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8 Cards in this Set
- Front
- Back
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Chapter 1 Summary
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The trade balance of a country is the DIFFERENCE between the value of its exports and the vlaue of its imports and is determined by macroeconomic conditions in the country
A large portion of international trade is between industrial countries. Trade within Europe and between Europe and the US accoutns for about 1/3 of world trade While many of the trade models we will study emphasize the differences between countries, it is also possible to explain trade between countries that are similar. Similar countries will trade different varieties of goods with each other Larger countries tend to have smaller shares of trade relative to GDP because so much of their trade occurs internally. Hong Kong (China) and Malaysia have ratios of trade to GDP that exceed 100% while the U.S. ratio of trade to GDP is only 13% The majority of world migration occurs into developing countries as a result of restrictions on immigration into wealthier industrial countries International trade in goods and services acts as a subst |
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Foreign Direct Investment (FDI)
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when a firm in one country owns a company in another country
Can be described 2 ways: Horizontal FDI Vertical FDI |
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The vast majority of FDI involves flows into or out of the OECD countries
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true
OECD- Organization for Economic Cooperation and Development an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade. |
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Horizontal FDI
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The majority of FDI occurs betwen industrial countries. We will refer to these flows between industrial countries as horizontal FDI
Famous examples include the purchase of Rocefeller Center in NY and the purchase of Pebble Beach golf course--both by Japanese investors |
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Several reasons why Horizontal FDI occurs (why one firm would want to buy a company in another country)
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1. Avoid Tariffs--no shipping just produce on sight
2. provides imporved access to that economy bc the local firms will have better facilities and information for marketing products 3. An alliance between the production division of firms allows technical expertise to be shared and avoids possible duplication of products. main reason is that it allows a firm to expand its business across intl borders |
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Vertical FDI
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when a firm form an industrial country owns a plant in a developing country.
Low wages are the primary reason firms shift production abroad to developing countries. In traditional view firms from indsutrial economies use their techonolgical expertise and combine this with inexpensive labor in dev. countries to produce goods for the world market. firms enter chinese markets to avoid tariffs and acquire local partners to sell there. |
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Disinvestment
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negative FDI
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The ratio of trade to world GDP has risen steadily
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true
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