Final Flashcards
Absolute Advantage
The ability of a country/firm to produce more of a particular good/service than other countries/firms can produce with the SAME amount of effort + resources
Comparative Advantage
The ability of a country or firm to produce a particular good or service more efficiently than it can produce other goods or services
Specialization
Countries should produce what they can make the most cost effectively. They gain the most by specializing.
Trade Barriers
Government limitations on the international exchange of goods
Tariff
Tax on imports, paid by the importer.
Raises the domestic price of the imported good -> protecting domestic producers from foreign competition
Quantitative Restriction (Quota)
Limit placed on the amount of a good that is allowed to be imported and sold domestically. Reduced quantity of the good increases the domestic price
Subsidies
Government payments to businesses (producing goods and services) to export.
Other Trade Restrictions
Import licenses, requirement of government buying only domestically produced goods, and health/safety standards that discriminate against foreign goods
Actors Who Win From Trade Protection
Domestic industries: benefit from reduced competition
Government: revenue through tariffs
Protected sector workers: enjoy job security and possible wage increases
New industries: given time to develop and compete
Actors Who Lose From Trade Protection
Consumers of the imported good
Exporters
Citizens (protection imposes costs on them)
Economic efficiency, hampers inefficiency
Portfolio Investment
Investment in a foreign country via purchase of stocks, bonds, etc. No managerial control.
Foreign Direct Investment (FDI)
Investment in a foreign country via acquisition of a local facility/establishing a new one. Managerial control.
Permissive Tax
Some countries offer generous tax incentives to attract foreign investors
Costs + Benefits of Borrowing Money From Other Countries
Costs: sovereign debts are a burden. austerity measures, defaulting on loan, recessions/depressions
Benefits: use loans to raise national output directly + indirectly. Increased tax revenue
Costs + Benefits of Investing Internationally
Costs: Difficult to enforce debt abroad, foreign investors may not enjoy the same rights as national borrowers, different macroeconomic trends/environment abroad, higher costs of info
Conflicts of Interests - Borrowing/Investing
Lenders want their debts repaid in full
Borrowers want to pay less of what they owe
Investors want to bring home profits from their foreign investments
Host countries would rather that foreign investors have less to take away
Distributional Conflicts
Terms of the investment (amount + cost of loan, conditionality, austerity, weaken debtor’s domestic economy)
Those who enjoy benefits of foreign loans / who really pays for them when they fall through
Moral hazard
Austerity Policies
Include raising taxes + cutting government spending
Weakens debtor’s domestic economy
Causes domestic turmoil
Those Who Enjoy Benefits of Foreign Loans
State owned businesses
Who Has to Sacrifice When Repayment Becomes Too Costly
Citizens who pay higher taxes
Federal Deposit Insurance Corporation
- Insurance against bank failure. For depository institutions only.
Insurance + moral hazard (solved by regulation and monitoring)
Exchange Rate
The price at which ones currency is exchanged for another
Fixed Exchange Rate
Government commits itself to keeping its currency at/around a specific value relative to another currency or a commodity, like gold.
Offers stability
Floating Exchange Rate
Government permits its currency to be traded on the open market without direct government control/intervention
Gives govs. freedom to have independent monetary policies to adjust to changing conditions
High risks for investors who seek stability in long term commitments
Strong Currency
Requires less of the currency to purchase the same good/service
Imports are cheaper
Exporters + national producers who compete with foreign producers at home can be negatively impacted
Their product is expensive
Weak Currency
Requires more of that currency to purchase the same good/service
Imports become expensive
However, goods produced in this country become more competitive
Extreme Poverty
Living on less than $2.15 per day
Why Development is So Difficult
Geographic location
Domestic factors
Domestic institutions
International factors
Geographic Location (development)
Landlocked countries, regions with diseases that are hard to treat/cure, areas far from major markets, tropical regions
Domestic Factors (development)
Domestic policies
- providing public goods -> economic infrastructures
- Ensuring security of property
Domestic Institutions (development)
Resource curse
Lack of resources -> incentive to develop institutions that are conducive to economic development
International Factors
Rich countries control price in manufacturing and have more leverage in economic institutions (WTO, IMF)
Import-Subsidizing Industrialization (ISI)
Substituting local products for imports
Pursued by most developing countries from 1930’s-80’s
Trying to reduce imports and encourage domestic manufacturing
Trade barriers, subsidies to manufacturing, state ownership of basic industries
Export-Oriented Industrialization (EOI)
Encouraging manufacturers to produce for foreign countries
Pursued in mid 1960s by several East Asian countries (South Korea, Taiwan, Singapore, Hong Kong)
To spur manufacturing for export
Subsidies and incentives for export production
The Washington Consensus
A set of economic policy recommendations for developing countries that became popular during the 1980’s. Involves British economist John Williamson.
Trade liberalization, privatization
Fiscal and monetary policies to avoid large deficits and high inflation
Openness to foreign investment and international capital flows
Trade Liberalization
Remove barriers to importing + exporting
Privitization
Selling off government enterprises to private investors
Responsibility to Protect (R2P)
Advocates military interventions for at-risk populations.
Kofi Annan urged international community to define its obligations to protect citizens from mass atrocity crimes.
Norms
Standards of behavior. Define what is right and appropriate.
EX: R2P, election monitoring, taboo of nuclear weapon use
Constrains states by redefining their interests and changing interactions
Transnational Advocacy Networks (TANs)
A set of activists allied in pursuit of a common normative objective
They adopt a strategy of framing issues
Try to frame issues in a way that gains sympathy
Human Rights
Universal rights inherent to all humans regardless of class, race, gender, etc.
Universal Declaration of Human Rights (UHDR)
Foundational document of modern human rights
Four pillars: dignity, liberty, equality, and brotherhood
Western Ideal of Human Rights
Primary unit: Individual
Focus on political and economic human rights
Asian Ideal of Human Rights
Community + social stability over individual human rights
Why Do States Violate Human Rights?
Lack of capacity
National security
Maintaining power
Sovereignty
Why Do States Protect Human Rights?
Well being of others
Preserving democracy
Instrumental goals
Preferential Trade Agreements (PTAs)
Trade pact between countries that reduces tariffs + other barriers for certain products between countries
PTAs and Human Rights
PTAs may be able to induce domestic policy changes and reduce human rights violations
Public Goods
Products that are nonexcludable and nonrival in consumption
Common Pool Resources
Goods that are available to everyone (nonexcludable) but such that one user’s consumption of the good reduces the amount available for others (rival)
Tragedy of the Commons
Problem that occurs when a resource is open to all without limit
No one has an incentive to conserve because others would still use the resource in the meantime
Free Rider Problem
Benefiting from other’s efforts to make changes for the good while not changing own efforts
Globalization
The spread of activities + ideas across the globe
Increasing integration of national economies through the movement of goods, services, money, and people across borders
Economic Insecurity in the Developed World
Workers are negatively affected
Production of labor-intensive goods moved to developing world, causing job losses
Increasing income inequality in many countries
Economic Insecurity in the DevelopING world
Weak social safety nets in developing countries.
Less access to institutions that give clout in political + economic decision making
Increasing capital mobility exacerbates the volatility of poor economies
Populism
Describes a range of political movements, claiming to speak on behalf of the people
Populism (right wing)
A focus on traditional cultural values, nationalism, and rejection of foreign influences
Populism (left wing)
Emphasis on redistributive policies, anti-imperialism, and nationalization of property
Global Challenges to Order
Disease, pollution, and people forced to leave their homes
Neo-Mercantilism
Exports are good because they create jobs
Imports are bad because they take away jobs
Govs should stimulate the national economy by restricting imports and encouraging exports
Trade Being Mutually Beneficial
Offers opportunities to producers: sell to new markets, expand business, and increase efficiency
Consumers get less expensive goods, wealth for other uses
Heckscher-Ohlin Trade Theory
Countries specialize in producing and exporting goods that intensively use the resources they have in abundance, while importing goods that intensively use resources they lack.
Land, skill v unskilled labor, capital
World Trade Organization
Their rules cover about 80% of all world trade.
Negotiating to lower trade barriers and establish international trade rules.
Reviewing member trade policies and agreement transparency.
Resolving trade disputes among members.
Sovereign Lending
Loans from private financial institutions to sovereign governments
Concessional Finance
Offers below market rates
Amounts at stake usually not large
The world Bank provides concessional lending at below market interest rates for developing countries
Foreign Aid Cons
May benefit elites/corrupt officials instead of the poor.
Can weaken government accountability
Limited and not likely to increase significantly
Primary Rules
Negative and positive rules regulating behavior
Don’t do x, must do y
Secondary Rules
Rules about how law is made. Akin to a constitution.
Hard Law
Obligatory, precise, delegates authority to third parties
Soft Law
Aspirational, ambiguous, limited delegation
Can evolve into hard law
Constitutive Norms
Who is a legitimate and appropriate actor under what circumstances (countries having flags, national norms)
Procedural Norms
Similar to secondary rules.
EX: more powerful states have special rights and responsibilities because their support is essential
Regulative Norms
These govern the behavior of actors in their interactions with others
International Organization for Standards (ISO)
Highest rate of compliance
Unique form of private governance that sets voluntary standards
Incentives to defect - minimal
Gains for compliance - significant
