147 terms

International Trade and Finance

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How do Americans feel about immigration?
72% believe it's a good thing, 36% think it should decrease
Immigrants make up what percent of the American population?
13% foreign-born
What does immigration do for the economy?
Increase labor resources, thus increasing the productive capacity
Immigrants make up what percent of the labor force?
16.3% foreign-born
How does immigration affect native-born Americans?
Annual economic gains between 0.1% and 0.3%

Lower labor costs for employers, lower prices for consumers, increased employment opportunities for some workers
What are negative externalities?
Cases in which third parties are adversely affected - Substitution

A negative side effect that results when the production or consumption of a good or service affects the welfare of people who are no the parties directly involved in the market exchange.
How are immigrants represented on the skills spectrum?
Many are either low-skilled or high-skilled. Fewer in between.
What is a substitute?
Immigrant workers that compete with native-born workers for similar jobs. An influx depresses waged for low-skilled native-born workers in the short run. Same general trend for high-skilled.

Productive inputs that can be used in place of each other.
What is a complement?
More laborers increase output, increasing the demand for higher-skilled workers.

Productive inputs that are used jointly with other inputs in the production process.
What percent of the construction workforce consists of immigrants?
22% foreign-born
What percent of immigrants do not have a high school diploma? Native-born?
27%, 7%
What percent of U.S. PhDs and engineers are foreign born?
40% foreign-born
What percent of medical scientists are foreign born?
45% foreign-born
What percent of computer programmers are foreign born?
37% foreign-born
At what rate do educated immigrants receive patents compared to native born workers?
Twice as much
Immigrants are how much more likely to start a business than non-immigrants?
30% more immigrants
What percent of U.S. high-tech startups between 1995 and 2005 were founded by immigrants?
25% were by immigrants
What are means-tested benefit programs?
Taxpayer-supported services (e.g. education, medical, income subsidies...) for low-earning workers

Programs in which eligibility depends on the level of one's current income or assets.
Who creates a net fiscal drain?
Low-skilled (low-income) immigrant workers
Who creates a net fiscal surplus?
High-skilled (high-income) workers
How do Americans feel about illegal immigration?
88% worry at least a little, 93% think increasing border control is at least moderately important
How has the recent decrease in oil prices affected employment?
75,000 worker layoffs
What state was most affected by the development of new oil drilling technologies (horizontal drilling and hydraulic fracturing) and high oil prices?
North Dakota
What prevented job seekers from moving during the Great Recession?
The housing crisis left many homeowners "underwater" - that is, owing more on their home loans than they could recoup by selling the house
What was the unemployment rate in the US in 2009?
10% in October
How did horizontal drilling and fracking, as well as high oil prices, affect oil companies?
They provided an incentive build more wells
What is an FTA?
Free Trade Agreement
What are Obama's trade agreement goals?
Asia-centered trans-pacific partnership (TPP) and Transatlantic trade and investment partnership (TTIP)
How does globalization negatively affect perceptions of FTAs?
Exacerbates inequality, hurts workers, degrades US manufacturing
How could globalization positively affect perceptions of FTAs?
Opens up new markets
What is the General Agreement on Tariffs and Trade (GATT)?
123 members, decreased tariffs to 5%, opens up economies, greater free trade
What is NAFTA?
North American Free Trade Agreement is an FTA that integrates the US economy with Canada and Mexico
What is the TTP?
12 countries including Japan (not China). Accounts for 44% of US exports. Enforces regulations, environment and labor standards.
What is the TTIP?
Attempts to fully integrate US and EU economies. Trade between the two already accounts for $1 trillion. Lowers costs for businesses.
How does trade affect the US economy?
Imports/exports make up 30% of US GDP, we export $2.3 trillion, creates 11 million jobs. TTP would gain $78 billion, TTIP would gain $100 billion
What are concerns of the trade deals?
Manufacturing decline (outsourcing), easier for global corporations to move capital offshore, currency manipulation could down deals
What is globalization?
The growing interdependence of countries resulting from the increasing integration of trade, finance, people, and ideas
What are the main elements of globalization?
International trade and cross-border investment flows
When did globalization start?
After World War II, accelerated considerably since the mid-1980s
What to factors drove the development of globalization?
Technological advances that have lowered the costs of transportation, communication, and computation.

Liberalization of trade and capital markets.

Free trade over protectionism
What is liberalization?
(rejecting protectionism) Governments refusing to protect their economies from foreign competition or influence through import tariffs and nontariff barriers
What are examples of nontariff barriers used in protectionism?
Import quotas, export restraints, legal prohibitions
Who has promoted free trade in place of protectionism?
International institutions founded after WW2: World Bank, International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT), which was succeeded by the World Trade Organization (WTO) in 1995
Where has globalization significantly boosted economic growth?
East Asia: Hong Kong (China), Republic of Korea, and Singapore
How have developing countries fared with globalization?
Most in East Asia and Latin American have been slow to integrate with the world economy
How has Sub-Saharan African fared in world trade?
Its share has declined continuously since the late 1960s
How do falling oil prices positively affect the general economy?
Overall benefit. Frees up spending money: U.S. houses will spend (on average) about $750 less on gasoline in 2015 than in 2014. Lower overall inflation. Lower (nominal) interest rates.
How many jobs are supported by each operating oil rig?
120 full-time jobs
How many oil rigs are still active since 2012?
94 in April 2015, 217 in spring 2012
What was the change in oil prices between July 2014 and January 2015?
62% decrease, $105.68 per barrel to $44.08 per barrel
When and what was the peak per capital income in Williams County, ND?
$121,459 in 2012
How much did per capita income increase from 2006 to 2013?
more than 3 times, $26,219 to $90,614
How much did the population in Mountrail County increase from 2006 to 2013?
47%, 6,376 to 9,376
What was the unemployment rate in Mountrail County, ND in 2009? 2014?
3.3%, 1.1%
What is relative scarcity?
Demand for a resource relative to the available supply
How much did oil production grow in North Dakota from January 2006 to December 2014?
12-fold (99K to 1227K barrels a day)
What countries are top traders in goods and services?
In order, US, China, Japan, UK, France
What countries are top merchandise traders?
In order, China, US, Germany, Japan, France, Netherlands
How has the US share of global exports changed over time?
Fallen from 15.4% to currently 8.8%.
Where is the US in the World Economic Forum's global competitive index?
Third behind Switzerland and Singapore
How is trade deficit measured?
Value of imports minus value of exports (positive means you have a deficit)
When and what was the US's trade deficit peak?
$816 billion in 2006
Why has the trade deficit been decreasing?
Global economic slowdown due to global economic crisis, decrease in US oil imports
What and when was the US service trade surplus peak?
$250 billion in 2014
Why do countries invest in American treasury securities?
The American dollar is thought of as a safe haven for investment (very consistent). Holding US securities prevents other currencies from appreciating, maintains comparative advantage.
How common and what is the effect of currency manipulation?
Significant in 22 countries, increased deficit by $2-5 billion, led to loss of 1-5 million jobs
How is our trade deficit financed?
... Very helpful
Is the trade deficit a problem if we consume?
Yes. if we use the deficit to buy luxury goods, it will quickly become a problem,
Is the trade deficit a problem if we invest?
If the money is used for technological innovation, the deficit will payoff in the long run.
How long can the deficit be held?
As long as foreigners hold on to US assets
How can the deficit be directly reduced?
Trade policies affecting imports, exports, and exchange rates will affect the debt.
How can the deficit be indirectly reduced?
Monetary fiscal policies such as interest rates, savings rates, and budget deficits will indirectly reduce the deficit.
What does access to the world market entail for a national economy?
Benefit from the international division of labor, stronger competition that promotes improvement on efficiency, consumers enjoy a wider variety of domestic and imported goods at a lower price
How important is trade to the US economy?
US exported goods as % of GDP has risen from 9.8 to 13.4% since 1980. Imports as % of GDP increased 10.3-16.5% over same time period. US exports support 9.7 million jobs.
Who are the US's leading trade partners?
In order: Canada, China, Mexico, Japan
How is trade data complicated by globalization?
With increasingly multinational supply chains, "made in China" really just means assembled. Value-added in China is actually very little. Most of the money is made by the MNCs.
How does value-added model affect deficit?
OECD (organization for economic cooperation and development) finds that deficit would be reduced by 25% with VA model
How does the US rank in manufacturing?
2nd behind China in value-added ($2.6-2 trillion)
How has manufacturing output changed?
Since 1987, manufacturing output increased 68%
How have manufacturing and services as % of GDP changed?
Sine 1980, manufacturing fell 20-8%, services rose 56-87%.
How has manufacturing employment changed?
Peaked at 19.4 million in 1979, 12.2 million now
What is the biggest reason countries benefit from unrestricted foreign trade?
Increased access of their producers to larger, international markets.
How does importing affect the dollar?
As more people acquire the dollar, the value of it depreciates, resulting in it being harder to import and easier to export. We then export more and the deficit decreases.
Why run a trade deficit?
We can borrow money to spur economic growth, though it causes deficit
Why might a trade deficit with one specific country be deceiving?
If it is difficult for us to import from a specific country, we very well may be importing more from a different country and potentially have a surplus there. The overall trade deficit doesn't change much.
Who trades the most per economy size? Where does the US fit in?
Germany, the US doesn't trade that much relative to economy size
Why is there competition between Japan and China over hosting the G20 summit?
Both are emerging as global powers and want a greater role in global leadership, large rivalry trying to outdo each other as the two major powers in the East.
What is an example of "spill over" in relation to new technologies from other countries?
When knowledge is embedded in imported production equipment.
Why are technological spill overs important?
Allow developing countries to catch up to developed countries in terms of productivity
What are the risks of the international market for a country?
Less adaptable and competitive industries will be forced out of business, reliance on foreign suppliers of national security (e.g. food imports)
How is protectionism in the international market harmful?
Allows domestic producers to produce less efficiently and leads to economic stagnation
What are the risks of international specialization?
Can lead to dependence on the exportation of one or two products
What do the costs and benefits of international trade depend on?
Size of the country's domestic market, its natural resource endowment, its location
Average growth rates of GNP (gross national product) and exports of goods and services for the world?
GNP - 3.1%, Exports - 5.8%
Average growth rates of GNP (gross national product) and exports of goods and services for high-income countries?
GNP - 3.0%, Exports - 5.9%
Average growth rates of GNP (gross national product) and exports of goods and services for East Asian and the Pacific?
GNP - 7.4%, Exports - 8.8%
Average growth rates of GNP (gross national product) and exports of goods and services for Latin America and the Caribbean?
GNP - 3.3%, Exports - 5.2%
Average growth rates of GNP (gross national product) and exports of goods and services for South Asia?
GNP - 4.6%, Exports - 6.2%
Average growth rates of GNP (gross national product) and exports of goods and services for Sub-Saharan African?
GNP - 2.7%, Exports - 2.1%
How much has globalization grown since 1950?
It has roughly doubled
How fast have exports grown in relation to GNP over the past 30 years?
About twice as much
What was the ratio of world trade to world GDP (in purchasing power parity terms) in 1996?
30%, 40% in developed countries, 15% in developing countries
How much of developed countries' share of exports go to developing countries?
20% in 1985, 22% in 1995
Why did developing countries' terms of trade deteriorate in the 1980s and 1990s?
Prices of primary goods had fallen relative to prices of manufactured goods
How has trade changed between developing countries and developed countries (OECD)? Answer is relative to developing countries.
1985 - largest export was ores and fuel (57%)
1996 - largest export was labor-intensive, low-knowledge manufactured goods (57%)
^The two essentially traded as first and second
The third largest has remained as food.

The largest import is still capital- and knowledge-intensive manufactured goods (80% in 1985, 83% in 1996)
What is a transition country?
A country that is moving from planned to market economy
How much did the share of trade in GDP increase for Central and Eastern European countries from 1990 to 1995?
10% or less to 20% or more
What is the Baltic Free Trade Area?
Estonia, Latvia, and Lithuania
What is the Central Europe Free Trade Area?
Czech Republic, Hungary, Poland, Slovak Republic, Slovenia, Estonia, Latvia, and Lithuania
What are regional trade blocs that non-members of the European Union and World Trade Organization face?
Trade quotas that impede exportation of so-called sensitive goods such as: agricultural products, iron and steel, textiles, footwear -- labor-intensive, low-skill manufactured goods or natural resources
When does a country have an absolute advantage over other countries?
When it can produce a good or service with fewer resources over other competing countries

The ability to produce more of a good or service than another producer using the same amount of resources as that producer, or stated differently, the ability to produce a good or service using fewer inputs than another producer
What is trade?
An interdependent system of exchanging goods and services
Why do people trade?
They will enjoy a wider variety of goods
What is comparative advantage?
The ability to produce at a lower opportunity cost than another producer
What is opportunity cost?
The value of the next-best alternative when a decision is made; it's what is given up
What is balance of trade?
The difference between a country's total exports and total imports. Also known as "net exports." Subtract imports from exports.
How are trade and comparative advantage related?
Trade allows people to purchase things at a much lower cost because other countries have a comparative advantage in producing them.

Comparative advantage allows countries to specialize in what they do best -- higher productivity
What is specialization?
Limiting production to fewer goods and services than consumed, perhaps those whose production entails the lower opportunity cost.
How much of the world's trade in 2013 is accounted for by the top 10 traders in merchandise trade?
52% of trade
How much of the world's trade in 2013 is accounted for by developing economies?
43% of trade
What was the worth of the merchandise exports of 160 WTO members in 2013?
USD 17.8 trillion
How much of the world's total trade in commercial services were represented by the top 10 traders in world commercial services?
50% of trade
How much of the world's total trade in commercial services were represented by developing economies?
34% of trade
What was the worth of exports of commercial services by WTO members in 2013?
USD 4.6 trillion
What percent of merchandise exports from developing economies are sent to other developing economies?
52% of exports; 35% to Asia, 6% to South and Central America and the Caribbean, 6% to the Middle East, 4% to Africa
What percent of developed economies' total exports are sent to developing economies?
almost 30%
What percent of merchandise exports from developing economies are sent to developed countries?
43% of exports
Of the developing economies, who receives the most imports from other developing economies?
In order from highest to lowest: (Others), China, India, (least developed countries), Brazil, Russia, South Africa
What are the BRICS economies?
Brazil, Russia, India, China, South Africa
What is Brazil's percentage share in world trade and who are its main export partners (2013)?
1.3%; Argentina (8.3%), United States (10.3%), China (19.0%)
What is the Russian Federation's percentage share in world trade and who are its main export partners (2013)?
2.9%; Italy (5.5%), China (6.8%), Netherlands (13.1%)
What is India's percentage share in world trade and who are its main export partners (2013)?
1.7%; China (4.8%), United Arab Emirates (10.1%), United States (12.5%)
How much do LDC (least developed countries) exports amount to (2013)?
1.1% of world trade, USD 215 billion
What percent of LDC exports were exported where?
44% - Asia (23% China), 24% - Europe (20% EU), 12% - North America (10% US)
What percent of merchandise exports in 2013 originated from developing economies?
44% of world merchandise exports
What percent of merchandise exports in 2013 originated from developed economies?
52% of world merchandise exports
How much have developing economies' exports to least-developed countries grown?
grew 10% in 2012, 8% in 2013
How much have developed economies' exports to least-developed countries grown?
grew 0% in 2012, 3% in 2013
How much did developing economies' exports to the BRICS total in 2013?
USD 1,382 billion, represting 17% of their total exports or 8% of global merchandise exports
How much did world merchandise exports increase?
grew 2.5%, GDP grew by 2.0% in 2013
Who has the highest growth in merchandise exports?
Asian (4.5%), North America (3.0%)
Who has the highest growth in imports?
Middle East (6.0%), Asia (4.5%)
Where have growth rates fallen?
Africa - 2.5% in 2013 following growth of 6.5% in 2012. Middle East - 2.0% in 2013 compared to 5.0% in 2012. North America - 3.0% in 2013 following 4.5% in 2012.
How much did merchandise exports from developing economies grow in volume terms in 2013?
grew 4.0%
How much did merchandise imports into developing countries grow in volume terms in 2013?
grew 5.0%
How much did world merchandise imports grow in volume terms in 2013?
grew 2%
Who are the top three merchandise traders in the world?
In order: China (USD 4,159 billion, surplus USD 259 billion - 2.8% of GDP), United States (USD 3,909 billion, deficit USD 750 billion - 4.5% of GDP) , Germany (surplus USD 264 billion - 7.3% of GDP)

Fourth: Japan (USD 1,548 billion, deficit USD 118 billion - 2.4% of GDP) 5- France, 6 - Netherlands