CH 1 IB

Question 1

BRIC

Answer 1

Brazil, Russia, India and China

4 largest emerging economies

Question 2

GDP

Answer 2

sum of value added by resident firms, households and governments operating in an economy

Question 3

GNP

Answer 3

GDP plus income from non-resident sources abroad

Question 4

GNI

Answer 4

=GNP

Question 5

PPP

Answer 5

purchasing power parity (Umrechnungskurs).
conversion that determines the equivalent amount of goods and services different currencies can purchase
(emerging economies PPP is a lot lower than in developed economies)

Question 6

Two perspectives on: “What determines the success or failure of a firm?”

Answer 6

Resource-based view

Institutions-based view

Question 7

Resource-based view

Answer 7

internal resources and capabilities

Question 8

Institution-based view

Answer 8

international performance depends on formal rules and informal rules (external environment)

Question 9

liability of outsidership

Answer 9

the disadvantage of outsiders over insiders, caused by

distant origins
lack of local experience
lack of nearby experience

–> lack of familiarity, networks and legitimacy in the local context

Question 10

When was globalization accelerated?

Answer 10

in the 19th century.
It was accompanied by major liberalization (the removal of regulatory restrictions on business)
limited liability companies were introduced

Question 11

waves of globalization

Answer 11

Globalization 1.0 (1880-1929)

• trade liberation
• technological changes

Globalization 2.0 (1979-now)

rise of emerging economies; MNEs

Question 12

Triad

Answer 12

Western Europe, North America and Japan

The Triad refers to the three centres dominating the world economy until the late 1990’s:

Question 13

pyramid structure of global economy

Answer 13

base of pyramid: people that make less than 1500 €/year
second tier: btw. 1500 and 15000
top tier: over 15000

Question 14

ethnocentric perspective

Answer 14

view of the world through the lens of one’s own culture

Question 15

Mega- groupings resulting from globalization 2.0

Answer 15

TPP: Trans-Pacific Partnership
APEC: Asia-Pacific Economic Cooperation
TTIP: Transatlantic Trade and Investment Partnership
RCEP: Regional Comprehensive Economic Partnership

Question 16

Absolute advantage

Answer 16

ability of one country to produce a commodity more efficiently (with greater output per unit of input) than another country

Question 17

comparative advantage

Answer 17

Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries.

Question 18

Berlin conference

Answer 18

1884-1885

Question 19

What happened after WW1?

Answer 19

hyperinflation

devaluation of own currency and increase in home tariffs –> end of global trade

Question 20

beggar-thy-neighbour policy

Answer 20

beggar-thy-neighbour policy is an economic policy through which one country attempts to remedy (heilen) its economic problems by means that tend to worsen the economic problems of other countries.

Question 21

After WW2

Answer 21

Bretton conference (1944).
New system of monetary management
GATT (General agreement on tariffs and trade) to promote trade –> WTO in 1994

Question 22

What clauses in the current trade war based on?

Answer 22

Section 232 and 301

Question 23

Section 232

Answer 23

national security (aluminium tax; price dumping)

Question 24

Section 301

Answer 24

additional tax in case a partner acts unfair

“technology transfer”

Question 25

What determines specialization across countries?

Answer 25

Factor Conditions
Demand Conditions
Related and Supportive Industries
Strategy, Structure and Rivalry

Specialization refers to the tendency of countries to specialize in certain products which they trade for other goods, rather than producing all consumption goods on their own. Countries produce a surplus of the product in which they specialize and trade it for a different surplus good of another country.

Question 26

Factor Conditions

Answer 26

home location advantage is strong if:
favorable created factors at home which are specialized
(skilled labour, scientific knowledge, infrastructure)
-> innovation

NB: favorable natural factors may be disadvantageous. Firms become complacent (zufrieden).

Question 27

Demand Conditions

Answer 27

home location advantage is strong if:
domestic demand (market size) is large and sophisticated

–> demanding customers force competition

Question 28

Related and Supportive Industries

Answer 28

firms in an industry benefit from the presence of related and supporting industries that are highly competitive (silicon valley)

Question 29

Firm Strategy, Structure and Rivalry

Answer 29

different industries require different managerial practices.
Home location advantage is strong if managerial practices fit with the requirements of the industry
fierce domestic rivalry drive innovation.

Question 30

(normal trade relations)

Answer 30

means non discriminatory trade policy.
If the tariff of one WTO country is lowered, it has to be lowered for all WTO countries.
(an exception can be made based on free trade agreements btw. two countries)

Question 31

Bound tariffs

Answer 31

commitments made by individual WTO members and implies the maximum tariff level for a certain commodity level

Question 32

PTAs (Preferential trade agreements)

Answer 32

used to give additional free trade regulations

Question 33

FDI stocks

Answer 33

(FDI) stocks measure the total level of direct investment at a given point in time

Question 34

Why do countries trade?

Answer 34

Countries benefit when they specialize in producing goods for which they have a comparative advantage and engage in trade for other goods.

Question 35

MFN

Answer 35

Most-favoured-nation (MFN): treating other people equally Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.

Question 36

Are there exceptions to the MFN?

Answer 36

Some exceptions are allowed. For example, countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside. Or they can give developing countries special access to their markets. Or a country can raise barriers against products that are considered to be traded unfairly from specific countries.

Normally this is not possible.