Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
28 Cards in this Set
- Front
- Back
|
HO
|
Heckscher-Ohlin: fathers of modern foreign trade theory
-describes the "direction of trade" that results as you move from autarky to free trade -based on comparative advantages which is based on factor of production endowments |
|
|
Who is mercantilism good for and why? Which larger theory does this tie into?
|
for countries with no comparative advantages; they wouldn't produce anything domestically and would be screwed; ties into HO
|
|
|
Robochinski thoery
|
when the stock of a factor of production is artificially increased thru govn't edict.
|
|
|
Dutch disease
|
application of Robochinski theory. it's an unintended consequence of Robochinski. It's when capital flows from other industries into the industry that the Gov't is subsidizing. Can be bad news bears.
|
|
|
Immizerizing growth
|
Most closely tied to Robochinski thoery. When a country that exports a large volume of x increases export volume of x even more that it affects the global price of x and causes the terms of trade to deteriorate and actually hurts the country
|
|
|
Vernon Product life cycle
|
1) breakthrough
2) specialized, slow, domestic, expensive labor/ production 3) some level of mechanization = cheaper domestic production 4) patent expires/ compeition increases 5) production is off-shored and is cheap 6) that country eventually begins to develop and production becomes more costly 7) production is moved to a new, less developed country |
|
|
Arguments against tariffs:
|
1) hurt consumer/ standard of living by driving up prices in consumer basket
2) retaliation (other countries will put up tariffs), income repercussions (other country will be poorer and can't afford your exports), income redistribution 3) can be subverted 4) can slow technical progress b/c of protection from competition |
|
|
Arguments for tariffs:
|
1) protect industries and jobs
2) create revenue for gov't |
|
|
Import-competing subsidies:
|
Best way to protect domestic jobs: better than tariffs. b/c of specificity. the real problem is that costs are too high, and subsides pay part of cost. can't be subverted.
|
|
|
Infant Industries
|
the growth model used in Latin America. as opposed to export oriented growth. It's where the country puts up super high tariffs so that it's industries can grow w/o being undercut by goods from other countries. Eventually you're supposed to remove the tariffs so that competition can make the industires more efficient. Latin Am didn't do the last part which is why they got really corrupt and inefficient. gov't took over and paid losses w/ tax revenue. didn't work for long. became privatized and opened stock markets and made them more efficient
|
|
|
import quotas vs. tariffs as means of protecting jobs
|
quotas= limit the number of a certain product allowed into the country each year. generates revenue for gov't. better than tariffs.
|
|
|
Customs unions:
|
when countries come together to form trade blocks basically so that they can try to encourage certain trade. the point is try to trade create more than they trade divert. Europe did this successfully as the ECC ->EU after WWII and Latin America tried but failed as MERCUSOR. latin american consumers still had too much demand for USA goods, so not enough trade was created
|
|
|
export duty vs export subsidy:
|
export duty is the egypt example where they charge their farmers to export so they won't. need the food to stay domestic and cheap.
-export subsidy is where you want to export more, so the gov't will give money to industry. watch out for immizerising growth; tie into Robochinski |
|
|
countervailing tariffs:
|
the can-am thing. you put up a tariff on the import b/c the other gov't has subsidized the export so it can be cheaper. trying to level the playing field. transfer of wealth
|
|
|
dumping
|
what Japan did. ?must have an inelastic demand curve at home? it's predatory trade where you come in and undercut the competition by selling at a loss until they go out of business and then jack up the price afterwards as a monopoly
|
|
|
OPEC/Cartel
|
formed because the producers were small and facing large powerful buyers who were exercising monopsonistic power. cartels work when demand for product is inelastic. they reduce supply to drive up demand, they operate as a monopoly. cartels are supposed to dissolve over time as markets seek cheaper alternatives. also, members usually begin to cheat.
|
|
|
Food security
|
countries need to be self-sufficient in terms of food and other strategic items. in rich countries, the production price is above the world price. thus, w/o price supports/ subsidies, they would go out of business. Gov't will pay part of production costs to protect this industry/interest
|
|
|
North-South Dialouge
|
basically nothing gets done. South wants North to redistribute some of the wealth. North says no.
|
|
|
Factor-Price Equilization
|
basically, as countries move from autarky to free trade, the price of factors will tend to move towards each other/ equalize. example: country w/ scarce land will have high land prices in autarky, but when trade opens, that country will be importing land-intensive goods and thus land will be less desired and price will go down. has to do with relative abundance.
|
|
|
Stolper-Samuelson
|
don't talk about capital flows. focuses on the owners of factors of production and who wins and loses when moving from autarky to free trade.
for example: owner of wage rate (that is, a worker) in a country with low population will lose when moving fro autarky to free trade as labor will become relatively more abundant and therefore the wage rate will go down. that country will be importing labor-intensive goods and thus labor will be less demanded and therefore cheaper than before |
|
|
Linder's Representative Demand Hypothesis
|
theory about the direction of trade when moving from autarky to free trade. but his argument is based on the country's taste, not factor endowments. basically, France loves wine, so they produce a lot in autarky and thus develop economies of scale that will translate into a comparative advantage when trade is opened up.
|
|
|
Terms of trade
|
export price/ import price
-number can be used to indicate the level of economic development of a country -want the number to be high and always improving -want to be exporting value-added products, not raw-materials |
|
|
WTO and GATT
|
GATT became WTO-> basic purpose is to get everyone together to negotiate lower tariffs and more free trade. originally was a good thing. then became a self-sustaining bureaucracy. donesn't accomplish much any more. orginally had to have them every couple years because tariffs tend to trend upwards. they don't do that as much anymore. Now its G-8 (old powers) vs g-20 (new powers) who think they run sh1t and G-8 doesn't really care anymore and sends less important reps.
|
|
|
Can-am free trade agreement and then NAFTA
|
Reagan and Canadian prime minister got together and took down the tariffs/ countervailing tariffs to open up trade. added mexico later.
|
|
|
Hedging Irrelevancy
|
the forward rate is an unbiased predictor of the future spot rate. unbiased is a statistical term and thus only applies when the request trade volume is achieved. so big companies theoretically shouldn't hedge because there should be no difference between taking the forward rate or just swapping at the spot at time t. they do for political reasons and only when market is going to go against the balance sheet. they guarantee the loss. called differential hedging. little companies should hedge every time
|
|
|
political risk
|
measures the level of risk in regard to 1) the subsidiary being expropriated and 2) not being able to get dividends out of the other country
-based on several factors including: -murders per 1000 people -population heterogeneity -GDP/capita -balance of payments deficit and history -> currency controls can lead to not being able to get money out expropriation is natural and shouldn't be fought. it should be peaceful. |
|
|
Rate of return on foreign direct investments? On US domestic investments
|
20%
-3-5% |
|
|
cost of capital abroad
|
20%
|
