Term
| False conflict theory: trade and the environment |
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Definition
The idea that there is a false conflict between the environment and economic development/trade. As people gain income, they push the market for more conservation measures, and the environment is like a luxury good. Evidence: Urban air pollution: sulphur dioxide and particulate matter (Grossman & Krueger)
Fuel efficiency and auto export restraints (Feenstra)
The “Environmental Kuznets Curve” |
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Term
| Justifications for EKC-type relationships |
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Definition
Changing structure of economy and environmental implications:
Agriculture & natural resources --> Manufacturing _-->Services Information and knowledge
Changes in technology: ‘dirty’ --> ‘clean’
Higher incomes lead to increased demand for environmental quality
Assimilative capacity of the environment reached at higher income levels.
Political economy of the environment: richer countries can best ‘afford’ a clean environment, through legal, governmental and enforcement institutions |
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Term
| Arguement with Environment and Protectionism |
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Definition
Protectionism, not free trade, can harm environment:
Agricultural subsidies encourage high production
Energy subsidies encourage high use |
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Term
| Different countries have different environmental preferences |
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Definition
| - Sovereignties in countries allow for individual nations to decide, "Eco-imperialism" unless there are outside forces playing into it |
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Term
| Perils and problems of free trade (Daly) |
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Definition
Free trade ignores “externalities” spillover effects on non- market participants:
External cost if SMC > P
External benefits if SMC < P
Can get socially non-optimal levels of production if social (e.g. environmental) costs are not fully included in private decision-making |
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Term
| Sustainable scale” of production: |
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Definition
| Free trade is really unregulated international commerce |
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Term
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Definition
| Through cost-cutting, increased competition can lower standards (environmental, labor, worker safety, etc.) |
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Term
| Policy on international trade (?) |
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Definition
| Countries that internalize costs should be able to employ “compensating tariffs” to protect higher-cost domestic industries |
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Term
| Three alternative solutions to improve environment degradation |
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Definition
Command and control” administrative regulation, enforcement and penalties
Changes in property rights
Privatization to avoid free ridership and the ‘tragedy of the commons’
Assignment of property rights to avoid environmental degradation by matching incidence of benefits and costs
Example: tropical deforestation
Use of government taxes and subsidies to alter behavior of polluters
“Polluter pays” principle ‘Pigouvian tax’ can alter producer incentives to pollute and achieve a socially preferred outcome
Pigouvian tax is optimal when marginal external costs = marginal net private benefits |
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Term
| Another theory of environmental protection and Rule |
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Definition
Payments for environmental services
Compensatory payments to resource owners/managers who provide environmental services, to encourage the provision of uncompensated public goods and reduce negative externalities.
Example: compensate landowners landowners in headwaters of watershed for watershed protection and provision of improved water quality and quantity downstream.
“Specificity rule” precise targeting of solutions to the cause of the problem |
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Term
| The World Bank, The New Wave of Globalization and its Economic Effects: 2 waves |
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Definition
First wave of globalization, 1870-1914, spurred by falling transport costs, technological change, massive migration, etc., was reversed by nationalism, protectionism, depression, and war, 1914-1945.
Second wave of globalization, 1945-1980, resulted from declines in trade barriers, reductions in transport costs, agglomeration and scale economies. Rich countries benefited greatly, poor countries little. |
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Term
World bank at present-
Characteristics of the “new wave” of globalization, 1980-present (Argentina, china, Hungary, India, Malaysia, Mexico, Philippines, Thailand, etc.): |
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Definition
Trade liberalization in developing world: “new globalizers” have cut tariffs sharply: 34 pts. vs. 11 pts., from mid-’80’s to late ‘90’s
Shift of “new globalizers” into manufactured product exports: 25% of developing country exports in 1980 80% in 1998!
Larger markets intensify competition and innovation
Continuing progress in technology and transport
Communications and information advances have benefited geographically dispersed supply chains |
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Term
| Complex factors of new globalization |
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Definition
Trade liberalization in developing world: “new globalizers” have cut tariffs sharply: 34 pts. vs. 11 pts., from mid-’80’s to late ‘90’s
Shift of “new globalizers” into manufactured product exports: 25% of developing country exports in 1980 80% in 1998!
Larger markets intensify competition and innovation
Continuing progress in technology and transport
Communications and information advances have benefited geographically dispersed supply chains |
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Term
| Import substitution industrialization |
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Definition
| Support growth of domestic import-competing industries in order to replace imports with domestic production, restrain outflow of foreign exchange, and avoid negative terms-of-trade effects. |
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Term
| Aspects of import substitution strategy |
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Definition
Identification of “infant industries” for protection.
•Imposition of high tariffs and non-tariff barriers to protect domestic industrial sectors; often tariff escalation.
•Overvalued exchange rate.
•Substitution of domestic production for imports. |
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Term
| Experience with import substitution strategy, infant industry |
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Definition
Trade barriers become permanent; economic rents created.
• Guaranteed market reduces incentives for domestic producers to become efficient.
• Small markets: inability to take advantage of economies of scale; excess capacity problems.
• Incentive to use capital intensive production regardless of country’s factor endowments; lack of labor absorption.
• Neglect of agriculture and other primary sectors in which country has genuine comparative advantage. |
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Term
| Prevalance of infant industry strategy |
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Definition
| in 1950’s–1970’s in developing countries; led to inefficient capital-intensive industrial production, high trade protection, low rates of economic growth, low employment generation, food imports |
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Term
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Definition
| Strategy of achieving economic growth through promotion of export industries in which country has potential comparative advantage. |
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Term
| aspects of export oriented strategy |
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Definition
Open markets and low trade barriers to maintain prices at international levels.
• Maintain market-oriented (or undervalued) exchange rate to keep exports price-competitive.
• Take advantage of economies of scale through seeking foreign markets.
• Seek production efficiency through exposure to international competition.
• Special incentives and benefits for exporters, including tax breaks, preferential access to transportation and port services, etc. |
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Term
| exprience with export oriented growth |
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Definition
Overall association (correlation) of export growth and “outward-oriented” trade policies with national rates of economic growth.
• Great success in some countries: Japan, Hong Kong, South Korea, Singapore, Taiwan, Chile.
• Exposure to international price trends, especially for primary commodities:
- Long-term price declines for many primary commodities
- Price instability for primary commodities
• Potential terms-of-trade problems
• Has stimulated economic restructuring and trade liberalization initiatives in many developing countries (in conjunction with structural adjustment policies). |
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Term
| World bank chart with regards to growth |
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Definition
Growth according to trade orientation, 1963-1998
found that export oriented countries had high rate of economic growth of the long run, versues import oriented countries who exprienced negative growth in the long run |
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Term
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Definition
Established, along with World Bank, at Bretton Woods Conference in July 1944, in anticipation of end of WWII, and to avoid financial chaos which followed WWI.
Includes 180+ nations
➢Main goals are to:
•Promote cooperation on issues related to international monetary system
•Facilitate international trade and a multilateral system of international payments
Promote stability of exchange rates
Make short-term financial resources available to member nations to correct payments disequilibria |
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Term
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Definition
Financed through member countries' quotas (proportional to a nation's global financial and economic importance) and loans.
➢Played a key role in stabilizing international finance through Bretton Woods international monetary system which existed from 1940's to early 1970's. |
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Term
| IMF economic stabilization programs |
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Definition
For countries experiencing high inflation, overvalued currency, chronic budget deficits and/or current account deficits:
➢Reduction of budget deficit through higher taxes or lower expenditures
➢Controlled growth of money supply to limit inflation
➢Devalue currency to stimulate exports, reduce imports, and restore equilibrium in current account.
➢Remove price controls
➢Reduce wage growth (to no more than productivity growth |
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Term
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Definition
Helps government reschedule debt payments
➢ Offers loans (standby credits) at reduced interest rates
But…conditional on domestic economic and policy reforms |
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Term
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Definition
Established at Bretton Woods Conference (July 1944) to provide long-term loans for Europe's reconstruction following WWII.
➢ Since 1950's, has focused on providing long-term loans for projects and programs in developing countries
➢ More than 150 member nations
➢ Funded through capital stock (U.S. is major stockholder with approx. 1/3 of total stock) and sale of bonds backed by credits from member countries. |
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Term
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Definition
Bank loans to developing countries finance development projects such as communications and transportation systems, agricultural and rural development, health and nutrition programs, dams and irrigation systems, economic development projects, etc. (Loans must be repaid!)
➢ For countries facing economic difficulties, Bank works with IMF in coordinating short-term economic stabilization and longer-term structural adjustment programs to achieve economic stability and growth. |
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Term
| world bank structural adjustment programs |
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Definition
➢ Begun in early 1980's, as developing countries experienced problems in paying back loans incurred in 1970's.
➢ Aimed at stimulating long-term economic growth and transformation of low-income countries
➢ Structural adjustment loans provide financial support to governments and sectors undergoing adjustment, conditional on economic and policy reforms in those sectors ('conditionality'). |
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Term
| typical reforms of world bank |
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Definition
• Reducing/eliminating producer and consumer subsidies
• Lowering trade barriers
• Streamlining of the public sector
• Stimulating private sector through less government intervention and greater use of markets
• Tax reform
…typically in concert with exchange rate reforms |
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Term
| Example of structural adjustment program by the World Bank |
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Definition
➢ Example: Structural adjustment in agricultural and food sector
•Lower (zero) subsidies for farmers
•Eliminate (reduce) generalized consumer food subsidies
•Eliminate parastatal marketing organizations; support replacement by private markets.
•Replace administered prices with market prices.
•Increase subsidized interest rates to market level.
•Devalue local currency to reduce imports and stimulate exports (part of ‘export-oriented’ growth strategy) |
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Term
| Seven reason for intetnational capital flows |
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Definition
Maximize expected rate of return on capital
Diversify risk within international portfolio (explains two-way investment flows)
Market expansion and diversification
Minimize costs of production (low wage countries)
Horizontal or vertical integration
Secure access to raw materials
Secure access to promising markets |
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Term
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Definition
| have had a great amount of capital inflows in the past two decades |
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Term
| U.S. trade inflows and outflows |
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Definition
| u.s foreign assets abroad and foreign assets in the us have increased tremendously |
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Term
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Definition
Increased production, exports and employment
Generation of tax revenues
Realization of scale economies and price reductions
Human capital development, increased managerial and technical skills
Technology transfer
Increased competition with domestic industry may lower market power and reduce prices |
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Term
| Problems of FDI for a host country |
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Definition
:
Adverse impact on terms of trade (if investment is sizable, if investment goes into export sector, and if country is ‘large’)
Instability in the exchange rate and balance of payments
“Crowding out” of domestic investment, and shifting of investible funds away from alternative investments
Loss of control over domestic policy |
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Term
| Multinational corporations |
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Definition
Often are oligopolies selling differentiated products produced under economies of scale: motor vehicles, petroleum products, electronics, metals, office equipment, chemicals, food
Sources of competitive advantage:
Vertical integration: raw materials, intermediate materials, improved distribution networks
Horizontal integration: through foreign affiliates, can exploit market power, adapt products to local conditions, ensure product quality
Economies of scale in production (outsourcing of labor functions), financing, R&D, market information
Knowledge of market and flexibility in responding to changing market conditions and new opportunities
Rapid technology transfer
Lower risk through diversification |
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Term
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Definition
Exon, Gm=US
Ford, british petrolum.
The largest mncs are car and oil companies
Hitachi and Sony are the electronics on the top twenty list |
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Term
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Definition
| Local labor market effects: ability to minimize collective bargaining power; expatriate workers lower local employment gains; buying local businesses (vs. creating new ones) lowers employment gains |
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Term
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Definition
| abuse of transfer pricing -internal pricing of goods within a MNC, typically in order to reduce overall tax burden. |
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Term
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Definition
Technology transfer:
In host country, imported technology can threaten local firms (but may increase competition)
For source country, technology transfer reduces competitive advantage, economic growth, etc.
For source country, tax concessions (foreign tax credits, tax deferrals for overseas subsidiary earnings) represent a loss to Treasury
Loss of sovereignty in host country; exploitation of country through excessive tax concessions, excessively low raw material prices, repatriation of maximum benefits to source country |
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Term
| migration as an international factor movement |
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Definition
International labor movements; function of international labor mobility (though frequently limited by government laws and regulations
Effect of labor mobility is tendency to equalize wage rates internationally (“factor price equalization”) |
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Term
| Four positive aspects of international migration |
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Definition
Economic benefits to worker and family (income, educational and job opportunities, etc.).
Remittances to source country often an important source of income
Filling available labor demands (both low-skill and high-skill) in destination country, along with economic multiplier effects involved.
Help solve demographic challenges in destination country (e.g., paying for future Social Security benefits) |
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Term
| three costs of immigration |
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Definition
“Brain drain” in source country; particularly important in the new economy based on technology, innovation and knowledge generation.
•Public sector and social services costs in destination country (short-term effects).
•Wage effects on low-skill labor force by enabling firms to avoid having to raise wages to attract and retain workers |
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Term
| Four important monetary aspects of international trade |
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Definition
1.International financial market transactions dwarf trade in goods and services:
$1-2 trillion/day turnover in foreign exchange markets
2Foreign ex. turnover/world exports: 12:1 (1979) → 69:1 (1998)
3Important source of increased global integration
4Exchange rates strongly influence merchandise trade
Role of government policies in affecting interest rates, exchange rates and economic growth |
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Term
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Definition
| A statistical account of the transactions between the residents of one country and the rest-of-the-world for one year or a fraction thereof. |
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Term
| History of balance of payments |
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Definition
Under Bretton Woods system (post WWII through 1973), emphasis on BOP surplus/deficit as indicator of pressure to devalue or revalue currency.
➢Since 1970’s, less stress on BOP due to acceptance of monetarist principle that BOP surplus/deficit is temporary; focus on XC rates as long-run equilibrating mechanism. |
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Term
| Accounting principle BOP is based on |
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Definition
| BOP accounts based on a system of double-entry bookkeeping with a credit and debit entered for each transaction |
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Term
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Definition
Any payment to a resident or anything that creates a claim to payment to a resident.
•Exports
•Income on foreign investments
•Unilateral transfers to residents |
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Term
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Definition
Any payment by a resident or anything that creates a claim by a resident.
•Imports
•Interest-dividends paid to foreign bond- or stockholders
•Capital outflows
•Unilateral transfers abroad |
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Term
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Definition
Measures net balance of exports and imports of goods and services
•Merchandise balance (“balance of trade”): net trade in goods (exports – imports)
•Services balance: net trade in services
•Investment income
•Unilateral transfers
•“Current account balance” a more comprehensive measure than “balance of trade |
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Term
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Definition
Records financial transactions which affect balance of assets between countries
•U.S. investments in foreign assets (capital outflow)
•Foreign investments in U.S. assets (capital inflow)
•Special drawing rights (SDR’s): international reserve currency used to clear financial transactions
•“Statistical discrepancy”: residual (unrecorded and illegal activity, calculation errors) |
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Term
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Definition
| Records net changes in gold inventories, foreign exchange holdings, loans to IMF, foreign holdings of domestic currency, etc. |
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Term
| U.S. Trade and Current Account Balances, 1977-2005 |
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Definition
| We have a growing twin debt, both in the current account and the capital account that has been steadily growing since the 1970s |
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Term
| 5 sources of short run imbalances in BOP |
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Definition
1.Demand for currency changes as price of substitute investments (and currencies) changes
2.Income in ROW may increase or decrease (or domestic income may change), leading to changes in currency demand through trade sector
3.Prices of tradables (imports and exports) change
4.Natural and man-made disasters and chocks
5.Consumer tastes and preferences |
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Term
| Long run causes for sources of imbalances of BOP |
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Definition
Long-run
Inflationary changes:
Rise in Inflation = ES of currency and depreciation
Esp. relative inflation vis-à-vis trading partners
Rate of economic growth (esp. relative rates)
Econ. growthcreates a higher D for imports this results in a higher D for foreign exchange relative to domestic currency This effectively leads to a higher BOP deficit |
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Term
| More causes in the longer run for an imbalance in the BOP |
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Definition
Interest rates (esp. relative rates)
Higher interest rates creates a higherD for domestic currency, which leads to higher capital inflow Higher intterest rates then causes a BOP surplus
Technology
Resource discovery and depletion
Policy:
Preferential trading agreements
Trade liberalization
Fiscal and monetary policy |
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Term
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Definition
| is a graphical explanation of how trade balance can respond to a drop in home currency- at first the trade balance is negative, but after 18 months the currency drop has a positive effect on trade |
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Term
| Foreign Exchange Rate is: |
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Definition
| is the PRICE of foreign currency denominated in terms of domestic currency |
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Term
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Definition
Medium of exchange
Unit of account
Store of value |
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Term
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Definition
| currency + demand deposits + other checkable deposits + travelers checks |
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Term
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Definition
| M1 + savings deposits + MMF |
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Term
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Definition
| M2 + savings bonds + short-term treasury securities + commercial paper |
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Term
| Two observations of foreign exchange rates |
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Definition
1.Demand and supply of foreign exchange are two sides of the same phenomenon
2.Foreign exchange rate represents equilibrium price as in any other market |
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