CH 1 IB Flashcards
BRIC
Brazil, Russia, India and China
4 largest emerging economies
GDP
sum of value added by resident firms, households and governments operating in an economy
GNP
GDP plus income from non-resident sources abroad
GNI
=GNP
PPP
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)
Two perspectives on: “What determines the success or failure of a firm?”
Resource-based view
Institutions-based view
Resource-based view
internal resources and capabilities
Institution-based view
international performance depends on formal rules and informal rules (external environment)
liability of outsidership
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
When was globalization accelerated?
in the 19th century.
It was accompanied by major liberalization (the removal of regulatory restrictions on business)
limited liability companies were introduced
waves of globalization
Globalization 1.0 (1880-1929)
- trade liberation
- technological changes
Globalization 2.0 (1979-now)
rise of emerging economies; MNEs
Triad
Western Europe, North America and Japan
The Triad refers to the three centres dominating the world economy until the late 1990’s:
pyramid structure of global economy
base of pyramid: people that make less than 1500 €/year
second tier: btw. 1500 and 15000
top tier: over 15000
ethnocentric perspective
view of the world through the lens of one’s own culture
Mega- groupings resulting from globalization 2.0
TPP: Trans-Pacific Partnership
APEC: Asia-Pacific Economic Cooperation
TTIP: Transatlantic Trade and Investment Partnership
RCEP: Regional Comprehensive Economic Partnership
Absolute advantage
ability of one country to produce a commodity more efficiently (with greater output per unit of input) than another country
comparative advantage
Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries.
Berlin conference
1884-1885
What happened after WW1?
hyperinflation
devaluation of own currency and increase in home tariffs –> end of global trade
beggar-thy-neighbour policy
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.
After WW2
Bretton conference (1944).
New system of monetary management
GATT (General agreement on tariffs and trade) to promote trade –> WTO in 1994
What clauses in the current trade war based on?
Section 232 and 301
Section 232
national security (aluminium tax; price dumping)
Section 301
additional tax in case a partner acts unfair
“technology transfer”
What determines specialization across countries?
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.
Factor Conditions
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).
Demand Conditions
home location advantage is strong if: domestic demand (market size) is large and sophisticated
–> demanding customers force competition
Related and Supportive Industries
firms in an industry benefit from the presence of related and supporting industries that are highly competitive (silicon valley)
Firm Strategy, Structure and Rivalry
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.
(normal trade relations)
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)
Bound tariffs
commitments made by individual WTO members and implies the maximum tariff level for a certain commodity level
PTAs (Preferential trade agreements)
used to give additional free trade regulations
FDI stocks
(FDI) stocks measure the total level of direct investment at a given point in time
Why do countries trade?
Countries benefit when they specialize in producing goods for which they have a comparative advantage and engage in trade for other goods.
MFN
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.
Are there exceptions to the MFN?
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.
