Ch 1 Flashcards
international trade
the buying and selling of goods and services across countries
exports
products sold from one country to another
imports
products purchased by one country from another
import tariffs
taxes on goods being imported into a country
export quota
a trade policy that restricts the amount of a certain good exported
migration
the movement of people across borders to live elsewhere
foreign direct investment (FDI)
when a firm in one country owns some or all of a firm located in another country; the flow of capital across borders (physical capital like machines, structures, land)
trade balance
the difference between a country’s total value of exports and its total value of imports (including both goods and services)
trade surplus vs. deficit
surplus if the country exports more than they import and deficit if the country imports more than they export
bilateral trade balance
the difference between exports and imports between two countries
Which region has the largest share of world trade?
Europe due to close proximity among many countries and having no import tariffs
free-trade area
a group of countries that do not impose import tariffs on goods and services traded between them
trade embargo
a complete elimination of imports by imposing sanctions
Gross domestic product (GDP)
the value of all final goods produced in a year
Which countries tend to have the highest ratios of trade to GDP?
those that are small in economic size and are important centers for shipping goods (e.g. HK and Singapore)
Which countries tend to have the lowest ratios of trade to GDP?
those that are very large in economic size (typically trade within their borders), not very open to trade, or have trade barriers
trade barriers
all factors that influence the amount of good and services shipped across international borders (e.g. import tariffs, transportation costs, events like wars and natural disasters)
political economy
explanations for tariffs and other policy actions that combine both economic and political reasoning
import quotas
a limit on the quantity of an imported good allowed into a country
trade war
worldwide increase of tariffs as a form of retaliation of countries against the actions of one another
2 ways to measure FDI
(1) new ownership each year acquired by firms of one country investing in other countries or the “flow” of FDI; (2) total ownership (added up over all years) by firms from one country investing in other countries or the “stock” of the FDI
Horizontal FDI
when a firm from one industrial country owns a company in another industrial country
Reasons for horizontal FDI
(1) to avoid or minimize taxes (e.g. no need to pay import tariffs); (2) having a foreign subsidiary abroad provides improved access to facilities and market information in that country; (3) an alliance between production divisions of firms allows technical expertise to be shared and avoids possible duplication of products
Vertical FDI
when a firm from an industrial country owns a plant in a developing country
Reasons for vertical FDI
(1) allows for industrial countries to use their technological expertise to produce at low wages; (2) to avoid tariffs and acquire local partners to sell in the market
Reverse-vertical FDI
when companies from developing countries buy firms in industrial countries to acquire their technological knowledge
What are the types of non-tariff trade barriers?
import quotas, administrative barriers (e.g. unreasonable documentation or labeling requirements), local-content requirements, buy-local provisions for state procurement
What policies are imposed to promote exports (rather than reduce imports)?
export subsidies and state guarantees for export financing
export subsidies
government policies that are implemented to incentive local producers to export more of a certain good
Why do countries of similar level of industrialization and wealth make up most of the share of world trade?
they have similar consumption patterns and enough choice or variety in the goods they produce
How does trade benefit workers in low-wage countries?
similar to migration, workers can become employed in export industries and increase their real income by importing cheaper goods
