4.1 - International Economics Flashcards
Containerisation
4.1.1 - Globalisation
A system of freight transport for use in sea shipping that has reduced the transport costs of shipping many thousands of different goods across the globe
Deglobalisation
4.1.1 - Globalisation
The process of diminishing interdependence and integration between economies acround the globe
Foreign direct investment
4.1.1 - Globalisation
FDI is the accquisition of a controlling interest in productive operations abroad by businesses resident in the home economy. May involve the creation of new productive capacity such as a new factory or building of infrastructure
Globalisation
4.1.1 - Globalisation
The deepening of relationships between countries of the world reflected in an increasing level of cross-border trade and investment and migration
Mercantilism
4.1.1 - Globalisation
The notion that the wealth of a nation was based on how much it could export in excess of its imports, and thereby accumulate precious metals. Applied in the modern context to countries accumulating huge trade surpluses and focusing on export-let growth
Multinational companies
4.1.1 - Globalisation
A MNC has facilities and other assets in at least one country other than its home country
Open economy
4.1.1 - Globalisation
An economy with low tariff and non-tarriff barriers which is deeply integrated into the regional and global economy
Transnational companies
4.1.1 - Globalisation
TNCs base their manufacturing, assembly, research and retail operations in a number of countries
Absolute advantage
4.1.2 - Specialisation and trade
Occurs when a country can produce a product using fewer resources than another nation. If a country using the same factors of production can produde more of a product, then it has an absolute advantage
Comparative advantage
4.1.2 - Specialisation and trade
Refers to the relative advantage that one country or producer has over another. A country can benefit from specializing in and exporting the product(s) for which it has the lowest opportunity cost of supply
Dynamic gains from trade
4.1.2 - Specialisation and trade
Dynamic gains from trade make a domestic economy more productive. Examples of gains from trade liberalization that fall into this category are: Diffusion of knowledge and technology, economies of scale and increased competition and innovation
Fairtrade
4.1.2 - Specialisation and trade
Trade between companies in developed countries and producers in developing countires in which fair prices are paid to producer
Free trade
4.1.2 - Specialisation and trade
When trade in goods and services between nations is allowed to occur without any form to import restriction
Relative export prices
4.1.2 - Specialisation and trade
A country’s export prices relative to those of a competing economy
Specialisation
4.1.2 - Specialisation and trade
When individuals, regions or countries concentrate on making one product to create a surplus to trade
Trade creation
4.1.2 - Specialisation and trade
Trade creation occurs when a country enters a free trade area/agreement or becomes involved in a customs union in which there is free trade between members but also a common external tariff. Trade creation is the movement from a high cost source of output to a lower cost source of supply as a result of joining a trade agreement
Trade diversion
4.1.2 - Specialisation and trade
Trade diversion is a feature of a country deciding to join a customs union i.e. an area where there is free trade within a customs union but also a common external tariff. Trade diversion is a switch from lower-cost foreign source/supplier outside of a customs union towards a higher-cost supplier located inside the customs union
Bilateral trade agreement
4.1.3 - Pattern of trade
An agreemnt to lower import tariffs and other trade barriers between two countries - for example between South Korea and Australia
Competitiveness
4.1.3 - Pattern of trade
External competitiveness is the sustained ability to sell goods and servcices profitably at competitive prices in a foreign country. The core measure of competitiveness is a nation’s relative unit labour costs expressed in a common currency
Exchange rate
4.1.3 - Pattern of trade
The external value of currency
Intra-regional trade
4.1.3 - Pattern of trade
Intra-regional trade is the exchange of virtually identical products between countries within the same region
Trading bloc
4.1.3 - Pattern of trade
A group of countries co-operating to liberalize trade between each other
Prebisch-Singer Hypothesis
4.1.4 - Term of trade
This is an observaqtion (not a theory) that states that the terms of trade between primary goods and manufactured products deteriorate over time. The Prebisch-Singer Hypothesis (PSH) suggests that, over the long run, prices of primary goods such as coffee and cocoa decline in proportion to prices of manufactured goods such as cards and washing machines
Relative export prices
4.1.4 - Term of trade
A country’s export prices relative to those of competing economy
Terms of Trade
4.1.4 - Term of trade
The terms of trade (also known as the real exchange rate) is the real value of countries exports in terms of their imports. Thus, it is a function of the price levels in the domestic and foreign country and the nominal exchange rate
Anti-dumping tariffs
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
Anti-dumping import tariffs are allowed under World Trade Organisation rules when cases of dumping have been establised
ASEAN
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
Association of Southeast Asian Nations - a regional trade bloc
Bilateral trade agreement
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
An agreement to lower import tariffs and other trade barriers between two countries - for example between South Korea and Australia
Common External Tariff (CET)
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
A CET is an import tarrif applied equally by each country participating in a customs union, e.g. the EU might impose a common tariff on imported whisky from Japan
Common market
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
A single market providing for participating countries free trade in goods and services and free moment of labour and capital. The European Union is a single market
Customs union
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
A group of countries that abolish tariffs and quotas between member nations to encourage free movement of goods and services. Adopt a common external tariff on imports from non-member countries. The European Union is a customs union
European Free Trade Agreement (EFTA)
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
European Free Trade Association consists of Norway, Iceland, Switzerland and Leichtenstein
European Union (EU)
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
As of January 2017, there are twenty-eight member nations of the EU - collectively known as EU28. The UK voted to leave the EU in June 2016
Eurozone
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
This consists of those member states of the EU that use the Euro as their currency
Free trade area
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
A free trade area (FTA) is one where there no tariffs or taxes or quotas on goods and/or services from one country entering another
Monetary union
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
An intergovernmental agreement that involves two or more stats shareing the same currency
NAFTA
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
North American Free Trade Agreement - a free trade area agreement signed by the US, Canada and Mexico. This has now been replaced by the USMCA agreement
Non-tariff barrier
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
Trade barriers such as import quotas, embargoes and export subsidies
Pacific Alliance
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
Trade agreement between Chile, Colombia, Mexico and Peru
Regional trade agreement
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
An agreement to lower import tariffs and other trade barriers between countries in a certain region
SAFTA
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
South Asian Free Trade Area comprising Afghanistan, Bangladesh, Bhutan, India, Maldivves, Nepal, Pakistan and Sri Lanka
Schengen Area
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
26 country passport-free area inside Europe
Single market
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
A single market represents a deeper form of economic integration than a customs union. It invovles the free movement of goods and services, capital and labour
Trade liberalisation
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
Reductions in import tariffs and non-tariff barriers to enhance trade between one or more countries
Trading bloc
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
A group of countries co-operating to liberalize trade between each other
Transition economies
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
Former countries of the Eastern Bloc that have been engaged in a transition from being largely command economies to market systems with a greater role for private enterprise and resource allocation via the price mechanism
World Trade Organisation (WTO)
4.1.5 - Trading blocs and the World Trade Organisation (WTO)
The WTO polices free trade agreements and decide on trade disputes between countries. It arranges trade negotiations to liberalize trade for member countries by mutually agreed reductions in tariffs & quotas and opening domestic markets up to foreign competition
Ad valorem tariff
4.1.6 - Restrictions on free trade
An import tariff rate charged as percentage of the price
Beggar my Neighbour
4.1.6 - Restrictions on free trade
A policy that seeks to promote a country’s economy at the expense of another country. An obvious example is the use of tariff barriers. A country may place a tariff on imports to help promote local domestic industry. This may help reduce local unemployment, but, be at the expense of the other country’s export sectors
Countervailing tariffs
4.1.6 - Restrictions on free trade
An additional import tariff (tax) imposed on imported goods to offset subsidies providded to producers or exports by the government of the exporting country
Creeping protectionism
4.1.6 - Restrictions on free trade
A period of time where import tariff rates rise and where countries introduce quotas and barriers to the mobility of labour and capital
Dumping
4.1.6 - Restrictions on free trade
When a producer in one country exports a product to another country at a price which is below the price it charges in its home market or is below average costs of production
Economic nationalism
4.1.6 - Restrictions on free trade
The idea that a country’s economy will perform best if its industries are protected from competition, for example by taxes on imported goods or barriers to foregin takovers
Export quota
4.1.6 - Restrictions on free trade
A restriction on the volume of exports that can be sold overseas - this acts as a supply constraints in international markets and can lead to higher prices in global markets
Infant industry
4.1.6 - Restrictions on free trade
New/fledging industry that may require government protectionj from overseas competition (for instance through the setting of import tariffs) in order to develop
Market liberalization
4.1.6 - Restrictions on free trade
Removing state controls that impede the normal functioning of a market economy - for example, lifting prices and wage controls and import quotas or lowering import tariffs
Protectionism
4.1.6 - Restrictions on free trade
Tariff and non-tariff restrictions on imports to protect domestric producers
Quota
4.1.6 - Restrictions on free trade
A quota is a trade barrier that imposes a physical limit on the quantity of a good that can be imported into a country in a given time period
Subsidy
4.1.6 - Restrictions on free trade
Payments by the government to domestic suppliers that reduce their costs and thus make domestic output cheaper than imported goods and services
Tariff
4.1.6 - Restrictions on free trade
A tax on the value of imported products - can be specific or ad valorem
Trade barriers
4.1.6 - Restrictions on free trade
Ways in which trade is controlled for example an import tariff, quota or embargo
Trade liberalisation
4.1.6 - Restrictions on free trade
Reductions in import tariffs and non-tariff barriers to enhance trade between one or more countries
Capital account (BoP)
4.1.7 - Balance of payments
Formerly known as financial account, now a small section of the account which includes effects of debt forgiveness, sale/transfer of patents, copyrights, franchises, leases and other transferable contracts across borders
Capital flows
4.1.7 - Balance of payments
Movements of capital between countries. Outward capital flows are movements of domestically owned capital abroad; inward capital flows are movement of foreign-owned capital to the domestic economy
Creditor nations
4.1.7 - Balance of payments
Those nations that have a balance of payments surplus on the current account
Current account
4.1.7 - Balance of payments
Measures the difference between money and credit going in and out of an economy (through exports, imports and income paid on assets both home and abroad)
Current account deficit
4.1.7 - Balance of payments
The amount by which money relating to trade and investment income going out a country is more than the amount coming in
Current account surplus
4.1.7 - Balance of payments
The amount by which money relating to trade and investment income going out of a country is less than the amount coming in
Debtor nations
4.1.7 - Balance of payments
Those nations that have a persistent balance of payments deficit on the current account
Domestic remittances
4.1.7 - Balance of payments
Money received from family members or friends living in a different city of their own country
Expenditure-reducing policies
4.1.7 - Balance of payments
Policies designed to lower real incomes and aggregate demand and thereby cut demand for imports e.g. higher direct taxes or increase interest rates
Expenditure-switching policies
4.1.7 - Balance of payments
These are policies designed to change the relative prices of exports and imports. For example - an exchange rate depreciation ough to improve the price competitiveness of exports and also make imports more expensive
Export revenue
4.1.7 - Balance of payments
Sales from selling goods and services overseas
Export subsidies
4.1.7 - Balance of payments
A financial benefit conferred on a firm by the government that is contingent on exports
External debt
4.1.7 - Balance of payments
External debt is owed by government, households and businesses in a country to external (overseas) creditors. Examples include government bonds sold to foreign investors and private sector credit from foreign banks. The scale of external debt is measured as a % of a country’s GNI
External demand
4.1.7 - Balance of payments
External demand is the net change in demand for goods and services from international trade. Net trade = the value of exports (X) minus value of imports (M). Net trade is positive when a country runs a trade surplus and negative with a trade deficit
Financial account (BoP)
4.1.7 - Balance of payments
Transactions that result in a change of ownership of financial assets and liabilities betweeen residents of different countries - includes net flows of money into equities, bonds, property
Foreign direct investment
4.1.7 - Balance of payments
FDI is the acquisition of a controlling interest in productive operations abroad by businesses resident in the home economy. May involve the creation of new productive capacity such as a new factory or building of infrastructure
Hot money
4.1.7 - Balance of payments
Money that flows freely and quickly around the world looking to earn the best rate of return. It might be invested in any asset whose value is expected to rise or simply be placed in an ccount offering the best real rate of interest
Portfolio investment
4.1.7 - Balance of payments
Portfolio investment happens when people/businesses from one country buy shares or other securities such as bonds in other nations. For example: A UK investor might by some shares in Google (portfolio investment outflow for the UK) or a German investment bank might by some of the soverign debt issued by the UK government (a portfolio investment inflow for the UK)
Primary income (BoP)
4.1.7 - Balance of payments
The net flow of profits, interest and dividends from investments in other countries and net remittance flows from migrant workers
Remittances
4.1.7 - Balance of payments
When migrants send home parts of their earnings in the form of either cash or goods to support their families. A net inflow of remittances adds to a nation’s GNI
Secondary income (BoP)
4.1.7 - Balance of payments
Net flow of overseas aid/debt relif, military grants and so on
Structural trade deficit
4.1.7 - Balance of payments
A trade deficit that arises due to supply-side weaknesses rather than a chaneg in GDP or currency - caused by poor competitiveness
Appreciation of currency
4.1.8 - Exchange rates
A rise in the external value of one currency agasint another or a basket of currencies. Relates to a floating exchange rate system
Big Mac index
4.1.8 - Exchange rates
The Big Mac index is a way of measuring Purchasing Power Parity (PPP) between different countries. By converting the average national Big Mac prices to US dollars the same goods can be informally compared. This can tell us something about whether a currency is under or overvalued in foreign exchange markets
Clean float
4.1.8 - Exchange rates
A currency that floats according to market forces, free from government intervention
Devaluation
4.1.8 - Exchange rates
When a country tries to devalue its currency to increase its price competitiveness in domestic and overseas markets. However, this often encourages other countries to also devalue leading to only temporary increases in the price competitiveness of exports
Currency reserves
4.1.8 - Exchange rates
Money or other assets held by a central bank or other monetary authority so that it can pay if need be its liabilities (debts)
Currency union
4.1.8 - Exchange rates
A group of countries (or regions) using a common currency - for example 19 countries that have entered the singel European currency (as of 2019)
Depreciation of currency
4.1.8 - Exchange rates
A fall in the external value of one currency against another
Devaluation of currency
4.1.8 - Exchange rates
A fall in the external value of a currency inside a fixed exchange rate system
Fixed exchange rate
4.1.8 - Exchange rates
An exchange rate that is fixed agasint other major currencies through action by governments or central banks, usually within small margins of fluctuations around the central rate. Likely to involve periodic intervention in the foreign exchange market by one or more central banks to buy or sell the currency in question if it moves below or above its margins
Floating exchange rate
4.1.8 - Exchange rates
A free-floating currency where the external value of a currency depends whollly on market forces of supply and demand. IMF classifies as free floating only those currencies where central bank interventions are limited to nore more than three instances in the preceding six months
Foreign exchange reserves
4.1.8 - Exchange rates
The reserves of gold or foreign currencies (e.g. US dollars or Euros) typically held by central banks on behalfof their national government
J Curve Effect
4.1.8 - Exchange rates
The effect of currency depreciation on the trade deficit depends on price elasticity of demand for exports & imports. The J Curve effect says a trade deficit can worsen after depreciation but improve in the medoum term if the Marshall-Lerner condition holds
Managed floating currency
4.1.8 - Exchange rates
A floating exchange rate but subject to intervention by the monetary authorities, in order to resist fluctuations mthat they consider to be undesirable
Marshall-Lener Condition
4.1.8 - Exchange rates
Marshall-Lerner condition predicts the circumstances in which a fall in the exchange rate improves the current account of the balance of payments. A devaluation of a currency improves the BoP only if the sum of price elasticities of demand for imports & exports are greater than one (Condition is that PedX + PedM > 1)
Nominal exchange rate
4.1.8 - Exchange rates
The nominal exchange rate is the price of the domestic currency (say the UK pound) in another foreign currency (say US dollars), currently about US $1.30 or so. Thus to buy 1 UK poind you must spend 1.30 US dollars
PPP Exchange Rate
4.1.8 - Exchange rates
The rate at which the currency of one country is converted into that of another to purchase the same amount of goods and services in each country
Purchasing Power Parity (PPP)
4.1.8 - Exchange rates
The current exchange rate is adjusted so that a basket of goods and services can be bough for the same amount of dollars
Real exchange rate
4.1.8 - Exchange rates
The product of the nominal exchange rate (the dollar cost of euro, for example) and the ratio prices between the two countries
Reserve currency
4.1.8 - Exchange rates
A foreign currency such as the US dollar ($) that is held in countries’ offical reserves because of its global importance as a medium of exchange and its inherant stability
Revaluation of currency
4.1.8 - Exchange rates
An increase in the external value of a currency inside a fixed exchange rate system.
Reverse J curve effect
4.1.8 - Exchange rates
When an appreciation of the exchange rate initially causes the current account or trade balance to improve
Speculation
4.1.8 - Exchange rates
This is a risky action in which a person or organisation tries to predict what will happen to the price of an asset and buys/sells accordingly in order to try and make a profit. A speculator takes advantage of fluctuations in market prices
Potential output
4.1.9 - International competitiveness
The economy’s maximum productive capacity in a phyisical sense. The larget output that could be produced, given the prevailing state of technology
Potential productivity
4.1.9 - International competitiveness
Estimates of the productivity of the labour force i.e. output per peroson employed or the output per person hour. Improvements in productivity have an important effect on long run aggregate supply and trend growth
Protectionism
4.1.9 - International competitiveness
Tariff and non-tariff restrictions on imports to protect domestic producers
Relative export prices
4.1.9 - International competitiveness
A country’s export prices relative to those of a competing economy
Relative unit labour costs
4.1.9 - International competitiveness
Labour costs per unit of output relative to those in other countries. Relative unit labour costs will rise when
1. A country’s exchange rate appreciates
2. Wage costs rise relatively faster than other nations
3. When labour productivity growth is relatively slower than in other economies
Closed economy
4.1.1 - Globalisation
An economy operating without imports or exports, i.e. closed to global trade
