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| Globalization |
process by which perceived distance is shrinking, material culture is starting to look the same the world over, national economies are merging into one. |
| Who has the highest level of ouput in the world? |
US |
| US GDP? |
$42, 129 per capita |
| How much of the worlds GDP doe the US produce? |
20.4 |
| Globalization of markets? |
refers to the merging of historically distinct & separate natikonal markets into 1 huge global marketplace. |
| What % of small businesses export? |
90% |
| Globalization of production? |
Sourcing of goods & services from locations around the globe to take advantage of national differences in the cost & quality of various factors of production. |
| Factors of production? |
Components of production such as labor, energy, land, & capital |
| GATT |
General Agreement on Tariffs & Trade.
Intl treaty that committed signatories to lowering barriers to the free flow of goods across national borders; led to the WTO (World Trade Organization. |
| What is the WTO responsible for? |
Primarily policing the world traiding systems and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states. |
| What do critics accuse the WTO of? |
The org is usurping the national sovereignty of individual nation-states. |
| What does IMF stand for? |
International Monetary Fund |
| What is the difference between the IMF & the World Bank? |
IMF was setup to maintain order in the international monetary system and the World Bank was set up to promote economic development. |
| What are considered infrastructure investments |
Building dams or roads |
| What stipulations does the IMF make to give loans to cash strapped nation-states? |
Adopt specific economic policies aimed at returning their troubled economies to stability and growth. |
| United Nations? |
Intl org made up of 191 countries charged with keeping internaltional peace, developing cooperation between nations, amd promoting human rights. |
| What are the four purposes of the UN? |
To maintain international peace and security, develop friendly relations amoung nations, cooperate in solving international problems and in promoting respect for human rights and to be a center for harmonizing the actions of the nations. |
| Factors of production |
Labor, energy, land, & Capital |
| Intl Trade |
occurs when a firm exports goods or services to consumers in another country |
| FDI |
Foreign Direct Investment
occurs when a firm invests resources in business activities outside its home country. |
| Moore's Law |
Premise that the power of microprocessor technology doubles & its cost of production drops in half every 18 mo's. |
| Stock of FDI |
total accumulated value of foreign owned assets at a given time. |
| MNE |
Multinational enterprise
any business that has productive activities in 2 + countries. |
| Political economy |
political, economic, and legal sytems of a country are interdependent; they interact and influence each other. |
| Political system |
system of govt in a nation |
| Collectivism |
political system that stresses the primary of collective goals over individual goals |
| Plato |
believed that society should ve stratified into classes with those best suited to rule |
| Socialism |
political system that believes in state ownership of a country's means of production, distribution, & exchange so that all can benefit |
| Communits |
Those who believe that socialism can only be realized through violent revolution & totalitarian dictatorship |
| Social Democrats |
Those who believed in achieving socialism through democratic means |
| Individualism |
The philosophy that an individual should have freedom in his or her economic & political pursuits. |
| Representative Democracy |
Citizens periodically elect individuals to represent them in govt functions |
| Communist Totalitarian |
Advocating socialisism can only be achieved through a totalitarian dictatorship |
| Right-Wing Totalitarianism |
Politial pwr is monopolized by a party, group, or individual that generally permits individual economic freedom but restricts political freedom & speech |
| Tribal Totalitarianism |
Political system that a party or group represent interests of a particular tribe monopolizes political pwr |
| Market Economy |
Interaction of supply & demand determines the quantity in which goods & sercvices are produced |
| Command Economy |
Govt plans the allocation of resources |
| Legal System |
rules that regulate behavior by which the laws of a country are enforced |
| Common Law |
System of law based on tradition, precedent, & custom |
| Civil Law System |
system of law based on a derailed set of written laws and codes |
| Theocratic Law System |
system of law based on religious teachings |
| Property Rights |
Bundle of legal rights over the use to which a resource is put and over the use of any income that may be derived |
| Organization Culture |
refers to values & norms shared among employees of an org. |
| Quota Rent |
extra profit producers make when supply is artifically limited by an export quota |
| Local Content Requirement |
A requirement that some specific fraction of a good be produced domestically |
| Administrative Trade Policies |
rules adopted by govts that can be used to restrict imports or boost exports |
| Dumping |
Selling goods in a foreign market below costs of production |
| Countervailing Duties |
Antidumping Policies |
| Antidumping Policies |
designed to punish foreign firms that engage in dumping |
| Helms Burton Act |
passed in 1996, this law allows Americans to sue foreign firms that use Cuban property confiscated from them during Cuba's 1959 revolution |
| D'Amato Act |
Passed in 1996, this law allows Americans to sue foreign firms that use property in Libya or Iran confiscated from Americans |
| Infant Industry Argument |
Proposal that developing countries have a potential comparative adcantage in manufacturing |
| Strategic Trade Policy |
Govt policy aimed at either helping the countries domestic firms retain first-mover gains |
| Corn Laws |
placed a high tariff on imports of foreign corn |
| Smoot Hawley Act |
passed in 1930, US law erected a wall of tariff barriers against imports |
| Greensdield Investment |
establisment of a new operation in a foreign country |
| Flow of FDI |
amount of FDI UNDERTAKEN OVER A GIVEN TIME PERIOD; NORMALLY A YR |
| Stock of FDI |
total accumulated value of foreign owned assets at a given time |
| Gross fixed capital formation |
summarizes the totsl smount of capital invested in factories, stores,etc |
| Oligopoly |
Industry component of a limited number of large firms |
| Multipoint Competition |
arises when two or more enterprises encounter each other in different reional markets, etc |
| Eclectic Paradigm |
Theory that combining localtion specific assets or resource endowmenrs and the firms own unique assets often requires FDI. |
| Exporting |
sale of products produced in 1 country to residentsof another country |
| Licensing |
occurs when a firm (licensor) grants a foreign entity (licensee) the right to produce its product, use its production processes, etc |
| Location-specific advantages |
advantages that arise from utilizing resource endowments or assets thar are tied to a particular foreign location & that a firm finds valuable to combine with its own unique assets, etc |
| Pragmatic Nationalism |
FDI has both benefits & costs |
| Balance of Payment Accounts |
national accounts that track both payments to and receipts from foreigners |
| Current Account |
in the balance of payments, this records transactions involving the esport or import of goods & services |
| Offshore Production |
FDI undertaken to serve the house market |
| Regional Economic Integration |
Agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barrirtd to the free flow of goods |
| Free Trade Area |
Area in which all barriers to the trade of goods & services among member countries are removed |
| EFTA |
includes norway, iceland,switzerland; most enduring free tade agreement |
| Customs Union |
group of countries committed to eliminating tade barriers & adopting a common external trade policy |
| Common Market |
has no barriers to trade ntwn member countries Pg. 265 |
| Economic Union |
involes the free flow of products and factors of production btwn member countries & the adoption of a common external trade policy |
| Political Union |
central political apparatus coordinates the economic, social, & foreign policy |
| Trade creation |
occurs when high cost domestic producers are replaced by low cost producers within the free trade area. |
| Trade diversion |
occurs when lower cost external suppliers are replaced by higher costs suppliers w/in the free trade area |
| Treaty of Rome |
provided the cration of a m\common market |
| Maastricht Treaty |
Treaty committing members of the EC to adopt a common currency |
| Andean Pact |
Agreement unites Bolivi, Chile, Ecuador, Peru |
| Mercosur |
Free trade pact btwn Brazil, Argentina, Paraguay, Venezula, etc |
| Foreign Exchange Rate |
Rate @ which 1 currency is converted into another. |
| Foreign Exchange Market |
A market for converting the currency of 1 country into that of another country. |
| Foreign Exchange Risk |
Ris that changes in exchange rates will hurt the probabibility of a business deal |
| Currency Speculation |
Moving funds from one currency to another over the short term in hpoes of profiting from shifts in exchange rates |
| Hedging |
Insuring 1's bus against froeign exchage risk by using forward exchanges or currency swaps. |
| Spot Exchange Rate |
Rate @ which a foreign exchange dealer converts currency on any particular day. |
| Forward Exchange |
When 2 parties agree to exchange currency & execute a deal @ some specific date in the future. |
| Currency Swap |
simultaneous purchase & sale of a given amount of foreign exchange for two different value dates. pg. 301 |
| Arbitrage |
Purchase of securitir\es in 1 market for immediate resale in another market to profit from a price discrepancy. |
| Law of 1 Price |
principle that in comparative markets free of transportation costs & barriers to trade, identical products sold in diff countries must sell of the same price |
| Efficient Market |
Market in which prices reflect all avail info & trade is not restricted. |
| Relatively Efficent Market |
Market in which few impediments to intl trade & investment exists. |
| PPP theory predicts |
that changes in relative prices will result in change in exchange rates |
| PPP theory predits |
that exchange rates are determined by relative pricesm & changes in relative prices will result in a change in exchange rates. |
| Govt policy determines |
whether the rate of growth in a country's money suppky is grater then the rate of growth in output. |
| Purchasing Power Parity Puzzle |
failure of a strong link betwn relative inflation rates & exchange rate movements pg 309 |
| Fisher effect |
Theory that nominal interest rates in 4ach country equal the required real rate of interest & expected rate of inflation. |
| Mercantilism |
Economic philosophy advocating that countries should simultaneously encourage exports and discourage imports. |
| Zero sum game |
A situation in which a gain by one country results in a loss by another. |
| Absolute Advantage |
When 1 county is more efficient than another country in producing a particular product. pg 161 |
| PPF Production Possibility Frontier |
Various output possiblities a country can produce from its resource pool. pg 161 |
| Factor Endowments |
Extent to which a country is endowed with such resources as land, labor, and capital. |
