International Trade Flashcards
a direct investment in longer-term assets in another country;
foreign direct investment (FDI)
a shorter-term investment in another country and usually involves financial assets like stocks and bonds rather than physical assets
foreign portfolio investment (FPI)
illustrates the fact that countries will focus on efficient industries and import what they are relatively less efficient in producing
Specialization (a key gain from trade)
the concept of when a country produces a good at a lower opportunity cost than its trading partners do
Comparative Advantage
Concept of having the lowest resource cost to do or make something in terms of international trade
Absolute Advantage
Graphical representation of a country’s capacity to produce goods and services
production possibilities frontier (PPF)
model that represents there is only one factor of production, labor, and countries’ comparative advantage depends on the relative productivity of labor in different economic activities; provides the simplest way to illustrate how comparative advantage depends on opportunity cots
Ricardian model
The source of differing comparative advantages
Technologies
The price that would exist in the absence of trade
Autarkic price
model of international trade that explains comparative advantage in terms of differences in endowments of factors of production like capital and labor
Hecksher-Ohlin model
Three ways which countries can protect their domestic industries from foreign competition
Tariffs, quotas, and domestic content provisions
policies that seek to control the flow of capital in and out of a country in order to advance the country’s broader economic interests and goals
Capital Restrictions
agreements between countries on various rules governing trade between them; promoting free trade amongst them
Regional Trading blocs
Trade agreements (or blocs) that remove trade barriers between member countries and allow each country to set up its own trading rules with non-member counties
Free trade areas
trade agreements (blocs) that remove trade barriers between member countries and also enforce a binding agreement on trade with non-member countries
Customs unions
trade agreements (blocs) that promote free flow of factors of production in addition to the free flow of goods and services
common, single, or unified market
Name the forms of Regional Trading Blocs in order of least to most economically integrated
Free trade, customs union, common market, economic union, and economic and monetary union
resulting effect is trade agreement policy that takes a country from trading with a lower-price trading partner to a higher-price trading partner
Trade diversion
The balance of payments is comprised of three main components that track flows of money between nations for different kinds of transactions. What are these components?
Current account, capital account, and financial account
What type of transactions are tracked in the Current Account?
payments for trade in goods and services, investment income like dividends and bond payments, and unilateral transfers like workers’ remittances to families overseas
What type of transactions are tracked by the Financial Account?
international purchases and sales of financial assets like corporate stocks and bonds, government securities, direct foreign investments, and foreign currencies.
What sort of transactions are recorded in the Capital Accounts?
capital transfers like debt forgiveness and the transfer of assets owned by migrants; the sale and purchase of non-produced and non-financial assets like natural resources, patents, copyrights, and trademarks.
Current Account Balance
CA = X - M = Y - (C + I + G)
What is the primary function of the World Trade organization (WTO)?
to facilitate trade through the principles of nondiscrimination and reciprocity - mutual benefit/agreement to reduce trade barriers
