The Global Economy Flashcards
Free trade
The absence of government intervention/protectionism in any kind of international trade, so that trade takes place without any restrictions or barriers between countries
Protectionism/trade barriers
Government intervention in international trade through the imposition of trade restrictions/barriers to prevent the free entry of imports into a country and protect the domestic economy from foreign competition
Trade war
Imposition of a trade barrier by one country which can trigger a series of retaliatory (protectionist) policies by trade partner(s)
Tariff
Taxes on imported goods, most common form of trade restriction (to protect against foreign competition or raise govt revenue)
Quota
A type of protection that involves setting a legal, physical limit on the quantity or value of a good that can be imported into a country over a particular time period
Subsidy
A form of protection against imports, resulting when the govt gives money to an industry to reduce COP, increase output of a good, protect producers from foreign imports, reduce the price of a product (for free trade)
Administrative barriers
Trade protection measures taking the form of administrative procedures that countries may use to prevent the free flow of imports into a country (eg customs procedures involving inspections and valuation, controls on packaging, etc)
Dumping
Selling a good in international markets at a price below the cost of producing it or below the price charged in the home market (anti-dumping is an argument used to justify trade protection, and is deemed illegal)
Infant/sunrise industry
A new domestic industry that has not had time to establish itself and benefit from economies of scale, therefore likely being unable to compete with older competitor firms from abroad and requiring protection to compete with imports (arguments for protectionism)
Economic integration
Economic interdependence between countries, usually achieved by an agreement between countries to reduce or eliminate trade and other barriers between them
Trading bloc
A group of countries that have agreed to reduce tariffs and other trade barriers for the purpose of encouraging the development of free/freer trade and cooperation between them
Regional trade agreement
A trade agreement between several countries that are located within a geographical region (eg NAFTA, ASEAN)
Preferential trade agreement
An agreement between two or more countries to lower trade barriers between them on particular products, resulting in easier access to the markets of other members for selected products, compared with the actress of countries that are not members
Bilateral trade agreement
Any trade agreement involving 2 trading partners, aiming to lower trade barriers and increase trade (usually 2 countries, but a large group of countries that act as a single unit, eg EU, can also count)
Multilateral trade agreement
A trade agreement between many countries (currently within the framework of the WTO)
Free trade area
A type of trading bloc, whereby a group of countries agree to eliminate trade barriers between themselves but each have their own external policy towards non-members
Customs union
A type of trading bloc, where members trade freely amongst themselves and adopt common external policies with non-members; act as a group in trade negotiations
Common market
A type of trading bloc in which countries that have a free trade agreement between them, have a common external policy, and allow free movement of FOPs (esp labour and capital), eg EU
Monetary union
A high form of economic integration, involving the adoption by a group of countries of a common currency, eg euro zone, being members of a common market and having a common central bank
WTO
An international organisation that provides the institutional and legal framework for the trading system that provides the institutional and legal framework for the trading system that exists between member nations worldwide, responsible for liberalising trade, operating a system of trade rules and providing a forum for trade negotiations between governments, and for settling trade disputes
Multinational corporation (MNC)
A company that has productive units in more than once country; carries out FDI in another country (at least 10% of firm in host country)
Foreign direct investment (FDI)
Long-term investment in another country carried out by MNCs, representing at least 10% ownership; investment in productive facilities; part of financial account
Exchange rate
The value of one currency expressed in terms of another currency
Price of another currency
Fixed exchange rate
Exchange rate that is fixed by the central bank against another currency, a basket of currencies or gold, and cannot change in response to changes in currency supply and demand; constant intervention by central bank or govt
Floating exchange rate
Exchange rate determined entirely by market forces (supply and demand for the currency), with no govt intervention to influence the value of the exchange rate
Appreciation
An increase in the value of a currency in terms of another currency (floating exchange rate system) - more units of another currency are needed to exchange for a unit of the appreciated currency
Depreciation
Decrease in the value of a currency (floating exchange rate system), due to market forces
Revaluation
An increase in the value of a currency (fixed exchange rate system) set by the central bank - deliberate increase in its value
Devaluation
A decrease in the value of a currency (fixed exchange rate system), as a result of govt/central bank intervention
Balance of payments
BoP = current + capital + financial accounts = 0 Current = - (capital + financial)
Current account
Balance of trade of goods and services (X-M), inflows-outflows of income and current transfers
Include funds for gifts, foreign aid, pensions
4 components: goods, services, income, current transfers
Current account surplus/deficit
When the balance on the current account (which measures the net value of trade of goods and services, net income flows and net transfers) is positive/negative
Inflows larger/smaller than outflows
Capital account
(Inflows - outflows) of funds for capital transfers and the purchase or use of non-produced natural resources
2 components
Debt forgiveness, non-life insurance claims
Intangibles: mineral/forestry/fishing rights, airspace, patented entities
Financial account
Net balance arising from flows of FDI, portfolio investment, changes in reserve assets and official borrowing
Net change in foreign ownership of domestic financial assets
4 components
FDI: purchase of (part of a) firm from another country
Portfolio: shares, bonds, derivatives, trading of commodities and currencies (only from the purchase not income derived from investment - eg buying a stock vs receiving dividend)
Reserve assets: foreign currency held by central banks (paper money, deposits, govt bonds, securities)
Official borrowing: when govt borrows or lends money from the IMF, World Bank or foreign govt
Remittances
Transfer of money from one country to another, often by foreign workers who send their earnings in the country of residence to their family in their home country
Current expenditures
In gov’t budget: spending on day-to-day items that are recurring and items that are used up as the good/service is provided
Eg wages for govt employees, spending for supplies/equip for day-to-day operation of govt activities (eg medical supplies), provision of subsidies, interest payments of govt loans
Current transfers
Item in current account of the balance of payments, referring to inflows and outflows of funds between government, not in exchange for a good or service (eg foreign aid)
Credit item
Payments received from other countries, entering BoP with a + sign; inflow of foreign exchange into a country
Eg foreigners purchasing local assets, businesses, property, domestically produced goods
Debit item
Payments made to other countries, entering BoP accounts with - sign; represent outflow of foreign exchange from a country
Eg money leaving for investments, imports, aid, purchase of foreign businesses
Development
Something multidimensional: improvement in the economic wellbeing of a population, like standard of living, income, health, education
Sustainability
Development that meets the needs of the present generation without compromising the ability of future generations to meet their needs;
development that doesn’t cause excessive external costs and/or resource depletion
Economic development
A broad concept, involving an improvement in the standards of living, reduction in poverty/unemployment, improved health/education, greater equality in income distribution, env protection, increased freedom and economic choice
Human development index
A composite indicator measuring health (through life expectancy), education (through mean and expected years of schooling), and standard of living (through GNI per capita at $PPP).
Poverty trap
Any linked combination of factors which causes poverty to be self-perpetuating with low income/poverty as the cause
Low income → low saving → low investment → low growth → low income
Low income → low levels of human capital → low productivity → low income
Diversification
A process resulting in the production of a greater variety of goods and services that a country produces; strategy to avoid overspecialisation
Privatisation
When the govt sells state-owned/public enterprises, firms, assets to the private sector
Human capital
The contribution of labour (knowledge, skills and physical effort) to the production process.
