Term
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Definition
-A means of discouraging imports by placing a tariff (tax) on imported goods.
-Import tariff: A tax imposed on imports.
• Deadweight costs: Net losses that occur in an economy as the result of tariffs. |
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Term
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Definition
A means of discouraging imports using means other than taxes on imported goods.
-Subsidy: A government payment to domestic firms.
-Import Quota: A restriction on the quantity of goods brought into a country.
-Voluntary export restraint (VER): An international agreement that shows that an exporting country voluntarily agrees to restrict its exports.
-Local content requirement: A rule that stipulates that a certain proportion of the value of a good must originate from the domestic market. |
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| Political arguments Against Free-Trade |
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Definition
| Political arguments Against Free-Trade are based on advancing a nation’s political, social, and environmental agenda regardless of possible economic gains from trade. The arguments include national security, consumer perception, foreign policy, and environmental and social responsibility |
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Term
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Definition
| An MNE, by definition, is a firm that engages in FDI when doing business abroad. Note that non-MNE firms can also do business abroad by exporting and importing, licensing and franchising, outsourcing, or engaging in FPI. What sets MNEs apart from non-MNEs is FDI. An exporter has to undertake FDI in order to become an MNE. In other words, BMW would not be an MNE if it manufactured all of its cars in Germany and exported them around the world. BMW became an MNE only when it started to directly invest abroad. |
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Term
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Definition
Basic choices when entering foreign markets include exporting, licensing, and FDI.
Firms prefer FDI to Licensing because:
o FDI reduces dissemination risks.
o FDI provides tight control over foreign operations.
o FDI facilitates the transfer of tacit knowledge through “learning by doing.” |
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Term
| Transfer of Knowledge when investing directly (explicit and tacit – know the difference) |
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Definition
•Explicit knowledge: Knowledge that is codifiable (i.e., can be written down and transferred with little loss of richness).
•Tacit knowledge: Knowledge that is noncodifiable, whose acquisition and transfer require hands-on practice. |
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Term
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Definition
• Radical view on FDI: A political view that sees FDI as an instrument of imperialism and a vehicle for foreign exploitation.
• Free market view on FDI: A political view that holds that FDI will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services.
• Pragmatic nationalism view on FDI: A political view that approves FDI only when its benefits outweigh its costs. Most countries embrace this view. |
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Term
| Benefits of FDI to Host Countries: |
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Definition
• Capital inflow
• Technology → create technology spillovers
• Management
• Job creation → directly and indirectly |
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Term
| Costs of FDI to Host Countries: |
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Definition
• Loss of sovereignty
• Competition
• Capital outflow |
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Term
| Benefits of FDI to Home Countries: |
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Definition
• Repatriated earnings from profits from FDI.
• Increased exports of components and services to host countries.
• Learning via FDI from operations abroad |
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Term
| Costs of FDI to Home Countries: |
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Definition
| • Capital outflow and job loss |
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Term
| Sovereign Wealth Fund (Definition) |
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Definition
| Sovereign wealth fund (SWF): A state-owned investment fund composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign exchange assets. |
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Term
| Concept behind the Big Mac Index |
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Definition
• Purchasing Power Parity (PPP): is a conversion that determines the equivalent amount of goods and services different currencies can purchase. This conversion is usually used to capture the differences in cost of living between countries.
• PPP is essentially the “law of one price.” The theory suggests that in the absence of trade barriers (such as tariffs), the price for identical products sold in different countries must be the same.
• Purchasing Power Parity is the concept behind the Big Mac Index. |
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Term
| What Determines Foreign Exchange Rates |
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Definition
• Basic Supply and Demand: When the United States sells products to China, US exporters often demand that they be paid in US dollars because the Chinese yuan is useless in the United States. Chinese importers of US products must somehow generate US dollars in order to pay for US imports. The easiest way to generate US dollars is to export to the United States, whose buyers pay in US dollars. In this example, the dollar is the common transaction currency involving both US imports and US exports. As a result, the demand for dollars is much stronger than the demand for yuan (while holding the supply constant).
• Relative price differences and purchasing power parity
• Interest rate and money supply: If one country’s interest rates are high relative to other countries, that country will attract foreign funds.
• Productivity and balance of payment:
o Balance of payments (BOP): a country’s international transaction statement and includes merchandise trade, service trade, and capital movement.
o A country experiencing a current account surplus will see its currency appreciate. Conversely, a country experiencing a current account deficit will see its currency depreciate.
• Exchange rate policies:
o Floating (or flexible) exchange rate policy: is the willingness of a government to let demand and supply conditions determine exchange rates.
• Investor psychology |
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Term
| Evolution of the IMS. What was the Gold standard, Bretton Woods System and how is the IMF funded? |
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Definition
• Gold standard: A system in which the value of most major currencies was maintained by fixing their prices in terms of gold.
• Gold was used as the common denominator for all currencies, which means that all currencies were pegged at a fixed rate to gold.
• The gold standard was abandoned in 1914 when several World War I (WW I) combatant countries printed excessive amounts of currency to finance their war efforts.
• Bretton Woods system, was agreed upon by 44 countries. The system was centered on the US dollar as the new common denominator. All currencies were pegged at a fixed rate to the dollar.
• The Bretton Woods system propelled the dollar to the commanding heights of the global economy. This system reflected the higher US productivity level and the large trade surplus the United States had with the rest of the world in the first two postwar decades. At the end of WW II, the US economy contributed approximately 70% of the global GDP and was the export engine and growth engine of the world.
• International Monetary Fund (IMF): An international organization that was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements. It receive its funds from member countries quota. |
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Term
| Global Integration: GATT & WTO |
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Definition
• General Agreement on Tariffs and Trade (GATT): A multilateral agreement governing the international trade of goods (merchandise). It was established following World War II to regulate the trade between countries.
• World Trade Organization (WTO): The official title of the multilateral trading system and the organization underpinning this system since 1995. Functions of WTO include: dispute settlement, trade policy reviews, and regulation of trade of goods, services, and intellectual property. |
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| Regional Integration & Benefits |
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Definition
• Regional economic integration: the efforts to reduce trade and investment barriers within one region, such as NAFTA & European Union
• Benefits of Regional economic integration:
o Political benefits: promotes peace by fostering closer economic ties and building confidence.
o Economic benefits:
• Disputes are handled constructively
• Rules make life easier and discrimination impossible for all participating countries
• Free trade and investment raise incomes and stimulate economic growth |
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Term
| Types of Regional Economic Integration |
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Definition
o Free trade area (FTA): A group of countries that remove trade barriers among themselves.
o Customs union: One step beyond a free trade area, a customs union imposes common external policies on non-participating countries.
o Common market: Combining everything a customs union has, a common market additionally permits the free movement of goods and people.
o Economic union: Having all the features of a common market, members also coordinate and harmonize economic policies (in areas such as monetary, fiscal, and taxation) to blend their economies into a single economic entity.
o Political union: The integration of political and economic affairs of a region. |
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Term
| What happened in 1993 that formed the EU |
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Definition
| • European Union (EU): The official title of European economic integration since 1993. The title the “European Union” (EU) was officially adopted in 1993 when the Maastricht Treaty went into effect. |
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Term
| Benefits of adopting the Euro |
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Definition
o Reduces currency conversion costs
o Facilitates direct price comparison
o Imposes monetary disciplines on governments |
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Term
| 1. Foreign Exchange Rates (Ch. 7) – understand what currency pegging is http://www.investopedia.com/terms/c/currency-peg.asp and read the case study again (Dollar Vs Yuan) on p.108 |
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Definition
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Term
| 2. Corporate Social Responsibility (Ch.14) – Understand the difference between Primary and Secondary stakeholders, the fundamental debate on CSR and the concept of Sustainability (Pages 203 – 205) |
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Definition
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Term
| 3. TWIF – Five (5) pieces of advice from Friedman. Check posted slides for TWIF Chs. 7 & 8 and re-watch the video shown in class if necessary. A link is contained within the slides. |
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Definition
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Term
| Theories of International Trade |
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Definition
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