Study Guide 1 IR 292
Study Guide 1 IR 292 IR 292
Popular in Fundamental International Economics
Popular in INTERNATIONAL RELATIONS
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This 7 page Study Guide was uploaded by Maritt Nowak on Sunday March 13, 2016. The Study Guide belongs to IR 292 at Boston University taught by James Baldwin in Spring 2016. Since its upload, it has received 21 views. For similar materials see Fundamental International Economics in INTERNATIONAL RELATIONS at Boston University.
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Date Created: 03/13/16
IR 292 Study Guide 1 Chapter 1: • BRIC countries: Brazil, Russia, India, and China. middleincome countries that are experiencing rapid growth and having a significant impact on world trade and finance • deep integration: negotiations over domestic policies that impact international trade, more contentious and difficult to accomplish • Foreign direct investment (FDI): flows of capital (physical assets: real estate, factories and businesses) between nations • Gross domestic product (GDP): measure of total production in a country • quotas: quantitative restrictions on imports • Regional trade agreements (RTAs): preferential trade agreements between 2 or more countries • Shallow integration: reduction of tariffs and the elimination of quotas • tariffs: taxes on imports • TradetoGDP ratio: exports plus imports over GDP • Transaction costs: costs of obtaining market information, negotiating an agreement, and enforcing the agreement Chapter 2: Institutions: “rules of the game” formal (Constitution) or informal (customs or traditions) create order and reduce uncertainty foster the growth of international trade and investment define a set of rules to avoid trade wars and 1930slike problems overcome free riding problems keep markets open in recessions and boom periods lend capital to developing nations promote growth precaution against crises disagreements about structure, scope and responsibilities issues with sovereignty, transparency, ideological bias, and implementation and adjustment costs The “Big 3” IMF World Bank WTO avoid return to destructive interwar economic policies RTAs building blocks for open world trade harmful to multilateral WTO agreements discriminatory • Bretton Woods conference: created the IMF & IBRD (later World Bank) • Common external tariff: policy of customs unions in which the members adopt the same tariffs toward nonmembers • Common market: a customs union plus an agreement to allow the free mobility of inputs (labor and capital) • Customs union: free trade area plus a common external tariff • Doha Development Agenda: consider trade issues of importance to developing countries • Doha Round: meeting to set WTO policy objectives in 2001 in Doha, current round of WTO negotiations • Economic union: common market with substantial coordination of macroeconomic policies, including a common currency, and harmonization of many standards and regulations • Foreign exchange reserves: dollars, yen, pounds, euros, or another currency (or gold) that is accepted internationally • Free riding: when a person lets others pay for a good or service, or lets them do the work when he or she knows that he or she cannot be excluded from consumption of the good or from the benefits of the work • Freetrade area: nations trade goods and services without paying a tariff and without the limitations imposed by quotas • General Agreement on Tariffs and Trade (GATT): main international agreement covering the rules of trade in most, but not all, goods • IMF conditionality: changes in economic policy that borrowing nations are required to make in order to receive IMF loans • institution: rules that govern behavior • International Monetary Fund (IMF): helps member countries suffering from instability or problems with their balance of payments and provides technical expertise in international finance relations • lender of last resort: where nations can borrow if all sources of commercial lending dry up (the IMF) • mostfavored nation (MFN) status: every member of the WTO must treat each trading partner the way it treats its most favored trading partner, prevents discrimination • national treatment: foreign goods are treated similarly to the same domestic goods once they enter a nation’s market • nondiminishable: a good that does not get smaller as it is consumed • nondiscrimination: see MFN • nonexcludable: the normal price mechanism does not work to regulate access • nonrival: see nondiminishable • partial trade agreement: two or more countries agree to drop trade barriers in one or a few economic sectors • public goods: nonexcludable, nonrival and nondiminishable • quota: price of membership in the IMF • regional trade agreement (RTA): see above • sovereignty: the rights of nations to be free from unwanted foreign interference in their affairs • trade bloc: RTA • trade creation: when trade policies cause a shift in production from a highercost producer (probably domestic) to a lowercost one • trade diversion: when trade policies cause a shift in production and imports from a lowercost producer to a highercost one • trade rounds: events within the GATT/WTO in which countries periodically negotiate a set of incremental tariff reductions • Uruguay Round: trade negotiations beginning in 1986, created the WTO • World Bank: provides financial and technical assistance to wartorn economies and the developing world • World Trade Organization (WTO): main international body through which multilateral trade talks take place Chapter 3: countries that sacrifice the least amount of alternative production have the lowest opportunity cost/comparative advantage producing according to comparative advantage maximizes trade benefits and national welfare absolute advantage means if absolute productivity is greater than trading partners you can have comparative advantage without having absolute advantage • absolute productivity advantage: being able to produce more output/hour of labor than a trading partner • autarky: absence of trade • comparative productivity advantage: lower opportunity cost of producing a good than a trading partner • competitive advantage: ability to sell something at the lowest price • consumption possibilities curve (CPC): shows the ratio at which goods can be received in trade • economic restructuring: changes in the economy that may require some industries to grow and others to shrink or disappear • gains from trade: improvement in national welfare • labor productivity: units of output/overs worked • mercantilism: nationalistic economics (dominant in the 1700s) • opportunity cost: the value of the best forgone alternative to the activity actually chosen • production possibilities curve (PPC): shows tradeoffs in choosing combinations of output • relative price: tradeoff, opportunity cost • trade adjustment assistance (TAA): extended unemployment benefits, worker retraining, any government program that assist workers who lose their jobs because of foreign trade or firms moving abroad • zero sum: costs and benefits cancel each other out Chapter 4: The HO Model: comparative advantage is based on factor endowments export goods have production requirements that are intensive in the abundant factors opening trade favors abundant factor and impacts income distribution Specific factors model: some factors are immobile expanding trade creates a rise in demand for production factors income of imported goods declines used for short/mediumrun application of the HO model national differences in factor endowments do not exactly explain trade patterns The product cycle: speed of technological change life history of manufactured items innovation stabilization standardization intrafirm trade: industrial organization elements no general rules Offshoring: movement of firm activities to a foreign location telecommunications revolution migrations can alter comparative advantage (only if it is huge) motivated by supplypush factors at home or demandpull factors abroad social networks provide information and resources mediumlong run, trade does not effect the number of jobs abundance/scarcity of jobs depends on… labor market policies incentives to work macroeconomic policies of the central bank and government shortrun, trade reduces jobs in some industries while increases them in others trade between developing and highincome countries contributed to decline in real wages for industrial workers technological changes reduce the demand for unskilled labor and cause economic inequality • demandpull factors: economic conditions that “pull” in migrants • derived demand: demand for a good or service resulting from the demand for something else • factor abundance: a country has more of a factor in relation to another factor and another economy • factor scarcity: a country has less of a factor in relation to another factor and another economy • foreign affiliate: foreignbased operation owned by a firm in another country • HeckscherOhlin (HO) trade theory: predicts what goods and services will be exported and imported (intense use of abundant factor products will be exported and products requiring scarce factors will be imported) • intrafirm trade: international trade between divisions of the same company located in different countries • magnification effect: rise or decline in good prices effects factor incomes even more • offshoring: moving firm activities to another country • OLI theory: models the determinants of foreign direct investment based on ownership, location and internalization • outsourcing: shifting procurement from within a firm to outside of it (often services purchased abroad) • product cycle: manufactured goods go through heavy research and development, experimentation in manufacturing, stabilization of design and production before being completely standardized • resource curse: economic and political problems resulting from the abundance of one valuable natural resource • social networks: family and community members that provide support for migrants in their new location • specific factors model: allows for mobile and immobile production factors • StolperSamuelson theorem: changes in import or export prices lead to changes in the income of factors used to produce the imported or exported good • supplypush factors: factors that “push” migrants to leave their home country • value added: price of a good minus the value of intermediate inputs, measures the contribution of labor and capital at a given stage of production Chapter 5: comparative advantage does not account for all of world trade intraindustry trade: not based on comparative advantage similar products between countries with similar productivity, technology and factor endowments based on economies of scale and product differentiation economies of scale: average costs decrease as production increases another basis for trade internal and external wider selection of consumer choices and lower prices might limit production to a less efficient country lead to regional agglomerations, firms benefit from operating close to each other result from pools of skilled labor, specialized input suppliers and knowledge spillover industrial policies: insure that markets are available to develop industries needed for prosperity subsidies Uruguay Round made it illegal to subsidize commercial products and tough to target firms/industries no reliable methods for industry selection causes rent seeking difficult to estimate optimal amount of support to provide • export processing zone (EPZ): region without tariffs for goods that are made from imports, encourage exports with investments • external economies of scale: scale economies external to a firm, but internal to an industry. results in declining average costs as size of the industry increases • externality: divergence between social and private returns • industrial policy: policy creating new industries or supporting existing ones • interindustry trade: exports and imports of goods produced in different industries • internal economies of scale: individual firms experience decline in production costs as more units are produced • intraindustry trade: exports and imports of the same type of goods/services • maquiladora: Mexican manufacturing firms along the U.S. border that receive special tax breaks • market failure: markets don’t produce the most beneficial economic outcome due to externalities, monopolistic of oligopolistic structures • monopolistic competition: competition between differentiated products (combination of perfect competition and monopoly) • New Trade Theory: no longer assumes constant or decreasing returns to scale, introduces economies of scale • oligopoly: market with very few producers, each firm influences the price • private returns: private benefits private costs, adjusted for future costs and benefits, discounted for today’s dollars • product differentiation: two products with a similar purpose but have a few differences • rent seeking: when firms, industries or special interests alter income distribution in their favor (lobbying, legal challenges, bribes). use resources but do not contribute to output • social returns: private returns plus costs and benefits to society • Subsidies and Countervailing Measures (SCM): limits subsidies and countervailing measures • TradeRelated Investment Measures (TRIMs): national treatment and nondiscrimination for foreign investors • TradeRelated Aspects of Intellectual Property Rights (TRIPs): increased enforcement of intellectual property Chapter 6: Tariffs: increase domestic production and employment cause inefficiency and higher prices increases rentseeking, slows innovation, eliminates export markets, prompts retaliation only improves welfare in large countries, minimally, and only if there is no retaliation Quotas: greater national losses rents transfer to foreign producers • consumer surplus: how much consumers are willing to pay what they actually pay. under the demand curve and above the price line • deadweight loss: economic loss with no corresponding gain • effective rate of protection: • efficiency loss: deadweight loss of income or output when a nation produces something at a higher cost than the world price • intellectual property rights: copyrights, trademarks, patents, etc • large country case: if a country produces a large portion of the world’s output, a tariff may actually improve welfare and cause prices to fall • nominal rate of protection: how much a tariff or quota is (percentage of the price) • nontariff barrier (NTB): trade barrier that isn’t a tariff, such as quotas, red tape, regulation, rules requiring the government to purchase from domestic producers, any policy that limits imports • nontariff measure: nontariff barriers other than quotas: red tape, difficult and unfair rules, any policy besides tariffs and quotas that reduce imports and exports • nontransparent: difficult to interpret or understand (red tape and bureaucratic rules that block imports) • producer surplus: minimum price accepted by a producer what they actually get. under the price line and above the supply curve • quota rents: excess profits for foreign producers and domestic distributors when quotas increase prices • transparent: trade barrier that is clear, like a tariff • voluntary export restraint (VER): when a nation agrees to limit exports to reduce competition in another nation Chapter 7: Trade barriers: all nations use them protect old industries common in agriculture, clothing and textiles protect producers government revenue (from tariffs) tariffs and quotas are inefficient, create few jobs, and impose more costs in prices • antidumping duty (ADD): tariff in retaliation for selling imports below their value • countervailing duty (CVD): tariff in retaliation against foreign subsidies • dumping: selling in a foreign market below fair value • escape clause relief: temporary tariff protection for an industry when there are sudden harmful imports • fair value: determines if dumping is occurring • infant industry: young industry, sometimes qualifies for tariff protection until it matures • Section 301: allows the U.S. to take action against a nation they think is using unfair trade practices • Special 301: requires U.S. to monitor property rights enforcement throughout the world • subsidies: government assistance for an industry (loans, transfers, preferential tax treatment, goods, income and price supports)
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