Untitled Flashcards Set

Who gains from tariffs?

Government and domestic producers

Who suffers from tariffs?

consumers, world economy

Subsidies

Govt payment to domestic producer

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

Voluntary Export Restraint (VER)

A quota on trade imposed from the exporting country's side, instead of the importer's

Quota rent

extra profit producers make when supply is artificially limited by an import quota

Local Content Requirement (LCR)

a requirement that some specific fraction of a good be produced domestically

Dumping

Selling goods in another country below market prices, drive competition out then raise prices

Political Arguments for Government Intervention

protecting jobs and industries, protecting national security

Krugman

strategic trade policies to establish domestic firms in a dominant position in a global industry are beggar-thy-neighbor policies that boost national income at the expense of other countries. Probably provoke retaliation

FDI Limitations to Exporting

By limiting imports through quotas and tariffs, governments increase the attractiveness of FDI and licensing

Limitations of Licensing: internalization theory

- result in a firm's giving away tech knowledge to a potential foreign competitor.
- does not give tight control over production, marketing, and strategy in a foreign country that may be required to maximize its profitability.
- The firm's competitive advantage is not amenable to licensing.

Greenfield Investments

the establishment of a wholly new operation in a foreign country

Internalization Theory

The argument that firms prefer FDI over licensing in order to retain control over know-how, manufacturing, marketing, and strategy or because some firm's capabilities are not amenable to licensing.

The Eclectic Paradigm

Argument that combining location-specific assets or resource endowments and the firm's own unique assets often requires FDI; it requires the firm to establish production facilities where those foreign assets or resource endowments are located.

Pragmatic Nationalism

A political view that only approves FDI when its national benefits are superior.

Host Country Benefits of FDI

Balance of payments effects, helps with surpluses by subbing for other imports

Home Country Benefits of FDI

Inward flow of earnings, employment, learning from other countries

Levels of Economic Integration

political, economic, common, customs, free trade

Customs Union

eliminates trade barriers between member countries and adopts a common external trade policy

Common Market

a group of countries that acts as a single market, without trade barriers between member countries