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