPC

A PPC showing increasing opportunity cost as production shifts toward one good.

Specialization

Concentrating production on goods for which a country has a comparative advantage.

Resource Reallocation

Moving labor and other resources from one industry to another as production changes.

Consumption Possibilities Curve (CPC)

Shows the combinations of goods a country can consume after accounting for trade and international prices.

Gains from Trade

The increased consumption possibilities that can result from specialization and international trade.

Terms of Trade

The rate at which one good can be exchanged for another through international trade.

Point inside the PPC

Production is possible but resources are not being fully utilized.

Point on the PPC

Efficient production.

Point outside the PPC

Not attainable with current resources and technology.

Heckscher-Ohlin (HO) Model

A trade model explaining comparative advantage based on differences in countries' factor endowments.

Factor Endowment

The amount of productive resources a country possesses, such as labor, capital, and land.

Factor Intensity

The degree to which a good relies on a particular factor of production.

Labor-Intensive

A good that requires relatively large amounts of labor to produce.

Capital-Intensive

A good that requires relatively large amounts of capital to produce.

Labor-Abundant Country

A country with relatively more labor compared with other factors.

Capital-Abundant Country

A country with relatively more capital compared with other factors.

Stolper-Samuelson Theorem

A theory explaining how changes in the prices of traded goods affect the real returns/incomes of factors of production.

Factor Price

The price or income earned by a factor of production, such as wages for labor or returns to capital.

Specific Factors Model

A trade model in which some factors of production are specific to particular industries and cannot easily move between industries in the short run.

Gravity Model

A model predicting that trade tends to be greater between larger economies and lower between countries that are farther apart.

Product Cycle Theory

A theory explaining how the location of production and trade can change as a product moves from introduction to maturity.

Labor

Workers and human effort used in production.

Capital

Man-made resources used to produce goods and services, such as machinery and factories.

Foreign Trade

The exchange of goods and services across national borders.

Foreign Investment

Investment of capital in a business or asset located in another country.

Foreign Direct Investment (FDI)

Investment in a foreign business or operation with an ongoing ownership/control interest.

Outsourcing

Contracting another company to perform a business activity or service.

Offshoring

Moving a business activity to another country.