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Topic #7 - Trade
Terms in this set (21)
A world in which there are virtually no political or cultural barriers to the location of goods and investment.
Democracy within nation states
This mean that the government respects both individual liberty and political equality.
Each national government can pursue policies that it chooses without any significant limits imposed on it by other nations and by global institutions.
What is the main argument of Prebisch and Singer related to commodity export prices?
Over time, they fall so developing countries lose revenue unless they can continually increase export volume. (Primary Producer's Terms of trade have steadily declined.)
What is the main idea of the Ricardo and Mill Static Model?
Gains from trade are essential as well as specialization and comparative advantages.
What is the main of the Heckscher and Ohlin factor endowment theory?
All factor endowments are relative and thus we need international specialization. Different products require different productive factors in different ratios.
What is Porter's Competitive Advantage theory?
Traditional theory applies only to basic factors like physical resources and unskilled labor. However, the creation of advanced factors is the first priority in trying to escape from the constraint of factor driven national advantages.
What is the product cycle theory?
The idea that the progressive replacement of more developed countries by less developed countries In the production of manufactures of increasing complexity.
What are a nations terms of trade?
A country's average export price to its average import price.
Industrial policy is what?
Guiding the market through strategic coordination of business investments to increase export market shares.
How do you calculate nominal tariff rate?
(Price of good after tariff - Price of good before tariff) / (Price of good before tariff)
How do you calculate effective tariff rate?
(Value Added After Tariff - Value Added Before ) / (Value Added Before Tariff)
What does it mean that countries possess a fixed, immobile factor endowment?
Countries have a certain amount of the factors of production. They cannot change or alter this amount; that's just how it is.
Why is not true that a nation can't change its factor endowment?
Capital and labor are both mobile via migration, foreign investment, and capital flight. Countries can easily decide to invest in both their human and physical capital so their endowments increase.
According to north-south model of unequal trade itself impact on the distribution of resource endowments between nations?
Trade can reinforce the unequal distribution of resource endowments between nations.
What are some other reasons why Hacksher-Ohlin model is flawed in its assumptions?
- Full employment
- Fixed/freely available technology
- Consumer sovereignty
- Internal Factor mobility
- Perfect Competition
- Gov't non interference in trade
- Balanced trade and international price adjustments.
- Trade gains accusing to nationals
What is one possible implication of imposing a very high effective tariff rate on a good?
- Attracts scarce resources away from intermediate goods to the inefficient production of final goods.
- Backward linkages do not develop.
- Intermediate good import costs rise.
- Indigenous capital goods industry is impeded.
What are potential benefits of pursuing an import substitution strategy?
-Gives a chance for the domestic industry to learn and grow ("infant Industry" Argument).
-Better balance of power due to reduced imports.
-Helps foster industrial self reliance
-Greater control over economic destinies.
What are potential dangers of pursuing an import substitution strategy?
-Domestic industry can become inefficient and the infant industry never grows up.
-Opportunities for rent seeking
-Balance of power can get worse due to imports of capital and intermediate goods
-Foreign firms can benefit more
-Increases the cost of production for forward linked industries
-Decreases demand for backward linked industries
Which outward oriented trade strategy is characterized by an active role for government in influencing the type and sequencing of exports? (moving to progressively more advanced products)
The concept that "trade introduces discipline" means that exporters have to become able to produce at or below world prices. What problem that was typical under import substitution can be avoided because of this?
This means that firms cannot remain inefficient, as they often did under IS. Infant industries have to grow up and become mature.
THIS SET IS OFTEN IN FOLDERS WITH...
Topic #1 - Introduction
Topic #2 - Comparative Economic Development
Topic #3 - Institutions
Topic #4 - Classic Theories
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