Exam 3 Flashcards
Mercantilism
An Interventionist Theory where Countries should export more than they import - gov controls how much, what products, & with whom should be traded - countries wealth measured by treasurers (gold)
Neomercantilism
An Interventionist Theory where Produce in excess of the demand at home to export the surplus and have full employment - gov controls how much should be traded- run favorable balance of trades to achieve social & political objectives
Free Trade Theories
laissez-faire treatment of trade, country should neither artificially limit imports nor promote exports, absolute advantage & comparative advantage (greater efficiency, specialization, higher global output)
natural advantage
exist due to climate conditions, access to particular resources, or availability of labor, etc
acquired advantage
exist because superior skills, better technology, or greater capital assets, etc
Theory of country size
varied climates allow for greater assortment of natural resources, export and import less, higher transportation costs
factor-proportions theory
factors in relative abundance are cheaper than factors relative to scarcity
How much does a country trade?
Explained by theory of country size or size of the economy
What type of products does a country trade
explained by factor-proportions theory, people & land, manufacturing locations, capital, labor rates, & specializations, process technology, product technology
product technology
produce unique product or one that is easily distinguished from others - shows the changing composition of world trade
capital, labor rates, & specializations
high education then focused on sciences; low education focused on labor intense
favorable balance of trade
trade surplus - exporting more than importing
unfavorable balance of trade
trade deficit - importing more than exporting
absolute advantage
wealth based on available goods & services rather than gold - diff countries produce some goods better than other countries
process technology
ability to produce like kind products (homogeneous) - same product can be produced by different methods (wheat in Canada harvested with equipment whereas wheat in india is labor intensive)
comparative advantage
specialize in what country can produce most efficiently
nontradable goods
products & services seldom practical to export due to high transportation costs (haircuts, grocery)
With whom should countries trade
country-similarity theory, specialization & acquired advantage, product differentiation, the effects of cultural similarity, effects of political relationships & economic agreements, effects of distance, & overcoming distance
size of economy
strong economy produce so much that there is more to sell & incomes are high and people buy more
descriptive in nature
free trade theories of absolute & comparative
prescriptive in nature
interventionist theories of mercantilism & neomercantilism
protectionism
Collectively, governmental restrictions and support to influence international trade competitiveness
Economic Reasons for government intervention
preventing unemployment, protecting infant industries, developing an industrial base, or improve relative economic position
Noneconomic reasons for government intervention
maintain essential industries (defense, silicon), deal with unfriendly countries, maintaining or extending spheres of influence (colonies), or preserving national culture (france protects cinema industry)
export tariffs
charged by country of origin on exported product
transit tariffs
charged by a country through which goods pass en route to their final destination
import tariffs
charged by the country of destination on imported products.
subsidies
direct or indirect financial assistance from governments to their domestic firms
tied aid and loans
require that the recipient spend the funds in the donor country (equipment purchases)
customs valuation
determining the true value and/or origin of traded products
other direct price influences
special fees, deposits, minimum price levels
nontariff barriers: direct price influence
subsidies, tied aid and loans, customs valuation, special fees, deposits, min price levels, administrative delays, reciprocal requirements, restrictions on services
nontariff barriers: quality controls
quota, buy local legislation, specific permission requirements, & standards and labels
quota
a numerical limit on the quantity of a product that may be imported or exported in a given period of time
buy local legislation
gov. purchases give preference to domestically made goods & gov. sometimes legislate a % of domestic content
specific permission requirements
import & export license or foreign exchange controls
standards and labels
testing standards to protect the safety or health of consumers or labels - consumers may prefer to buy products with certain nations
administrative delays
countries customs delays
reciprocal requirements
one country is allowed to buy a product in exchange for another one (technology)
restrictions on services
essentiality, (media, communications, banking, utilities, transport), not-for-profit services, professional standards, immigration
when does a government provide direct or indirect subsidies for their domestic industries?
when they impede the flow of imports and encourage the flow of exports
why is it difficult to determine the real effects of trade barriers
retaliation and imports & exports can both have positive effects.
what is gov interference motivated by
political factors
what is the main difference between EU & NAFTA
EU more complex, but NAFTA better economic strength
what is an economic integration
it is the political and economic agreements among countries to reduce and eventually remove tariff and nontariff barriers to the free flow of products, capital, and labor
why is important for managers to understand economic integration
define size of regional market & verify rules under which firms must operate
neighboring Countries tend to ally because
proximity, ease of establishing channels of distribution, similar tastes, & cooperate for the benefits of all parties
global integration
The general agreement on tariffs and trade (GATT) & the world trade organization (WTO)
GATT - general agreement on tariff & trade
1947 23 countries, multilateral agreement, liberalize world trade, help global economy after world war 2
WTO - world trade organization
1995, 159 members, last member Tajikistan (part of asia between china & Russia), liberalize & supervise international trade, rules of trade among nations, implementing new trade agreements, & policing member countries adhere to WTO agreements
free trade areas
economic blocs in which all barriers are abolished amongst member nations, but EACH MEMBER ESTABLISHES ITS own external trade barriers (NAFTA, ASEAN, EFTA)
customs unions
economic blocs in which all barriers are abolished amongst member nations and COMMON EXTERNAL barriers are imposed against non-member countries (Mercosul or Mercosur)
common market
economic bloc which permits the free flow of capital and labor (EU)
static effects of economic integration
shifting of resources from inefficient to efficient firms as trade barriers FALL
dynamic effects of economic integration
gains from overall market growth, the expansion of production, the realization of greater economies of scale, and the increasingly competitive nature of the market
European Union (EU)
most advanced regional trade and investment bloc in the world, economic integration focused, common objectives on armed conflicts, human rights, and other international foreign policy, single market, 28 member, 12 stared flag (perfection, completeness, unity), euro is the currency 17 EU countries. (Belgium, France, Germany, Italy, Luxembourg, Netherlands, Denmark, Ireland, UK,Greece Portugal, Spain, Austraia, Finland, Sweden, Cyprus, Czech republic, Estonia, hungary, Latvia, Lithuania, malta, Poland, Slovakia, Slovenia, Bulgaria, Romania, croatia
Common Agricultureal Policy (CAP)
regulate the production trade and processing of ag products in EU, provide farmers with standard living and consumer safety, quaility
NAFTA - north American free trade agreement
canda, mexico, US. 1/1/1994. free trade in good and services and investment rules. phases in over 15 years since 2009, no tariffs or nontariff barriers, harmonization of trade rules, liveralization of restictions on services & investment, enforcement of intellectual property rights, dispute settlement process, labor laws & standards, environmental standards
Central America economic integration
Caribbean community of common market (CARICOM) and central American common market (CACM)
south America
southern common market (Mercosui) - brazil, argentina and Andean community (CAN) - peru, bolivia
ASEAN - association of southeast Asian nations
1967, AFTA to cut tariffs to 5% max
APEC - asia pacific economic cooperation
1989-21 count. free & open trade, 60 % worlds GNI
commodity agreements
stabilize the price and supply of primary commodities
