89 terms

Economic Geography Final

Key terms & study questions for Economic Geography
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absolute advantage
the ability of one country to produce a product at a lower cost than another country.
capital markets
financial markets in which money in various forms is bought and sold, including banks, securities markets, public and private debt refinancing, and so forth.
cartel
an organization of buyers and sellers, capable of manipulating price and/or supply.
common market
a form of regional economic integration among member countries that disallows internal trade barriers, provides for common external trade barriers, and permits free factor mobility.
comparative advantage
the theory that stresses relative advantage, rather than absolute advantage, as the true basis for trade. Comparative advantage is gained when countries focus on exporting the goods they can produce at the lowest relative cost.
competitive advantage
the theory of international competitiveness that stresses the production of high-value, high-profit goods using skilled labor, agglomeration economics, and constructive state policy.
customs union
a group of countries that enters into an agreement to reduce or eliminate trade barriers among themselves in order to promote trade with one another.
economic union
a form of regional economic integration having all the features of a common market as well as a common central bank, unified monetary and tax systems, and a common foreign economic policy.
euro
the currency used in most, but not all, member countries of the European Union.
european union (EU)
economic and political union of member states in Europe.
exchange rate
the value of one currency in terms of another.
export-restraint agreement
a non tariff barrier whereby governments coerce other governments to accept voluntary trade export restraint agreements.
export subsidies
payments made by governments that lower the final cost of goods and services to importers.
foreign direct investmen (FDI)
investing in companies in a foreign country, with the purpose of managerial and production control.
free-trade area
a form of regional economic integration in which member countries agree to eliminate trade barriers among themselves but continue to pursue their independent trade policies with respect to nonmember countries.
General Agreement on Tariffs and Trade (GATT)
an international agency, headquartered in Geneva, Switzerland, supportive of efforts to reduce barriers to international trade; replaced by the World Trade Organization in 1995.
infant industry
a young industry that, it is argued, requires tariff protection until it matures to the point where it is efficient enough to compete successfully with imports.
intellectual property rights
establishing and policing patent, copyright, and trademark rights on an international basis.
international currency markets
the internationalization of currency, banking, and capital markets.
International Monetary Fund (IMF)
an international financial agency that attempts to promote international monetary cooperation, facilitate international trade, make loans to help countries adjust to temporary international payment problems, and lessen the severity of international payments disequilibrium, often imposing Structural Adjustment Policies.
intracorporate trade
trade among subsidiaries of the same corporation, typically using shadow pricing rather than market prices.
nontariff barriers
restrictions other than tariffs that limit entry into an industry by competitive firms or countries, including quotas and a variety of legal limitations such as licensing requirements.
NAFTA
The North American Free Trade Agreement signed by Mexico, Canada, and the U.S. that began in 1994 and gradually removed all tariffs and nontariff barriers among them.
OPEC
Organization of the Petroleum Exporting Countries, the international cartel of oil-producing countries.
protectionism
an effort to protect domestic producers by means of controls such as tariffs and quotas on imports.
quota
a restriction on imports imposed by one country against another as a form of protectionism; the most common form of a nontariff barrier.
regional economic integration
the international grouping of sovereign nations to form a single economic region.
tariff
a schedule of duties placed on products. A tariff may be levied on an ad valorum basis or on a specific basis. Tariffs are used to serve many functions -- to make imports expensive relative to domestic substitutes; to retaliate against restrictive trade policies of other countries; to protect infant industries; and to protect strategic industries, such as agriculture, in times of war.
tax-haven country
a typically small nation, often an island, that gives extraordinary tax breaks to lure foreign capital and corporations.
terms of trade
the relative prices of exports to imports for a country.
trade deficit
the excess of a country's imports over exports for any specific year.
transnational corporations (TNCs)
companies that operate factories or service centers in countries other than the country of origin; also known as multinational corporations
unequal exchange
the argument that an artificial division of labor has made earning a good income from free trade difficult for most less developed countries.
World Bank
a group of international financial agencies that includes the International Bank for Reconstruction and Development, the International Finance Corporation, and the International Development Association.
World Trade Organization (WTO)
The world trade union that came into existence following the Uruguay Round of the GATT Treaty. The WTO enforces trade rules and assesses penalties against violators.
current account
measure of U.S. government trade that inludes both merchandise trade and intangibles (services, interest payments, etc.)
Four Tigers
South Korea, Taiwan, Hong Kong, and Singapore.
import substitution industrialization
a trade strategy, now largely discredited, that puts high tariffs on imports as a way to stimulate domestic production of goods. The opposite of export promotion.
infrastructure
the transportation and communication systems and other public goods necessary for an economy to function.
intellectual property rights
establishing and policing patent, copyright, and trademark rights on an international basis.
maquiladoras
assembly plants in Mexico, usually foreign-owned, for the production of textiles, electronics, automobiles, and other goods, mostly for export.
microelectronics
semiconductors, integrated circuits, and electronic components and parts.
brain drain
the process whereby less developed countries lose talented people to industrially advanced nations through emigration.
capital flight
the investment of their monies by local individuals and whole countries in overseas ventures and in foreign banks for safekeeping.
core and periphery
an economic and spatial relationship between regions and countries where those on the outside export raw materials to industrialized regions at the center. Core regions are self-sustaining, whereas peripheral areas are dependent on the core.
dependency theory
the perspective that the economies of less developed countries were purposely underdeveloped via colonialism and transnational corporations to facilitate the development and expansion of the world's wealthier economies.
development
a historical process that encompasses the entire economic and social life of a country, resulting in change for the better. Development is related to, but not synonymous with, economic growth.
export-led industrialization
the development strategy that relies upon encouraging foreign investment, developing a comparative or competitive advantage internationally, and generating large trade surpluses by exporting as much as possible.
export-processing zones
areas designated within countries by their governments in order to attract foreign firms and promote export-oriented activity and thus enhance foreign revenues, typically with tax breaks, subsidies, infrastructural developments, and labor training programs.
foreign aid
assistance given by one country to another, which takes many forms ranging from military aid, grants and loans, to disaster relief. Contrary to widely held opinion, foreign aid comprises a minuscule part of the government budgets of all countries, including the United States.
foreign direct investment (FDI)
investing in companies in a foreign country, with the purpose of managerial and production control.
human capital
the sum of skills, education, and experience that makes labor productive.
import-substitution industrialization
a trade strategy, now largely discredited, that puts high tariffs on imports as a way to stimulate domestic production of goods. The opposite of export promotion.
informal economy
the part of the economy that is essentially untaxed and unregulated, including, but not limited to, many illegal activities but also including casual labor, street vendors, and a variety of similar occupations; comprises a large share of the economy in the developing world.
less developed countries (LDCs)
the third and fourth worlds, encompassing Latin America, Africa, and most of Asia, characterized by relatively high rates of population growth and low per capita income.
modernization theory
the approach to development that maintains countries should embrace global capitalism, reduce trade barriers, invite foreign investment, and diffuse markets to stimulate growth.
neocolonialism
the state of being economically independent on paper, but not in practice, that is, the domination of a country's economy by foreign corporations.
newly industrializing countries (NICs)
rapidly growing economies in the less developed world, mostly in Asia, that have experienced sustained growth and rising levels of prosperity.
primary sector
economic activities associated with the extraction of raw materials, including farming, fishing, mining, and forestry.
secondary sector
the processing of materials to render them more directly useful to people; manufacturing.
squatter settlements
residential areas that are home to the urban poor in underdeveloped countries.
structural adjustment
the policies advocated by the International Monetary Fund as requirements for debit restructuring, typically including currency devaluation, reductions in government subsidies, and privatization.
sustainable development
economic development that aims at long-term environmental sustainability rather than short-term profit maximization.
terms of trade
the relative prices of exports to imports in a country.
tertiary sector
economic activity that produces intangibles, that is, services.
underdevelopment
the state characterized by poverty, low rates of investment, high unemployment and rates of population growth, and low per capita incomes.
underemployment
a shortage of job opportunities that forces people to accept less than full-time employment or being employed well beneath their training and ability.
unemployment
the state of actively seeking but unable to find employment.
uneven development
the persistent tendency of capitalism to generate social and spatial inequality, manifested geographically in rich and growing regions on the one hand, with abundant life opportunities, and poor or stagnant regions on the other, with widespread unemployment and poverty.
world-systems theory
a theory that holds that countries and regions practice economic activities and succeed based on their ability to produce needed goods and services for the world economy.
why does international trade occur?
trade among countries has been central to capitalism and a major factor in linking various parts of the world.
what are the inadequacies of existing trade theory?
...it is often based on restrictive assumptions that limit their validity
...generally ignore considerations such as scale economies and transportation costs
...assume perfect knowledge of international trading opportunities
...assume homogenous products, perfect competition, immobility of production factors, and freedom from governmental influence
...failure to account for multinational corporations
what is meant by the terms of trade?
prices received for exports relative to prices paid for imports.
what forces have driven the internalization of banking?
capital markets, international currencies
how do exchange rates affect trade?
...as a country becomes wealthier, typically it imports more goods. This results in the rising of the value of foreign currency.
...when a country has a high rate of inflation, its currency will depreciate, making the products of the trading-partner nations more attractive.
...domestic demand for imported products (specialty goods) causes their prices to rise, and raises currency value.
...a country's currency may appreciate if its domestic interest rates rise.
...currency speculation affects exchange rates.
what caused the huge U.S. trade deficits?
...an overvalued dollar -- making imports cheap and exports expensive.
...american consumers' voracious demand for imported goods, often fueled by consumer debt.
what is foreign direct investment? what are its impacts?
FDI: investing in companies in a foreign country, with the purpose of managerial and production control.
...ability to have natural or human resources, penetrate markets, and increase operating efficiency.
how has the U.S. FDI balance changed over time? Why?
...U.S. firms lead the world in FDI, but their share of the total is slipping.
...Post WWII TNCs experienced exponential growth.
What are the principal barriers to international trade?
management barriers: limited ambition, unawareness of opportunity, lack of skills, fear, etc.
government barriers: tariffs, nontariff barriers.
what are the major arguments in favor of protectionism?
there is a legitimate need for government restrictions on free trade in order to protect their country's economy and its people's standard of living.
what are tariffs, quotas, and nontariff barriers?
tariffs - a schedule of duties placed on products. They are used to serve many functions - to make imports expensive relative to domestic substitutes; to retaliate against restrictive trade policies of other countries; to protect infant industries; and to protect strategic industries, such as agriculture, in times of war.
quotas - a restriction on imports imposed by one country against another as a form of protectionism; the most common form of a nontariff barrier.
nontariff barriers - restrictions other than tariffs that limit entry into an industry by competitive firms or countries, including quotas and a variety of legal limitations such as licensing requirements.
what was the GATT and what is the WTO?
GATT - General Agreement on Tariffs and Trade, established in 1947 to help post-WWII recovery
WTO - World Trade Organization, established in 1995 in last round of GATT. Intellectual property rights.
Why were the IMF and World Bank established?
to prevent the recurrence of worldwide depression of 1930s.
Compare and contrast the EU and the NAFTA
...common system of tariffs on imports
...removal of tariffs, quotas, etc. between members
...common policies for major economic matters
...free movement of and access to capital, labor, and currency
...no inspection of goods, commodities and people across borders
...common currency

...unlike EU, NAFTA has a developing country.
What has happened to the level of world trade since WWII? Why?
increased exponentially because the output has risen.
Why does the U.S. trade more with East Asia than with Europe?
Eastern Asia is the worlds fastest growing trade region
1970s - confucian culture dedicated to learning, and governments actively promoting export-led industrialization
What are Mexican maquiladoras?
assembly plants in Mexico, usually foreign-owned, for the production of textiles, electronics, automobiles, and other goods, mostly for export.
why aren't poor countries called primitive
because primitive is the first stage of development. most poor countries are underdeveloped because it is used to describe situations in which resources were not yet developed.
what are five common characteristics of LDCs
1. rapid population growth
2. unemployment and underemployment
3. low labor productivity
4. lack of capital and investment
5. inadequate and insufficient technology