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Foreign economic policy
exam prep
30
Economics
Undergraduate 2
01/17/2022

Additional Economics Flashcards

 


 

Cards

Term
Difference between the 2nd and 3rd wave of globalization
Definition
-A large part of developing countries has appeared massively on world markets.
->The changing pattern of North-South
trade:increasing share of
services+labor intensive manufacturing
in the export of developing countries
-Full-fledged trade+ capital markets liberalization+deregulation
-Labor+capital flows,+the volume of world trade have increased substantially
-Unprecedently deep integration of the world economy+ global markets
Term
Natural+perverse directions of FDI
Definition
-Natural:from rich to poor
->in poor countries capital is scarce->
larger (MPL)->higher returns
-Perverse:only in recent years-considerable flow of capital from poor to rich
->noble tendency that the largest
companies from the middle east +less
developed countries are starting to get
more+more involved in developed
countries mostly through mergers+
aquisitions
->acquire new technologies from mergers
(modern day espionage)
->economic reasons:reach new customers,
relative scarcity of capital is only
one determinant of MPL, quality of
private property/infrastructure,
available knowledge, spillovers of
tech. knowledge is one of the main
driving forces->companies like to
settle near to each other because they
can learn from each other
Term
Race-to-the-bottom
Definition

-liberalization+deregulation

-the golden straitjacket of economic policy

It refers to a competitive situation where a company, state, or nation attempts to undercut the competition's prices by sacrificing quality standards/worker safety (often defying regulation) or reducing labor costs.

Term
Dispute settlement of WTO
Definition

-Priority:settle disputes through consultations not through judgement

-Under GATT, rulings could be accepted only by consensus

-Under WTO, rulings are automatically accepted unless it is not rejected by consensus

-Dispute Settlement Body (establishes dispute panels)

-No direct enforcing power:granting the right for the plaintiff to retaliate (engage into compensatory measures) provided that the loosing defendant doesn't bring its policy in line with the ruling.

-Critisism:lengthy process+open for delaying tactics

Term
Monroe doctrine
Definition
1823:warns European nations that the US would not tolerate further colonization or puppet monarchs
Term
Roosevelt Corollary
Definition
1904:It stated that the US would intervene in Latin American countries where European powers sought to collect debts or whose agreements were thought to be unstable.
Term
Levers and ratchets
Definition

-The levers:the mechanism used to make trade gradually freer-consisted of elaborate horse-trading negotiations ("rounds") resulting in tariff reductions.

-The rachets, prevent backsliding, consisted of rules preventing countries from going back on their previous commitments, except under certain conditions.

Term
Most favoured nation (MFN) principle
Definition

-The MFN clause is based on the idea that countries should treat all their trade partners equally-that no one country should be "more favoured". It means no country should give special treatment to goods+services coming from one particular trading partner.

-The WTO has made the MFN clause part of its rules.

-Countries should also not give preferred treatment to their own products+services- which is called national treatment.

Term
Pillars of international competitiveness
Definition

-Macroeconomic conditions (economic+political stability, inrastructure, human capital)

-Economic+political institutions (business environment, level of democracy, corruption, rule of law)

-Technologycal development+efficiency (innovation, imitation, market efficiency)

Term
Potential costs of FDI
Definition

-Asymmetric dependencies (FDI exporters vs. FDI importers) +the sovereignity of economic policies

-In the long run, negative effect on the CA balance in FDI importing countries (external indebtedness)

-Oversized budget subsidies for green-/brown-field investments

-The use of obsolete technologies (with damaging effect on the human environment)

-Negative effects on domestic companies:brain-drain (the absorption of well-educated labor force), the suffocation of infant industries, unfair competition+the ousting of domestic companies

Term
Volume of FDI
Definition

Inward/outward flow of FDI: FDI realized in/by a country in a given year

Inward/outward stock of FDI: inward/outward flows of FDI accumulated up to a given year

Term
Inward flow of FDI
Definition

-Direct incentives:tax allowances, low corporate income tax rate, direct budget subsidies to green-/brown-field investments, governmental investment promotion agency

-Indirect incentives:competitive economy, attractive business environment (economic+political stability, developed economic+political institutions, well-educated labor force) 

Term
The efficiency arguement for free trade
Definition

-According to the theory, there's an efficiency loss in case of protection due to distorted incentives to underconsume+overproduce

-In small countries, import tariffs cause losses

-According to the estimates, total costs of import protection are modest these days

Term
Dynamic gains from free trade
Definition

-International competition provides enrepreneurs with incentives to innovate +improve cost-efficiency

-Avoiding inefficient small scales of production

-Owing to the export-orientation, the industrial mix shifts toward more productive sectrors

 

Term
Terms of trade arguement for import protection
Definition

-In large countries, the gain in terms of trade can outweigh the efficiency losses relatedto import tariffs

-The optimum tariff rate

-Limitations:

1.small countries can't influence world prices

2.can easily lead to retaliation+trade war

Term
Why free trade might be the 2nd best option?
Definition

-Protectionist trade policy might be easily captured by interest groups (rent seekers)

-Rent seeking in relation to import protection implies real costs to the economy

-Rent seeking+ import quotas

-Rent seeking vs. welfare-oriented trade policy

Term
Main phases of Chinese OFDI policy
Definition

1.The restriction phase (1979-89)

2.The relaxation phase (2000-2016)

3.The regulation phase (2017-)

Term
Main phases of Chinese OFDI policy
Definition

1.The restriction phase (1979-89)

2.The relaxation phase (2000-2016)

3.The regulation phase (2017-)

Term
Tariff
Definition

-a tax levied when a good is imported 

-specific tariff:levied as a fixed charge for each unit of imported goods

-ad valorem tariff:levied as a fraction of the value of imported goods

Term
Export subsidy
Definition

-specific export subsidy:a payment/unit exported

-ad valorem export subsidy:a payment as a proportion of the value exported 

Term
Import quota
Definition

-a restriction on the quantity of a good that my be imported

-is usually enforced by issuing licences/quota rights

-A binding import quota'll push up the price of the import bc. the quantity demanded'll exceed the quantity supplied by home producers+ from imports

-no gov. revenue, the revenue from selling imports at high prices goes to quota licence holders->quota rents

Term
Voluntary export restraint
Definition

-the restraints are usually requested by the importing country

-the profits/ rents from this policy are earned by foreign govs. /producers

-Foreigners sell a restricted quantity at an increased price

-it is like an import quota

Term
Local content requirement
Definition

-a regulation that requires a specified fraction of a final good to be produced domestically 

 

Term
Terms of trade
Definition
-refers to the price of exports relative to the price of imports
Term
Export-biased growth
Definition
reduces a country's terms of trade , reducing its welfare+increasing the welfare of foreign countries
Term
Import-biased growth
Definition
-increases a country's terms of trade, increasing its welfare+decreasing the welfare of foreign countries
Term
When a country imposes an import tariff,
Definition
its terms of trade increase +its welfare may increase
Term
When a country imposes an export subsidy?
Definition
its terms of trade decrease+its welfare decrases
Term
Intertemporal trade
Definition
-International borrowing+lending, where countries with profitable investment opportunities borrow funds today+ repay lenders in the future, benefiting both borrowers+lenders
Term
Gold standard
Definition

-each currency has its gold parity (exchange rate between national currencies also fixed)

-the central bank is ready to convert the national currency to gold at the given parity

-free flow of capital across borders

->monetary+ exchange rate stability->enhanced financial globalization

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