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IBN chapter 5 terms

Terms in this set (49)

international trade
exporting and importing
merchandise trade
tangible products being bought and sold
service trade
intangible services being bought and sold
balance of trade
the country-level trade surplus or deficit
trade deficit
a country imports more than it exports
trade surplus
a country exports more than it imports
Resource-based view
Firms in one nation generate exports that are valuable, unique, and hard to imitate
what is beneficial in resource based view?
for foreign firms to import
institutional based view
Different rules governing trade are designed to determine how gains are shared or not shared
What must be true for institutional base view?
Both sides must have economic gains
Theories of International Trade (6)
1. competitive advantage
2. absolute advantage
3. factor endowment
4. product life cycle
5. strategic trade
6. diamond
Protectionism
Idea that governments should actively protect domestic industries from imports and promote exports
Who advocated for absolute advantage?
Adam Smith
absolute advantage
Under free trade, each nation gains by specializing in economic activities in which it is the most efficient producer
free trade
Free market forces should determine the buying and selling of goods and services ( little to no gov.)
Who developed the theory of comparative advantage?
David Ricardo
comparative advantage
Relative advantage in one economic activity that one nation enjoys in comparison with other nations
opportunity cost
Cost of pursuing one activity at the expense of another activity
Which theory deals with productivity differences?
Absolute advantage
Swedish economists that argued that absolute and comparative advantages stem from different factor endowments?
Eli Heckscher and Bertil Ohlin
Factor Endowment
Extent to which different countries possess various factors of production (labor, land, and technology
Factor Endowment Theory
Nations will develop comparative advantages based on locally abundant factors
What is factor endowment theory also known as?
Heckscher-Ohlin theory
Who developed the product life cycle theory?
Raymond Vernon
Product Life Cycle Theory Divided the world into what three categories?
Lead innovation nation, developed nations, and developing nations
Product life cycle is what kind of theory?
dynamic theory ( not static)
What are the three stages of a products life cycle?
1.Production of a new product that commands a price premium, with production focused in the United States
2. Maturing stage, in which the demand and ability to produce grow in other developed countries
3. New product is standardized, and production moves to low-cost developing countries.
Two issues with product life cycle
1. United States' permanent position as lead innovation nation for new products
2. Stage-by-stage migration of production that takes a longer duration
strategic trade theory
Strategic intervention by governments in certain industries can enhance their odds for international success
strategic trade policy
Provides companies a strategic advantage through government subsidies
two issues with strategic trade theory
1.Scholars and policy makers are uncomfortable with government intervention
2. Industries claim they are strategically important
Who created the diamond theory
Micheal porter
Diamond Theory
Competitive advantage of certain industries in different nations depends on four aspects
What are the four aspects of the diamond theory
1. Factor endowment - Natural and human resources
2. Tough domestic demand propels firms to scale new heights.
3. Domestic firm strategy, structure, and rivalry in one industry play a huge role in its international success or failure.
4. Related and supporting industries provide the foundation upon which key industries can excel.
Overlook for theories of international trade (4)
1. Considered as revolutionary theories when the world was dominated by mercantilistic thinking
2. Rely on simplistic assumptions of a model consisting of only two nations and two goods
3. Assume perfect resource mobility
4. Assume that there are no foreign exchange issues and zero transportation costs
resource mobility
Assumption that a resource used in producing a product for one industry can be shifted and put to use in another industry.
tariff barriers
Restrictions on trade which involve import taxes.
import tariff
a tax imposed on imports
Deadwieght cost
Net losses that occur in an economy as the result of tariffs
6 types of non-tariff barriers
1. subsidy
2. import quota
3. voluntary export restraint
4. local content requirement
5. administrative policy
6. anti dumping duty
subsidy
Government payment to domestic firms.
import quota
a limit on the amount of a good that can be imported
voluntary export restraint
international agreement that shows that exporting countries voluntarily agree to restrict their exports
local content requirement
Rules stipulating that a certain proportion of the value of the goods made in one country must originate from that country
administrative polices
bureaucratic rules designed to make it difficult for imports to enter a country
anitdumping duties
Costs levied on imports that have been "dumped," or sold below cost to unfairly drive domestic firms out of business
two economical arguments with free trade
1. To protect domestic industries
2. to shield infant industries
four political arguments against free trade
1. National security
2. consumer protection
3. trade intervention
4. environmental and social responsibilities
trade embargo
Politically motivated trade sanctions against foreign countries to signal displeasure.
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