International Econ Flashcards
Tenets of Ricardian Model
International trade – and international economics – are determined by differences in productivity of labor. This is “one-factor model.”
Tenets of Heckscher-Ohlin Model
The country that is abundant in a factor exports the good whose production is intensive in that factor (i.e. countries tend to export good whose production is intensive in factors with which the countries are abundantly endowed). Implication is ithat you will eventually get full factor-price equalization, which doesn’t bear out in reality.
Differences between Ricardian and HO Models
Ricardo says that differences are due exclusively to differences in labor productivity; HO says it has more to do with which factors of production a company is most endowed in.
terms of trade
Price of a country’s exports divided by price of a country’s imports. Fear in developing countries: value-added of commodities is not sufficiently high. Fear in developed countries: manufacturing base is going to erode. Rise is terms of trade tends to be welfare-improving for countries, while decline in terms of trade tends to be welfare-decreasing.
Internal Economies of Scale
When the cost of production of a particular good depends on the size of an individual firm (e.g. SolarCity). Characterized by imperfect competition, in most cases.
External Economies of Scale
When the cost of production of a particular good depends on the size of an industry. Assumed to be driven by: 1) knowledge spillovers; 2) strength of supply chains; 3) labor market pooling. E.g. Silicon Valley, Hollywood. Often determined by historical contingency.
Intraindustry Trade
“two-way exchanges of similar goods.” Makes up surprisingly large share of trade flows.
Dumping
Practice in which a firm sells a product at one price point in domestic market and another (i.e. lower) price in foreign markets. Firms dump b/c either 1) they are engaging in predatory behavior and want to drive others out of the market or 2) they are engaging in market segmentation. Most economists perceive anti-dumping measures to simply be a modern and accepted form of protectionist.
Factor Migration
Key is sue is that some factors of production are potentially more footloose than others (e.g. capital relative to labor). If labor was more mobile, would expect to see greater convergence in wages. Wages expected to rise in countries seeing net outflow and fall in countries seeing net inflow of workers.
Foreign Direct Investment
Key distinction is between horizontal FDI – replication of production process in other parts of the world – and vertical FDI – breaking off part of the production process and locating it elsewhere
Import quotas
Restriction on amount of units of a particular good that can be brought into country. Another form of trade restriction.
Infant Industry Argument
Notion that it may be legitimate to engage in trade protection in order to allow countries to proceed down the learning curves and therefore see a fall in the cost of production. Problems: which industries to protect, when does protection get removed, political influences.
Political Economy of Trade Policy
Approaches to explaining trade policy: 1) median voter model; 2) political process model (i.e. interest groups buy trade policy); 3) weighted social welfare approach;
Trade liberalization
Liberalization has been conducted through a series of trade rounds over past few decades. Problem is that all the ‘low-hanging fruit” has already been harvested. Remaining trade barriers have very effective lobbies around them (e.g. agriculture), “fast track” authority has lapsed.
comparative advantage
Country has a comparative advantage in production of good A if the opportunity cost of producing that good is lower than the opportunity cost of producing it in other countries.
