Deardorff's Glossary Of International Economics 1

Front 1

Above the line

Back 1

In balance of payments accounting, this refers to those transactions that are included in calculating the balance of payments surplus or deficit. Transactions below the line, typically official reserve transactions and sometimes short term capital flows, are not included.

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Absolute advantage

Back 2

The ability to produce a good at lower cost, in terms of real resources, than another country. In a Ricardian model, cost is in terms of only labor. Absolute advantage is neither necessary nor sufficient for a country to export a good. See comparative advantage.

Front 3

Absolute advantage trade policy

Back 3

The idea, advocated by opponents of globalization, that a country should import only goods in which other countries have an absolute advantage, particularly goods that the importing country cannot (or cannot "reasonably") produce itself.

Front 4

Absolute Purchasing Power Parity

Back 4

See purchasing power parity.

Front 5

Absorption

Back 5

Total demand for final goods and services by all residents (consumers, producers, and government) of a country (as opposed to total demand for that country's output). The term was introduced as part of the Absorption Approach.

Front 6

Absorption approach

Back 6

A way of understanding the determinants of the balance of trade, noting that it is equal to income minus absorption. Due to Alexander (1952)

Front 7

Abundant

Back 7

Available in large supply. Usually meaningful only in relative terms, compared to demand and/or to supply at another place or time. See factor abundance.

Front 8

Abundant factor

Back 8

The factor in a country's endowment with which it is best endowed, relative to other factors, compared to other countries. May be defined by quantity or by price.

Front 9

Academic Consortium on International Trade

Back 9

A group of academic economists and lawyers who are specialized in international trade policy and international economic law. ACIT's purpose is to prepare and circulate policy statements and papers that deal with important, current issues of international trade policy.

Front 10

Accession

Back 10

The process of adding a country to an international agreement, such as the GATT, WTO, EU, or NAFTA.

Front 11

Accession country

Back 11

A country that is waiting to become a member of the EU.

Front 12

Accommodating transaction

Back 12

In the balance of payments, a transaction that is a result of actions taken officially to manage international payments; in contrast with autonomous transaction. Thus official reserve transactions are accommodating, as may be short-term capital flows that respond to expectations of intervention.

Front 13

Accumulation

Back 13

The acquisition of an increasing quantity of something. The accumulation of factors, especially capital, is a primary mechanism for economic growth.

Front 14

ACE

Back 14

Automated Commercial Environment

Front 15

ACIT

Back 15

Academic Consortium on International Trade

Front 16

ACP Countries

Back 16

A group of African, Caribbean, and Pacific less developed countries that were included in the Lomé Convention and now the Cotonou Agreement. As of June 2007, the group included 79 countries.

Front 17

ACS

Back 17

Association of Caribbean States

Front 18

Actual protection rate

Back 18

Implicit tariff.

Front 19

AD

Back 19

Anti-dumping

Front 20

Ad valorem

Back 20

Per unit of value (i.e., divided by the price).

Front 21

Ad valorem equivalent

Back 21

The ad valorem tariff that would be equivalent, in terms of its effects on trade, price, or some other measure, to a nontariff barrier.

Front 22

Ad valorem tariff

Back 22

Tariff defined as a percentage of the value of an imported good.

Front 23

ADB

Back 23

1. African Development Bank Group

Front 24

ADB

Back 24

2. Asian Development Bank

Front 25

ADD

Back 25

Anti-dumping duty.

Front 26

Adjustable peg

Back 26

An exchange rate that is pegged, but for which it is understood that the par value will be changed occasionally. This system can be subject to extreme speculative attack and financial crisis, since speculators may easily anticipate these changes.

Front 27

Adjusted for inflation

Back 27

Corrected for price changes to yield an equivalent in terms of goods and services. The adjustment divides nominal amounts for different years by price indices for those years -- e.g. the CPI or the implicit price deflator -- and multiplies by 100. This converts to real values, i.e. valued at the prices of the base year for the price index.

Front 28

Adjustment assistance

Back 28

Government program to assist those workers and/or firms whose industry has declined, either due to competition from imports (trade adjustment assistance) or from other causes. Such programs usually have two (conflicting) goals: to lessen hardship for those affected, and to help them change their behavior -- what, how, or where they produce.

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Adjustment mechanism

Back 29

The theoretical process by which a market changes in disequilibrium, moving toward equilibrium if the process is stable. See Walrasian and Marshallian adjustment.

Front 30

Administered price

Back 30

A price for a good or service that is set and maintained by government, usually requiring accompanying restrictions on trade if the administered price differs from the world price.

Front 31

Administered protection

Back 31

Protection (tariff or NTB) resulting from the application of any one of several statutes that respond to specified market circumstances or events, usually as determined by an administrative agency. Several such statutes are permitted under the GATT, including anti-dumping duties, countervailing duties, and safeguards protection.

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Administrative agency

Back 32

A unit of government charged with the administration of particular laws. In the United States, those most important for administering laws related to international trade are the ITC and ITA.

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Advance deposit requirement

Back 33

A requirement that some proportion of the value of imports, or of import duties, be deposited prior to payment, without competitive interest being paid.

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Advanced country

Back 34

Developed country.

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Advantage

Back 35

Usually refers to a cost advantage, though it could refer to a strategic advantage (such as first mover advantage) or to a superiority of technology or quality.

Front 36

Adverse selection

Back 36

The tendency for insurance to be purchased only by those who are most likely to need it, thus raising its cost and reducing its benefits.

Front 37

Adverse terms of trade

Back 37

A terms of trade that is considered unfavorable relative to some benchmark or to past experience. Developing countries specialized in primary products are sometimes said to suffer from adverse or declining terms of trade.

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AEC

Back 38

African Economic Community

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African Development Bank Group

Back 39

A multinational development bank for Africa.

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African Economic Community

Back 40

An organization of African countries that aims to promote economic, cultural and social development among the African economies. Among other things, it intends to promote the formation of FTAs and customs unions among regional groups within Africa that will eventually merge into an African Common Market.

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African Growth and Opportunity Act

Back 41

U.S. legislation enacted May 2000 providing tariff preferences to African countries that qualify. As of May 2007, 38 countries had qualified.

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AFTA

Back 42

ASEAN Free Trade Area

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Agenda 21

Back 43

A plan of action adopted at the Rio Summit to promote sustainable development.

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Agent

Back 44

1.An entity within the economy that makes economic decisions and engages on economic activity. Used to refer to individual consumers, households, and firms.

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Agent

Back 45

2. One who acts on behalf of someone else.

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Agent

Back 46

3. In Principal-Agent Theory, the person whose job it is to act to the benefit of someone else (the principal), but who may require some incentive to do so.

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Agglomeration

Back 47

The phenomenon of economic activity congregating in or close to a single location, rather than being spread out uniformly over space.

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Agglomeration economy

Back 48

Any benefit that accrues to economic agents as a result of having large numbers of other agents geographically close to them, thus tending to lead to agglomeration. This is a basic feature of the New Economic Geography.

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Aggregate

Back 49

As an adjective or noun (with stress on the first syllable), this refers to the sum or total of multiple items. As a verb (with stress on the last syllable), this means to combine such items or add them up.

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Aggregate demand

Back 50

The total demand for a country's output, including demands for consumption, investment, government purchases, and net exports.

Front 51

Aggregate measure of support

Back 51

Variation of aggregate measurement of support.

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Aggregate measurement of support

Back 52

The measurement of subsidy to agriculture used by the WTO as the basis for commitments to reduce the subsidization of agricultural products. It includes the value of price supports and direct subsidies to specific products, as well as payments that are not product specific.

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Aggregate production possibility frontier

Back 53

The production possibility frontier, or curve obtained by adding the production possibilities of two or more countries or regions.

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Aggregate supply

Back 54

The total supply of a country's output, usually assumed to be an increasing function of its price level in the short run but independent of the price level in the long run.

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Aggregate transformation curve

Back 55

Aggregate production possibility frontier

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Aggregation

Back 56

The combining of two or more kinds of an economic entity into a single category. Data on international trade necessarily aggregate goods and services into manageable groups. For macroeconomic purposes, all goods and services are usually aggregated into just one.

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AGOA

Back 57

African Growth and Opportunity Act

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Agreement on Agriculture

Back 58

See Agriculture Agreement.

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Agreement on Textiles and Clothing

Back 59

The 10-year transitional program of the WTO to phase out the quotas on textiles and apparel of the MFA.

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Agricultural good

Back 60

A good that is produced by agriculture. Contrasts with manufactured good.

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Agriculture

Back 61

Production that relies essentially on the growth and nurturing of plants and animals, especially for food, usually with land as an important input; farming. Contrasts with manufacturing.

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Agriculture Agreement

Back 62

The agreement within the WTO that commits member governments to improve market access and reduce trade-distorting subsidies in agriculture, starting with the process of tariffication.

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Aid

Back 63

Assistance provided by countries and by international institutions such as the World Bank to developing countries in the form of monetary grants, loans at low interest rates, in kind, or a combination of these.

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ALADI

Back 64

Asociación Latinoamericana de Integración (Spanish for Latin-American Integration Association)

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ALCA

Back 65

Acuerdo de Libre Comercio de las Américas (Spanish for Free Trade Area of the Americas )

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ALCAN

Back 66

Acuerdo de Libre Comercio de América del Norte (Spanish for North American Free Trade Agreement)

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Allocation

Back 67

An assignment of economic resources to uses. Thus, in general equilibrium, an assignment of factors to industries producing goods and services, together with the assignment of resulting final goods and services to consumers, within a country or throughout the world economy.

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Allocative efficiency

Back 68

Refers to whether or not an allocation is efficient. A change from an allocation that is not efficient, to one that is, may be termed an "increase" in allocative efficiency.

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Alternative Trade Adjustment Assistance

Back 69

An addition to the US program of trade adjustment assistance, enacted in 2002, that provides wage insurance for a limited group of older workers.

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Amber box

Back 70

The category of subsidies in the WTO the total value of which is to be reduced. The term is used primarily in the Agriculture Agreement and includes most domestic support measures that distort production and trade. Also called orange box. See box.

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Amicus brief

Back 71

A document filed in a legal proceeding by an interested party who is not directly part of the case. In the WTO an issue has been whether to permit dispute settlement panels to accept such submissions, especially from NGOs.

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Amortization

Back 72

The deduction of an expense in installments over a period of time, rather than all at once.

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Amplitude

Back 73

The extent of the up and down movements of a fluctuating economic variable; that is, the difference between the highest and lowest values of the variable. See destabilizing speculation.

Front 74

AMS

Back 74

Aggregate measure of support.

Front 75

Analytical technique

Back 75

See technique of analysis.

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ANCERTA

Back 76

Australia-New Zealand Closer Economic Relations Trade Agreement. Also ANZCERTA and just CER.

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Andean Community

Back 77

An organization of five Andean countries -- Bolivia, Colombia, Ecuador, Peru, and Venezuela -- formed in 1997 out of the Andean Pact. It provides for economic and social integration, including regional trade liberalization and a common external tariff, as well as harmonization of other policies.

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Andean Pact

Back 78

The Cartagena Agreement of 1969, which provided for economic cooperation among a group of five Andean countries; predecessor to the Andean Community.

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Andean Trade Promotion and Drug Eradication Act

Back 79

US legislation enacted in 2002 authorizing the U.S. president to provide tariff preferences to countries in the Andean region in connection with the effort to curtail production of illegal drugs.

Front 80

Annecy Round

Back 80

The second (1949) of the trade rounds conducted under the auspices of the GATT.

Front 81

Ante

Back 81

See ex ante.

Front 82

Anti-dumping duty

Back 82

Tariff levied on dumped imports. The threat of an anti-dumping duty can deter imports, even when it has not been used, and anti-dumping law is therefore a form of nontariff barrier.

Front 83

Anti-dumping suit

Back 83

A complaint by a domestic producer that imports are being dumped, and the resulting investigation and, if dumping and injury are found, anti-dumping duty.

Front 84

Anti-trust policy

Back 84

U.S. term for competition policy, motivated by it's initial purpose of breaking up trusts.

Front 85

AOA

Back 85

Agreement on Agriculture

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APC

Back 86

Average propensity to consume

Front 87

APEC

Back 87

Asia-Pacific Economic Cooperation

Front 88

apparel

Back 88

Clothing. The apparel sector is important for trade because, as a very labor intensive sector, it is a likely source of comparative advantage for developing countries. See textiles and apparel.

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Apparent consumption

Back 89

Production plus imports minus exports, sometimes also adjusted for changes in inventories. The intention here is not to distinguish different uses for a good within the country, but only to infer the total that is used there for any purpose.

Front 90

Appellate Body

Back 90

The standing committee of the WTO that reviews decisions of dispute settlement panels.

Front 91

Applied tariff rate

Back 91

The actual tariff rate in effect at a country's border.

Front 92

Appreciate

Back 92

See appreciation.

Front 93

Appreciation

Back 93

A rise in the value of a country's currency on the exchange market, relative either to a particular other currency or to a weighted average of other currencies. The currency is said to appreciate. Opposite of "depreciation."

Front 94

Arab League

Back 94

Informal name of the League of Arab States.

Front 95

Arbitrage

Back 95

A combination of transactions designed to profit from an existing discrepancy among prices, exchange rates, and/or interest rates on different markets without risk of these changing. Simplest is simultaneous purchase and sale of the same thing in different markets, but more complex forms include triangular arbitrage and covered interest arbitrage.

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Arc elasticity

Back 96

See elasticity

Front 97

Argument for protection

Back 97

A reason given (not necessarily a good one) for restricting imports by tariffs and/or NTBs.

Front 98

Armington assumption

Back 98

The assumption that internationally traded products are differentiated by country of origin. Due to Armington (1969) in an international macroeconomic context, but now a standard assumption of international CGE models, used to generate smaller and more realistic responses of trade to price changes than implied by homogeneous products.

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Armington elasticity

Back 99

The elasticity of substitution between products of different countries.

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Article

Back 100

A specific section of a negotiated agreement.

Front 101

Article XIX

Back 101

The Safeguards Clause of the GATT.

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Article XXIV

Back 102

The article of the GATT that permits countries to form free trade areas and customs unions as exceptions to the MFN principle.

Front 103

AS-AD

Back 103

The model and/or diagram that determines the level of aggregate economic activity through the interaction of aggregate supply and aggregate demand.

Front 104

ASEAN

Back 104

Association of Southeast Asian Nations

Front 105

ASEAN Free Trade Area

Back 105

A free trade area announced in 1992 among the ASEAN countries that is in the process of being implemented.

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Asia-Pacific Economic Cooperation

Back 106

An organization of countries in the Asia-Pacific region, launched in 1989 and devoted to promoting open trade and practical economic cooperation. As of June 2007, APEC had 21 member countries.

Front 107

Asian Crisis

Back 107

A major financial crisis that began in Thailand in July 1997 and quickly spread to other East Asian countries.

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Asian Development Bank

Back 108

A multilateral institution based in Manila, Philippines, that provides financing for development needs in countries of the Asia-Pacific region. As of June 2007, ADB had 44 developing member countries.

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Asian Tigers

Back 109

The Four Tigers.

Front 110

Asset

Back 110

An item of property, such as land, capital, money, a share in ownership, or a claim on others for future payment, such as a bond or a bank deposit.

Front 111

Asset approach

Back 111

A theory of determination of the exchange rate that focuses on its role as the price of an asset. With high capital mobility, equilibrium requires that expected returns on comparable domestic and foreign assets be the same.

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Asset bubble

Back 112

See bubble.

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Asset position

Back 113

See net foreign asset position.

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Assignment problem

Back 114

How to use macroeconomic policies to achieve both internal balance and external balance; specifically, with only monetary and fiscal policies available under fixed exchange rates, which instrument should be "assigned" to which goal? Mundell (1962) showed that monetary policy should be assigned to external balance.

Front 115

Assimilative capacity

Back 115

The extent to which the environment can accommodate or tolerate pollutants.

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Association Agreement

Back 116

Early predecessor to the Europe Agreements but excluding provision for political dialogue.

Front 117

Association of Caribbean States

Back 117

A group of 25 countries of the Caribbean that signed a convention in 1994 to foster "consultation, cooperation and concerted action."

Front 118

Association of Natural Rubber Producing Countries

Back 118

An inter-governmental organization, formed by natural rubber producing countries to promote the overall interests of the commodity. See international commodity agreement.

Front 119

Association of Southeast Asian Nations

Back 119

An organization of countries in southeast Asia, the purpose of which is to promote economic, social, and cultural development as well as peace and stability in the region. Starting with five member countries in 1967, it had expanded to ten members as of June 2007.

Front 120

ASWP

Back 120

Any safe world port. Meaning that the product offered with this designation will be delivered to essentially anywhere in the world.

Front 121

Asymmetric information

Back 121

The failure of two parties to a transaction to have the same relevant information. Examples are buyers who know less about product quality than sellers, and lenders who know less about likely default than borrowers. Both are common in international markets.

Front 122

Asymmetric shock

Back 122

An exogenous change in macroeconomic conditions affecting differently the different parts of a country, or different countries of a region. Often mentioned as a source of difficulty for countries sharing a common currency, such as the Euro Zone.

Front 123

At par

Back 123

At equality. Two currencies are said to be "at par" if they are trading one-for-one. The significance is more psychological then economic, but the long decline of the Canadian dollar "below par" with the U.S. dollar, and the more recent variation of the euro between above and below par, also with the U.S. dollar, has been cause for concern.

Front 124

At sight

Back 124

See payment at sight.

Front 125

ATAA

Back 125

Alternative Trade Adjustment Assistance

Front 126

ATC

Back 126

Agreement on Textiles and Clothing

Front 127

ATPDEA

Back 127

Andean Trade Promotion and Drug Eradication Act

Front 128

Attrition

Back 128

The decline in employment in a firm or industry that occurs naturally due to workers' quitting or retiring. The pain of shrinking an industry due, say, to trade liberalization is minimized if it can be accomplished through attrition. In the UK, attrition is called natural wastage.

Front 129

Australia-New Zealand Closer Economic Relations Trade Agreement

Back 129

A free trade agreement formed in 1983 between Australia and New Zealand. Said to be one of the most comprehensive bilateral free trade agreements in the world, it was also the first to include trade in services. Identified as ANCERTA, ANZCERTA, and CER.

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Autarkic

Back 130

Associated with the situation of autarky.

Front 131

Autarky

Back 131

The situation of not engaging in international trade; self-sufficiency. (Not to be confused with "autarchy," which in at least some dictionaries is a political term rather than an economic one, and means absolute rule or power.)

Front 132

Autarky equilibrium

Back 132

In a model of an economy, the configuration of prices and quantities at which quantities supplied and demanded within the economy are equal, so that no trade would take place even if it were permitted.

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Autarky price

Back 133

Price in autarky; that is, the price of something within a country when it is not traded by that country. Relative autarky prices turn out to be the most theoretically robust (but empirically elusive) measures of comparative advantage.

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Auto Pact

Back 134

See Canada-US Auto Pact.

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Automated Commercial Environment

Back 135

ACE is an online system developed by U.S. Customs and Border Protection to process international trade.

Front 136

Automatic licensing

Back 136

The licensing of imports or exports for which licenses are assured, for gathering information, or as a holdover from when licenses were not automatic. Depending on how the licensing is administered, automatic licensing can add to the bureaucratic and/or time cost of trade.

Front 137

Automatic stabilizer

Back 137

An institutional feature of an economy that dampens its macroeconomic fluctuations, e.g., an income tax, which acts like a tax increase in a boom and a tax cut in a recession.

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Autonomous

Back 138

Refers to an economic variable, magnitude, or entity that is caused independently of other variables that it may in turn influence; exogenous.

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Autonomous consumption

Back 139

That portion of consumption that is autonomous. For example, if the consumption function has the form C=C0+cY, where C0 and c are parameters and Y is income, then C0 may be called autonomous consumption. An increase in autonomous consumption then represents an upward shift in the consumption function.

Front 140

Autonomous transaction

Back 140

In the balance of payments, a transaction that is not itself a result of actions taken officially to manage international payments; in contrast with accommodating transaction.

Front 141

Availability theory

Back 141

A theory of the determinants of international trade, due to Kravis (1956), that says that countries import what they do not have available domestically and export what they do. The theory can be said to encompass explanations of trade that stress factor endowments, technological differences, and product differentiation.

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Average cost

Back 142

Total cost divided by output.

Front 143

Average product

Back 143

The average product of a factor in a firm or industry is its output divided by the amount of the factor employed.

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Average propensity

Back 144

The fraction of total income spent on an activity, such as consumption or imports. See propensity.

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Average propensity to consume

Back 145

The fraction of total (or perhaps disposable) income spent on consumption. Contrasts with marginal propensity to consume.

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Average propensity to import

Back 146

The fraction of total income spent on imports; thus the ratio of imports to GDP. Contrasts with marginal propensity to import.

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Average tariff

Back 147

An average of a country's tariff rates. This can be calculated in several ways, none of which are ideal for representing how protective the country's tariffs are. Most common is the trade-weighted average tariff, which under-represents prohibitive tariffs, since they get zero weight.

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Back office

Back 148

Refers to the activities of a firm that are necessary to its functioning but are not directly part of production, such as accounting. Such activities, despite the name that suggests a location behind the shop or shop floor, are increasingly done at remote locations, including in other countries, as business process outsourcing.

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Backward bending

Back 149

Refers to a curve that reverses direction, usually if, after moving out away from an origin or axis, it then turns back toward it. The term is used most frequently to describe supply curves for which the quantity supplied declines as price rises above some point, as may happen in a labor supply curve, the supply curve for foreign exchange, or an offer curve.

Front 150

Backward indexation

Back 150

The setting of wages based in part on past performance of prices.

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Backward integration

Back 151

Acquisition by a firm of its suppliers.

Front 152

Backward linkage

Back 152

The use by one firm or industry of produced inputs from another firm or industry.

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BAFFLING PIGS and DUKS

Back 153

Acronyms for the 12 original members and non-members of the Euro Zone. BAFFLING PIGS = Belgium, Austria, Finland, France, Luxembourg, Ireland, Netherlands, Germany, Portugal, Italy, Greece, and Spain. DUKS = Denmark, United Kingdom, and Sweden.

Front 154

Balance of indebtedness

Back 154

See net foreign asset position.

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Balance of merchandise trade

Back 155

The value of a country's merchandise exports minus the value of its merchandise imports.

Front 156

Balance of payments

Back 156

1. A list, or accounting, of all of a country's international transactions for a given time period, usually one year. Payments into the country (receipts) are entered as positive numbers, called credits; payments out of the country (payments) are entered as negative numbers called debits.

Front 157

Balance of payments

Back 157

2. A single number summarizing all of a country's international transactions: the balance of payments surplus.

Front 158

Balance of payments adjustment mechanism

Back 158

Any process, especially any automatic one, by which a country with a payments imbalance moves toward balance of payments equilibrium. Under the gold standard, this was the specie flow mechanism.

Front 159

Balance of payments argument for protection

Back 159

A common reason for restricting imports, especially under fixed exchange rates, when a country is losing international reserves due to a trade deficit. It can be said that this is a second best argument, since a devaluation could solve the problem without distorting the economy and therefore at smaller economic cost.

Front 160

Balance of payments deficit

Back 160

A negative balance of payments surplus.

Front 161

Balance of payments equilibrium

Back 161

Meaningful only under a pegged exchange rate, this referred to equality of credits and debits in the balance of payments using a traditional definition of the capital account. A surplus or deficit implied changing official reserves, so that something might ultimately have to change.

Front 162

Balance of payments surplus

Back 162

A number summarizing the state of a country's international transactions, usually equal to the balance on current account plus the balance on financial account, but excluding official reserve transactions, or omitting also other volatile short-term financial-account transactions. It indicates the stress on a regime of pegged exchange rates.

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Balance of trade

Back 163

The value of a country's exports minus the value of its imports. Unless specified as the balance of merchandise trade, it normally incorporates trade in services, including earnings (interest, dividends, etc.) on financial assets.

Front 164

Balance on capital account

Back 164

A country's receipts minus payments for capital account transactions.

Front 165

Balance on current account

Back 165

A country's receipts minus payments for current account transactions. Equals the balance of trade plus net inflows of transfer payments.

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Balanced budget

Back 166

1. A government budget surplus that is zero, thus with net tax revenue equaling expenditure.

Front 167

Balanced budget

Back 167

2. A balanced budget change in policy or behavior is one in which a component of the government budget, usually taxes, is adjusted as necessary to maintain a balanced budget.

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Balanced growth

Back 168

Growth of an economy in which all aspects of it, especially factors of production, grow at the same rate.

Front 169

Balanced trade

Back 169

1. A balance of trade equal to zero.

Front 170

Balanced trade

Back 170

2. The assumption that the balance of trade must be zero in equilibrium, as would be the case with a floating exchange rate and no capital flows. This is a standard assumption in real models of international trade, which exclude financial assets.

Front 171

Balassa index

Back 171

See revealed comparative advantage.

Front 172

Balassa-Samuelson Effect

Back 172

The hypothesis that an increase in the productivity of tradables relative to nontradables, if larger than in other countries, will cause an appreciation of the real exchange rate. Due to Balassa (1964) and Samuelson (1964).

Front 173

Baldwin envelope

Back 173

The consumption possibility frontier for a large country, constructed as the envelope formed by moving the foreign offer curve along the country's transformation curve. Due to Baldwin (1948).

Front 174

Banana war

Back 174

A trade dispute between the EU and the U.S. over EU preferences for bananas from former colonies. On behalf of U.S.-owned companies exporting bananas from South America and the Caribbean, the U.S. complained to the WTO, which ruled in favor of the U.S.

Front 175

Bancor

Back 175

The international currency proposed by Keynes for use as the basis for the international monetary system that was being constructed at the end of World War II. Instead, the Bretton Woods System that emerged was based on the U.S. dollar. See also new bancor.

Front 176

Bank for International Settlements

Back 176

An international organization that acts as a bank for central banks, fostering cooperation among them and with other agencies.

Front 177

Bank rate

Back 177

The interest rate charged by a central bank to commercial banks for very short term loans; the discount rate.

Front 178

Barcelona Process

Back 178

The Euro-Mediterranean Partnership.

Front 179

Barrier

Back 179

1. Any impediment to the international movement of goods, services, capital, or other factors of production. Most commonly a trade barrier.

Front 180

Barrier

Back 180

2. An entry barrier.

Front 181

Barter

Back 181

The exchange of goods for goods, without using money.

Front 182

Barter economy

Back 182

An economic model of international trade in which goods are exchanged for goods without the existence of money. Most theoretical trade models take this form in order to abstract from macroeconomic and monetary considerations.

Front 183

Base money

Back 183

Monetary base.

Front 184

Base year

Back 184

The year used as the basis for comparison by a price index such as the CPI. The index for any year is the average of prices for that year compared to the base year; e.g., 110 means that prices are 10% higher than in the base year. The base year is also the year whose prices are used to value something in real terms or after adjusting for inflation.

Front 185

Basel Capital Accord

Back 185

Also known at Basel I, this was an agreement in 1988 by the Basel Committee of central bankers to measure the credit risk of commercial banks and set minimum standards for bank capital in order to reduce the likelihood of international repercussions due to bank failures.

Front 186

Basel I

Back 186

The Basel Capital Accord

Front 187

Basel II

Back 187

A substantially revised set of standards for capital adequacy of banks, with an agreed text first issued in June 2004.

Front 188

Basic balance

Back 188

One of the more frequently used measures of the balance of payments surplus or deficit under pegged exchange rates, the basic balance was equal to the current account balance plus the balance of long-term capital flows.

Front 189

Basic import price

Back 189

See minimum price system.

Front 190

Basic needs

Back 190

See living wage.

Front 191

Basis point

Back 191

One one-hundredth of a percentage point. Small changes in interest rates are commonly measured in basis points.

Front 192

Basket

Back 192

See currency basket.

Front 193

Bastable's test

Back 193

One of two conditions needed for infant industry protection to be welfare-improving, this requires that the protected industry be able to pay back an amount equal to the national losses during the period of protection. See also Mill's test.

Front 194

BEA

Back 194

Bureau of Economic Analysis

Front 195

Beachhead effect

Back 195

The idea that if costs of entering a market, such as through exports, become sunk costs, then a temporary change in market conditions such as an exchange rate can cause a lasting change in trade patterns. As one explanation for hysteresis in international trade, this was named by Baldwin (1988).

Front 196

Beef hormone case

Back 196

A trade dispute that began in 1989 when the EC banned imports of beef from cows that had been injected with growth hormones, arguing that the health effects of these hormones were suspect. The U.S. eventually complained under the WTO in 1996, arguing the absence of scientific evidence of any harm, and in 1997 the WTO panel agreed with the U.S.

Front 197

Beggar thy neighbor

Back 197

For a country to use a policy for its own benefit that harms other countries. Examples are optimal tariffs and, in a recession, tariffs and/or devaluation to create employment.

Front 198

Bell Trade Act

Back 198

Enacted by the US Congress in 1946, this specified economic conditions for Philippine independence from the US, including the exchange rate, access to resources, and trade barriers. Some of this was revised in the Laurel-Langley Agreement.

Front 199

Below the line

Back 199

See above the line.

Front 200

Benefit-cost analysis

Back 200

Same as cost-benefit analysis.

Front 201

Benelux

Back 201

1. A word referring to a grouping of the three countries, Belgium, Netherlands, and Luxembourg. Claimed by The Economist (May 3, 2008) to have been coined in August 1946 by its Belgian correspondent.

Front 202

Benelux

Back 202

2. The economic union of the three Benelux countries, initially a customs union, later an economic union, and now part of the European Union.

Front 203

Benign neglect

Back 203

Refers to doing nothing about a problem, in the hope that it will not be serious or will be solved by others. Said to be U.S. policy toward its balance of payments deficit in the late 1960s, based on other countries' need for dollar reserves.

Front 204

Bergsonian social welfare function

Back 204

A social welfare function that takes as arguments only the levels of utility of the individuals in society. Due to Bergson (1938) as interpreted by Samuelson (1981). Also called a Bergson-Samuelson social welfare function.

Front 205

Bertrand competition

Back 205

The assumption, sometimes assumed to be made by firms in an oligopoly, that other firms hold their prices constant as they themselves change behavior. Contrasts with Cournot competition. Both are used in models of international oligopoly, but Cournot competition is used more often.

Front 206

Bias

Back 206

1. Bias of technology, either change or difference, refers to a shift towards or away from use of a factor. The exact meaning depends on the definition of neutral used to define absence of bias. Factor bias matters for the effects of technological progress on trade and welfare.

Front 207

Bias

Back 207

2. Bias of a trade regime refers to whether the structure of protection favors importables or exportables, based on comparing their effective rates of protection. If these are equal, the trade regime is said to be neutral.

Front 208

Bias

Back 208

3. Bias of growth refers to economic growth through factor accumulation and/or technological progress and whether if favors one sector or another. Growth is said to be export biased if the export sector expands faster than the rest of the economy, import biased if the import-competing sector does so.

Front 209

Biased growth

Back 209

See bias.

Front 210

Bickerdike-Robinson-Metzler Condition

Back 210

In the elasticities approach to analyzing effects of exchange rates, the condition for a depreciation to have a positive effect on the trade balance: [hX hM (1 + eX + eM) – eX eM (1 – hX – hM)] / [(eX + hX)(eM + hM)] > 0, where eI (hI) is the supply (demand) elasticity of I=X,M exports and imports respectively. If supply elasticities are infinite, it reduces to the Marshall-Lerner Condition. Due to Bickerdike (1920), Robinson (1947), and Metzler (1948).

Front 211

Bicycle Theory

Back 211

With regard to the process of multilateral trade liberalization, the theory that if it ceases to move forward (i.e., achieve further liberalization), then it will collapse (i.e., past liberalization will be reversed). The idea was suggested by Bergsten (1975) and named by him in Bergsten and Cline (1982, p. 71), if not before.

Front 212

BID

Back 212

Banco Interamericano de Desarrollo (Spanish for Inter-American Development Bank)

Front 213

Bid/ask spread

Back 213

The difference between the price that a buyer must pay on a market and the price that a seller will receive for the same thing. The difference covers the cost of, and provides profit for, the broker or other intermediary, such as a bank on the foreign exchange market.

Front 214

Big Mac Index

Back 214

An index of PPP exchange rates based solely on the prices of the Big Mac sandwich in McDonald's restaurants around the world, published each spring by the Economist.

Front 215

Bilateral

Back 215

Between two countries, in contrast to plurilateral and multilateral.

Front 216

Bilateral agreement

Back 216

An agreement between two countries, as opposed to a multilateral agreement.

Front 217

Bilateral aid

Back 217

Aid from a single donor country to a single recipient country, in contrast to multilateral aid.

Front 218

Bilateral exchange rate

Back 218

The exchange rate between two countries' currencies, defined as the number of units of either currency needed to purchase one unit of the other.

Front 219

Bilateral quota

Back 219

An import (or export) quota applied to trade with a single trading partner, specifying the amount of a good that can be imported from (exported to) that single country only.

Front 220

Bilateral trade

Back 220

The trade between two countries; that is, the value or quantity of one country's exports to the other, or the sum of exports and imports between them.

Front 221

Bilateral transfer

Back 221

A transfer payment from one country to another.

Front 222

Bill of exchange

Back 222

Any document demanding payment.

Front 223

Bill of lading

Back 223

The receipt given by a transportation company to an exporter when the former accepts goods for transport. It includes the contract specifying what transport service will be provided and the limits of liability.

Front 224

Binding

Back 224

1. As an adjective, this refers to a restriction that is met exactly, and is therefore having an effect on behavior, in contrast to nonbinding.

Front 225

Binding

Back 225

2. As a noun, see tariff binding.

Front 226

BIS

Back 226

Bank for International Settlements

Front 227

Black market

Back 227

An illegal market, in which something is bought and sold outside of official government-sanctioned channels. Black markets tend to arise when a government tries to fix a price without itself providing all of the necessary supply or demand. Black markets in foreign exchange almost always exist when there are exchange controls.

Front 228

Bloc

Back 228

See trading bloc.

Front 229

Blue box

Back 229

A special category of subsidies permitted under the WTO Agriculture Agreement, it includes payments that are linked to production but with provisions to limit production through production quotas or requirements to set aside land from production. See box.

Front 230

BM

Back 230

Banco Mundial (Spanish for World Bank)

Front 231

Bond

Back 231

A debt instrument, issued by a borrower and promising a specified stream of payments to the purchaser, usually regular interest payments plus a final repayment of principal. Bonds are exchanged on open markets including, in the absence of capital controls, internationally, providing a mechanism for international capital mobility.

Front 232

Bond market

Back 232

The market for bonds, in which the prices of the bonds, and therefore the corresponding interest rates, are determined by the interaction of buyers and sellers.

Front 233

Bonded warehouse

Back 233

See foreign trade zone.

Front 234

Boom-bust cycle

Back 234

A pattern of performance over time in an economy or an industry that alternates between extremes of rapid growth (booms) and extremes of slow growth or decline (busts), as opposed to sustained steady growth. For an economy, this indicates an extreme form of the business cycle.

Front 235

BOP

Back 235

Balance of payments.

Front 236

Border effect

Back 236

A discontinuity that exists in prices or in quantities of trade at the border between countries. If the price of a good is higher on one side of a border than the other, this is a border effect. If a gravity equation includes a dummy for trade across a border and that dummy is significant, that also indicates a border effect.

Front 237

Border measure

Back 237

Border protection

Front 238

Border price

Back 238

The price of a good at a country's border.

Front 239

Border protection

Back 239

1. In the context of trade policy, this refers to policies such as tariffs and quotas that enhance profits and employment in a domestic industry, as opposed to other policies such as production subsidies that might have similar effects without restricting trade.

Front 240

Border protection

Back 240

2. Measures to prevent unwanted entry across a nation's border of illegal or harmful goods or people.

Front 241

Border tax adjustment

Back 241

Rebate of indirect taxes (taxes on other than direct income, such as a sales tax or VAT) on exported goods, and levying of them on imported goods. May distort trade when tax rates differ or when adjustment does not match the tax paid.

Front 242

Borderless world

Back 242

The concept that national borders no longer matter, perhaps for some specified purpose.

Front 243

Borrowing

Back 243

The amount that an entity, usually a country or its government, has borrowed. Thus often the (negative of) the net foreign asset position or the national debt.

Front 244

BOT

Back 244

Balance of trade.

Front 245

Bound rate

Back 245

See tariff binding.

Front 246

Bound tariff

Back 246

See tariff binding.

Front 247

Bowed

Back 247

Curved. "Bowed out" is used to describe a typical transformation curve, which is concave to the origin. In contrast, a transformation curve reflecting increasing returns to scale might be "bowed in" toward the origin.

Front 248

Box

Back 248

Used with a color, a category of subsidies based on status in WTO: red=forbidden, amber or orange=go slow (i.e., reduce the subsidy), green=permitted, blue=subsidies tied to production limits. Terminology seems only to be used in agriculture, where in fact there is no red box.

Front 249

Box diagram

Back 249

The Edgeworth Box.

Front 250

Boycott

Back 250

To protest by refusing to purchase from someone, or otherwise do business with them. In international trade, a boycott most often takes the form of refusal to import a country's goods.

Front 251

BP-Curve

Back 251

In the Mundell-Fleming model, the curve representing balance of payments equilibrium. It is normally upward sloping because an increase in income increases imports while an increase in the interest rate increases capital inflows. The curve is used under pegged exchange rates for effects on the balance of payments and under floating rates for effects on the exchange rate.

Front 252

BPO

Back 252

Business process outsourcing

Front 253

Brain drain

Back 253

The migration of skilled workers out of a country. First applied to the migration of British-trained scientists, physicians, and university teachers in the early 1960's, mostly to the United States.

Front 254

Branch plant economy

Back 254

An economy that relies heavily on branch plants, i.e., production subsidiaries, of foreign companies, and therefore on foreign-owned capital and technology.

Front 255

Brecher-Alejandro Proposition

Back 255

The proposition, proved in Brecher and Alejandro (1977), that foreign capital inflows with full repatriation must be immizerizing.

Front 256

Bretton Woods

Back 256

A town in New Hampshire at which a 1944 conference launched the IMF and the World Bank. These, along with the GATT/WTO became known as the Bretton Woods Institutions, and together they comprise the Bretton Woods System.

Front 257

Bribe

Back 257

A payment made to person, often a government official such as a customs officer, to induce favorable treatment.

Front 258

BRICs

Back 258

Acronym for four large low-income countries, Brazil, Russia, India, and China, that were growing rapidly in the early years of the 21st century. Term was coined by researchers at Goldman Sachs in 2003, reflecting their expectation that the BRICs would eventually dominate the world economy.

Front 259

Broker's fee

Back 259

The fee for a transaction charged by an intermediary in a market, such as a bank in a foreign-exchange transaction.

Front 260

Brown field investment

Back 260

FDI that involves the purchase of an existing plant or firm, rather then construction of a new plant. Contrasts with green field investment.

Front 261

Brussels Tariff Nomenclature

Back 261

An international system of classification for goods that was once widely used for specifying tariffs. It was changed, in name only, to the CCCN in 1976 and later superseded by the Harmonized System of Tariff Nomenclature

Front 262

BTN

Back 262

Brussels Tariff Nomenclature

Front 263

Bubble

Back 263

A rise in the price of an asset based not on the current or prospective income that it provides but solely on expectations by market participants that the price will rise in the future. When those expectations cease, the bubble bursts and the price falls rapidly.

Front 264

Bubble economy

Back 264

Term for an economy in which the presence of one or more bubbles in its asset markets is a dominant feature of its performance. Japan was said to be a bubble economy in the late 1980s.

Front 265

Budget constraint

Back 265

1. For an individual or household, the condition that income equals expenditure (in a static model), or that income minus expenditure equals the value of increased asset holdings (in a dynamic model).

Front 266

Budget constraint

Back 266

2. For a country, the condition that the value of exports equals the value of imports or, if capital flows are permitted, that exports minus imports equals the net capital outflow. It is equivalent to income from production equaling expenditure on goods plus net acquisition of foreign assets.

Front 267

Budget constraint

Back 267

3. The curve, usually a straight line, representing either of these conditions.

Front 268

Budget deficit

Back 268

The negative of the budget surplus; thus the excess of expenditure over income.

Front 269

Budget surplus

Back 269

Refers in general to an excess of income over expenditure, but usually refers specifically to the government budget, where it is the excess of tax revenue over expenditure (including transfer and interest payments).

Front 270

Buffer stock

Back 270

A large quantity of a commodity held in storage to be used to stabilize the commodity's price. This is done by buying when the price is low and adding to the buffer stock, selling out of the buffer stock when the price is high, hoping to reduce the size of price fluctuations. See international commodity agreement.

Front 271

Building bloc

Back 271

Or building block. See stumbling bloc.

Front 272

Built-in Agenda

Back 272

Issues that were scheduled for continued negotiations within the WTO in the Uruguay Round agreement. In addition to reviewing the implementation of various agreements, these included negotiations for further liberalization in agriculture and services.

Front 273

Built-in stabilizer

Back 273

Automatic stabilizer.

Front 274

Bureau of Economic Analysis

Back 274

The government agency within the United States Department of Commerce that collects macroeconomic data, especially the National Income and Product Accounts, as well as data on balance of payments and international investment.

Front 275

Business

Back 275

1. A firm.

Front 276

Business

Back 276

2. The activities engaged in by firms.

Front 277

Business cycle

Back 277

The pattern followed by macroeconomic variables, such as GDP and unemployment that rise and fall irregularly over time, relative to trend. There is some tendency for cyclical movements of large countries to cause similar movements in other countries with whom they trade.

Front 278

Business Cycle Dating Committee

Back 278

See National Bureau of Economic Research.

Front 279

Business process outsourcing

Back 279

The outsourcing and/or offshoring of business processes, such as the back office functions such as accounting, human resource management, etc.

Front 280

Buy American Act

Back 280

U.S. legislation requiring that government purchases give preference to domestic producers unless imports are at least a specified percentage cheaper. This is an example of a government procurement NTB that was partially given up under the Tokyo Round.

Front 281

Byrd Amendment

Back 281

A US law enacted in 2000 requiring that revenues from anti-dumping duties and countervailing duties be given to the US domestic producers who had filed the cases.

Front 282

Cabotage

Back 282

1. Navigation and trade by ship along a coast, especially between ports within a country. Restricted in the U.S. by the Jones Act to domestic shipping companies.

Front 283

Cabotage

Back 283

2. Air transportation within a country. Often restricted to domestic carriers, in an example of barriers to trade in services.

Front 284

CACM

Back 284

Central American Common Market.

Front 285

CAFTA

Back 285

U.S.-Central American Free Trade Agreement.

Front 286

Cairnes-Haberler Model

Back 286

A trade model in which all factors of production are assumed immobile between industries. See specific factors model.

Front 287

Cairns Group

Back 287

A group of agricultural exporting countries, currently (2007) numbering 19, that was formed in 1986 to act as a counterweight especially to the EU in international negotiations on agriculture. Named after the city in Australia where the group first met, in August 1986.

Front 288

Calibration

Back 288

In economic models, particularly computable general equilibrium models, this refers to the assignment of values to parameters so as to align the model with real-world data.

Front 289

CAN

Back 289

Comunidad Andina (Spanish for Andean Community)

Front 290

Canada-US Auto Pact

Back 290

The "Canada-United States Automotive Products Agreement of 1965" which reduced trade barriers on specified trade between Canada and the United States in automobiles and original-equipment auto parts.

Front 291

Canada-US Free Trade Agreement

Back 291

A free trade agreement between Canada and the United States signed in 1989 and superseded by the NAFTA in 1994.

Front 292

Cancún Ministerial

Back 292

The 5th ministerial meeting of the WTO held in Canc?n, Mexico, September 10-14, 2003 as part of the Doha Round of multilateral trade negotiations. The meeting failed to reach agreement on a framework text for the round because of disagreements between the US/EU and the G-20, mostly over agricultural subsidies.

Front 293

Canonical model of currency crises

Back 293

This term has been used to refer to the model that Krugman (1979) presented of a currency crisis that results when domestic policy is pursued in a manner inconsistent with a pegged exchange rate.

Front 294

CAP

Back 294

Common Agricultural Policy

Front 295

Capacity building

Back 295

The term used repeatedly in the Doha Declaration referring to the assistance to be provided to developing countries in establishing and administering their trade policies, conducting analysis, and identifying their interests in trade negotiations.

Front 296

Capital

Back 296

1. The plant and equipment used in production.

Front 297

Capital

Back 297

2. One of the main primary factors, the availability of which contributes to the productivity of labor, comparative advantage, and the pattern of international trade.

Front 298

Capital

Back 298

3. A stock of financial assets.

Front 299

Capital abundant

Back 299

A country is capital abundant if its endowment of capital is large compared to other countries. Relative capital abundance can be defined by either the quantity definition or the price definition.

Front 300

Capital account

Back 300

1. (Current definition) Since sometime in the 1990s, "capital account" refers to a minor component of international transactions, involving unilateral transfers of ownership of property. The common definition, below, describes what is now called the financial account.

Front 301

Capital account

Back 301

2. (Common definition) A country's international transactions arising from changes in holdings of real and financial capital assets (but not income on them, which is in the current account). Includes FDI, plus changes in private and official holdings of stocks, bonds, loans, bank accounts, and currencies.

Front 302

Capital account

Back 302

3. (Bretton-Woods definition) Same as common definition except excluding official reserve transactions. This definition was used under the Bretton Woods System of pegged exchange rates, but is less meaningful under floating exchange rates.

Front 303

Capital account balance

Back 303

Balance on capital account

Front 304

Capital account deficit

Back 304

Debits minus credits on capital account. See deficit.

Front 305

Capital account surplus

Back 305

Credits minus debits on capital account. Same as balance on capital account. See surplus.

Front 306

Capital accumulation

Back 306

Addition to the stock of capital.

Front 307

Capital adequacy ratio

Back 307

The ratio of a bank's capital to its risk-weighted credit exposure. International standards recommend a minimum for this ratio, intended to permit banks to absorb losses without becoming insolvent, in order to protect depositors.

Front 308

Capital augmenting

Back 308

Said of a technological change or technological difference if one production function produces the same as if it were the other, but with a larger quantity of capital. Same as factor augmenting with capital the augmented factor. Also called Solow neutral.

Front 309

Capital consumption allowance

Back 309

The name used in the National Income and Product Accounts for depreciation of capital.

Front 310

Capital control

Back 310

Any policy intended to restrict the free movement of capital, especially financial capital, into or out of a country.

Front 311

Capital depreciation

Back 311

See depreciation.

Front 312

Capital duty

Back 312

A tax on the value of a newly formed company, or one that has newly been transfered to a different taxing jurisdiction.

Front 313

Capital flight

Back 313

Large financial capital outflows from a country prompted by fear of default or, especially, by fear of devaluation.

Front 314

Capital flow

Back 314

International capital movement.

Front 315

Capital formation

Back 315

Capital accumulation

Front 316

Capital gain

Back 316

The increase in value that the owner of an asset experiences when the price of the asset rises, including when the currency in which the asset is denominated appreciates. Contrasts with capital loss.

Front 317

Capital good

Back 317

A good, such as a machine, that, once in place, becomes part of the capital stock.

Front 318

Capital inflow

Back 318

A net flow of capital, real and/or financial, into a country, in the form of increased purchases of domestic assets by foreigners and/or reduced holdings of foreign assets by domestic residents. Recorded as positive, or a credit, in the balance on capital account.

Front 319

Capital infusion

Back 319

An increase in financial capital provided from outside a bank, corporation, or other entity.

Front 320

Capital intensity

Back 320

A measure of the relative use of capital, compared to other factors such as labor, in a production process. Often measured by the ratio of capital to labor, or by the share of capital in factor payments.

Front 321

Capital intensive

Back 321

Describing an industry or sector of the economy that relies relatively heavily on inputs of capital, usually relative to labor, compared to other industries or sectors. See factor intensity.

Front 322

Capital-labor ratio

Back 322

The ratio of the quantity of capital (usually only physical) to the quantity of labor, usually as employed in a particular industry, but sometimes referring to the entire factor endowment of a country.

Front 323

Capital loss

Back 323

The decrease in value that the owner of an asset experiences when the price of the asset falls, including when the currency in which the asset is denominated depreciates. Contrasts with capital gain.

Front 324

Capital market

Back 324

A broad term, encompassing all the many mechanisms by which savings can be conveyed to those who wish to use it for investment. Most obviously, it includes the markets for stocks and bonds.

Front 325

Capital market imperfection

Back 325

Anything that interferes with the ability of economic agents to borrow and lend as much as they wish at a fixed rate of interest that truly reflects probability of repayment. A common source of imperfection is asymmetric information.

Front 326

Capital mobility

Back 326

The ability of capital to move internationally. The degree of capital mobility depends on government policies restricting or taxing capital inflows and/or outflows, plus the risk that investors in one country associate with assets in another.

Front 327

Capital movement

Back 327

Capital inflow and/or outflow.

Front 328

Capital outflow

Back 328

A net flow of capital, real and/or financial, out of a country, in the form of reduced holdings of domestic assets by foreigners and/or increased holdings of foreign assets by domestic residents. Recorded as negative, or a debit, in the balance on capital account.

Front 329

Capital output ratio

Back 329

The ratio of the quantity of capital to the quantity of output, usually in the one-sector economy of a simple growth model.

Front 330

Capital-saving

Back 330

A technological change or technological difference that is biased in favor of using less capital, compared to some definition of neutrality.

Front 331

Capital scarce

Back 331

A country is capital scarce if its endowment of capital is small compared to other countries. Relative capital scarcity can be defined by either the quantity definition or the price definition.

Front 332

Capital stock

Back 332

The total amount of physical capital that has been accumulated, usually in a country.

Front 333

Capital-using

Back 333

A technological change or technological difference that is biased in favor of using more capital, compared to some definition of neutrality.

Front 334

Capitalism

Back 334

An economic system in which capital is mostly owned by private individuals and corporations. Contrasts with communism.

Front 335

Capitalist

Back 335

1. An owner (or sometimes only a manager) of capital.

Front 336

Capitalist

Back 336

2. Associated or identified with capitalism.

Front 337

Caribbean Basin Initiative

Back 337

A preferential trading arrangement originally enacted in 1983 by the United States, providing duty-free access to a group of Caribbean countries for selected products. It was renewed and extended in 2000.

Front 338

Caribbean Community

Back 338

The Caribbean Community and Common Market was formed among four Caribbean countries in 1973 and had 15 members as of 2007. Its purpose is the promotion of economic integration among the member countries and coordination of foreign policies.

Front 339

Caribbean Development Bank

Back 339

A financial institution whose members are primarily the countries of the Caribbean region and whose purpose is to foster economic development in the region.

Front 340

CARICOM

Back 340

Caribbean Community and Common Market. Includes 15 members and 5 associate members.

Front 341

CARICOM Single Market and Economy

Back 341

The economic objectives of the CARICOM group, which include becoming a common market.

Front 342

Carriage of Goods by Sea Act

Back 342

U.S. legislation governing ocean transport of cargo.

Front 343

Carrier

Back 343

A firm that provides transportation of persons or goods.

Front 344

Carry trade

Back 344

The practice of borrowing in the currency of a country where interest rates are low and lending the proceeds in the currency of a country where interest rates are higher, in hopes of profiting from the difference. Success depends on exchange rates remaining relatively constant. Also known as uncovered interest arbitrage.

Front 345

Cartagena Agreement

Back 345

The 1969 agreement, also known as the Andean Pact, that led ultimately to the Andean Community.

Front 346

Cartel

Back 346

A group of firms or countries that seeks to raise the price of a good by restricting its supply. The term is usually used for international groups, especially involving state-owned firms and/or governments.

Front 347

Cascading tariffs

Back 347

Same as tariff escalation.

Front 348

CBI

Back 348

Caribbean Basin Initiative

Front 349

CCCN

Back 349

Customs Cooperation Council Nomenclature

Front 350

CDB

Back 350

Caribbean Development Bank

Front 351

Cecchini Report

Back 351

A 1988 report by a group of experts, chaired by Paolo Cecchini, examining the benefits and costs of creating a single market in Europe, in accordance with provisions of the Treaty of Rome.

Front 352

CEEC

Back 352

Central and Eastern European countries.

Front 353

CEFTA

Back 353

Central European Free Trade Agreement.

Front 354

Ceiling

Back 354

See price ceiling.

Front 355

Central American Common Market

Back 355

A group of Central American countries -- El Salvador, Guatemala, Honduras, and Nicaragua -- that formed a common market in 1960, with Costa Rica added in 1962. It largely disintegrated in the 1970s and 80s due to military conflicts, but reformed as the Central American Free Trade Zone (but without Costa Rica) starting in 1993.

Front 356

Central and Eastern European countries

Back 356

Refers, informally, usually to the former Communist countries of Europe.

Front 357

Central bank

Back 357

The institution in a country (or a currency area) that is normally (but see currency board) responsible for managing the supply of the country's money and the value of its currency on the foreign exchange market.

Front 358

Central bank intervention

Back 358

See exchange market intervention.

Front 359

Central bank reserves

Back 359

International reserves.

Front 360

Central European Free Trade Agreement

Back 360

A free trade agreement initiated 1993 among the Czech Republic, Hungary, Poland, Slovakia, and Slovenia, now also including Bulgaria and Romania. Its purpose was in part to reverse the bias against trade among these neighboring countries that had developed during the process of transition.

Front 361

Central Intelligence Agency

Back 361

Intelligence gathering (and espionage) agency of the United States government, publisher of the World Fact Book.

Front 362

Central parity

Back 362

Par value.

Front 363

Central planning

Back 363

The guidance of the economy by direct government control over a large portion of economic activity, as contrasted with allowing markets to serve this purpose.

Front 364

CEPAL

Back 364

Comision Economica para America Latina y el Caribe (Spanish for Economic Commission for Latin America and the Caribbean.

Front 365

CER

Back 365

Australia-New Zealand Closer Economic Relations Trade Agreement.

Front 366

Certainty

Back 366

Precise knowledge of an economic variable, as opposed to belief that it could take on multiple values. Contrasts with uncertainty. One aspect of complete information.

Front 367

CES Function

Back 367

A function with constant elasticity of substitution. CES is popular for both production and utility functions. Used extensively in New Trade Theory as the Dixit-Stiglitz utility function for differentiated products under monopolistic competition. With arguments X = (X1,...,Xn), the function is F(X) = A[SiaiXir]1/r, where ai, A are positive constants and s = 1/(1-r) is the elasticity of substitution. Due to Arrow et al. (1961).

Front 368

CET function

Back 368

Constant elasticity of transformation function.

Front 369

Ceteris paribus

Back 369

Latin phrase meaning, approximately, "holding other things constant." Used as shorthand for indicating the effect of one economic variable on another, holding constant all other variables that may affect the second variable. Contrasts with mutatis mutandis.

Front 370

CGE

Back 370

Computable general equilibrium.

Front 371

Chaebol

Back 371

A form of large business in South Korea, a conglomerate consisting of many companies centered around a parent company. They are family controlled and have strong ties to government. They are similar to the keiretsu of Japan, except that the chaebol do not own banks.

Front 372

Chain of comparative advantage

Back 372

A ranking of goods or countries in order of comparative advantage. With two countries and many goods, goods can be ranked by comparative advantage (e.g., by relative unit labor requirements in the Ricardian model). A country's exports will then lie nearer one end of the chain than its imports. With two goods, many countries can be ordered similarly.

Front 373

Change in consumer surplus

Back 373

The change in consumer surplus due to a change in market conditions, usually a price change. For a price change, it is measured by the area to the left of the demand curve between the two prices, indicating a gain if price falls and a loss if it rises.

Front 374

Change in producer surplus

Back 374

The change in producer surplus due to a change in market conditions, usually a price change. For a price change, it is measured by the area to the left of the (upward sloping part of the) supply curve between the two prices, indicating a gain if price rises and a loss if it falls.

Front 375

Chapeau

Back 375

In the context of GATT articles, this means an introductory paragraph.

Front 376

Chapter 11

Back 376

1. In NAFTA, this portion deals with foreign direct investment. Most controversially, it includes a provision for a firm from one member country that has invested in another to bring action against a unit of government in that country if it has acted to reduce the value of its investment.

Front 377

Chapter 12

Back 377

2. A portion of U.S. bankruptcy law under which a firm can file for protection while it reorganizes.

Front 378

CHF

Back 378

Acronym for the currency of Switzerland, the Swiss franc, standing for Confœderatio Helvetica Franc.

Front 379

Chiang Mai Initiative

Back 379

An agreement in 2000 among the "ASEAN+3" countries (ASEAN plus China, Japan, and S. Korea) to cooperate in four main areas: monitoring capital flows, regional surveillance, swap networks, and training personnel.

Front 380

Chicken War

Back 380

A trade dispute between the U.S. and the EEC that began in 1962 when the EEC extended the variable levy of the CAP to poultry, tripling German tariffs on U.S. chickens. A GATT panel quantified the damage and led to U.S. retaliatory tariffs on cognac, trucks, and other goods. The U.S. 25% tariff on trucks today is a remnant of the chicken war.

Front 381

Child labor

Back 381

1. Employment of children under a specified minimum age.

Front 382

Child labor

Back 382

2. Work that harmful to a child's physical or mental health, development, or education, and that is therefore targeted for elimination by labor standards.

Front 383

Child Labor Deterrence Act

Back 383

A bill introduced into the US Congress by Tom Harkin, but never passed, that would have prohibited imports of products produced by child labor.

Front 384

Chinese Economic Area

Back 384

Unofficial name for the area comprising Hong Kong, Taiwan, and either China as a whole or just its Special Economic Zones.

Front 385

Chlorinated chicken dispute

Back 385

The issue of whether Europe should be able to restrict, or require labeling of, US exports of chicken that has been bathed in a chlorine solution to kill bacteria.

Front 386

CIA

Back 386

1. Cash in advance

Front 387

CIA

Back 387

2. Central Intelligence Agency

Front 388

CIF

Back 388

The price of a traded good including transport cost. It stands for "cost, insurance, and freight," but is used only as these initials (usually lower case: c.i.f.). It means that a price includes the various costs, such as transportation and insurance, needed to get a good from one country to another. Contrasts with FOB.

Front 389

CIS

Back 389

Commonwealth of Independent States

Front 390

CITES

Back 390

Convention on International Trade in Endangered Species of Wild Fauna and Flora, an agreement among originally 80 governments effective in 1975 to prevent trade in wild animals and plants from threatening their survival. It works by requiring licensing of trade in covered species.

Front 391

Civil society

Back 391

The name used to encompass a wide and self-selected variety of interest groups, worldwide. It does not include for-profit businesses, government, and government organizations, whereas it does include most NGOs.

Front 392

Civil society organization

Back 392

Non-governmental organization

Front 393

Classification system

Back 393

A system for organizing, recording, and reporting data of a particular kind, such as international trade, industrial output, etc. A typical system divides its topic into categories to which it assigns numbers. These may in turn be subdivided, with each additional subdivision captured by an additional digit in the identifier, with the result that the more digits are used, the finer is the classification.

Front 394

Classical

Back 394

Referring to the writings, models, and economic assumptions of the first century of economics, including Adam Smith, David Ricardo, and John Stuart Mill.

Front 395

Clear

Back 395

A market is said to clear if supply is equal to demand. Market clearing can be brought about by adjustment of the price (or the exchange rate, in the case of the exchange market), or by some form of government (or central bank) intervention in or regulation of the market.

Front 396

Clearing system

Back 396

An arrangement among financial institutions for carrying out the transactions among them, including canceling out offsetting credits and debits on the same account.

Front 397

Closed currency position

Back 397

A commitment to take or make delivery of a currency in the future that is covered by a contract in the forward market; opposite of an open position.

Front 398

Closed economy

Back 398

An economy that does not permit economic transactions with the outside world; a country in autarky.

Front 399

Closer Economic Relations

Back 399

See Australia-New Zealand Closer Economic Relations Trade Agreement.

Front 400

Closure

Back 400

See macroeconomic closure.

Front 401

CMEA

Back 401

Council for Mutual Economic Assistance

Front 402

Coase Theorem

Back 402

The proposition that the allocation of property rights does not matter for economic efficiency, so long as they are well defined and a free market exists for the exchange of rights between those who have them and those who do not. Due to Coase (1960).

Front 403

Cobb-Douglas function

Back 403

A popular functional form for production and utility functions. With arguments X = (X1,...,Xn), the function is F(X) = APiXiai, where Siai = 1 and A are positive constants. This function has elasticity of substitution between arguments equal to one. As a production or utility function, it has competitive expenditure shares equal to ai.

Front 404

Codex Alimentarius

Back 404

This is the "food code," consisting of standards, codes of practice, guidelines, and recommendations for producing and processing food. It is administered by the Codex Alimentarius Commission.

Front 405

Coefficient

Back 405

1. A number or symbol multiplied by a variable.

Front 406

Coefficient

Back 406

2. In a regression analysis, the estimated numerical association between one variable and another, usually taken to represent the sign and size of the causal effect of one on the other.

Front 407

COGSA

Back 407

Carriage of Goods by Sea Act.

Front 408

Collective action problem

Back 408

The difficulty of getting a group to act when members benefit if others act, but incur a net cost if they act themselves.

Front 409

Collusion

Back 409

Cooperation among firms to raise price and otherwise increase their profits.

Front 410

COMECON

Back 410

Council for Mutual Economic Assistance

Front 411

COMESA

Back 411

Common Market of Eastern and Southern Africa

Front 412

Command economy

Back 412

An economy in which decisions about production and allocation are made by government dictate, rather than by decentralized responses to market forces.

Front 413

Commercial bank

Back 413

An institution that accepts and manages deposits from households, firms and governments and uses a portion of those deposits to earn interest by making loans and holding securities.

Front 414

Commercial paper

Back 414

Short-term, negotiable debt of a firm; thus a bond of short maturity issued by a company.

Front 415

Commercial policy

Back 415

Government policies intended to influence international commerce, including international trade. Includes tariffs and NTBs, as well as policies regarding exports.

Front 416

Commodity

Back 416

Could refer to any good, but in a trade context a commodity is usually a raw material or primary product that enters into international trade, such as metals (tin, manganese) or basic agricultural products (coffee, cocoa).

Front 417

Commodity agreement

Back 417

See international commodity agreement.

Front 418

Commodity pattern of trade

Back 418

The trade pattern of a country or the world, focusing on goods and services traded as opposed to the factor content of that trade.

Front 419

Commodity prices

Back 419

Usually means the prices of raw materials and primary products.

Front 420

Common Agricultural Policy

Back 420

The regulations of the European Union that seek to merge their individual agricultural programs, primarily by stabilizing and elevating the prices of agricultural commodities. The principle tools of the CAP are variable levies and export subsidies.

Front 421

Common currency

Back 421

A currency that is shared by more than one country. Thus the currency of a currency area.

Front 422

Common external tariff

Back 422

The single tariff rate agreed to by all members of a customs union on imports of a product from outside the union.

Front 423

Common market

Back 423

A group of countries that eliminate all barriers to movement of both goods and factors among themselves, and that also, on each product, agree to levy the same tariff on imports from outside the group. Equivalent to a customs union plus free mobility of factors.

Front 424

Common Market of Eastern and Southern Africa

Back 424

A trade agreement involving 21 nations of Eastern and Southern Africa. It went into effect in 1994, replacing a Preferential Trade Area that had begun in 1982, with the aim of forming a free trade area by 2000 and achieving other trade liberalization and transport facilitation over a period of 16 years.

Front 425

Common tangent

Back 425

A straight line that is tangent to two or more curves. Used in the Lerner diagram.

Front 426

Commonwealth of Independent States

Back 426

An organization formed in 1991 of the nations that had been part of the USSR.

Front 427

Communism

Back 427

An economic system in which capital is owned by government. Contrasts with capitalism.

Front 428

Community indifference curve

Back 428

One of a family of indifference curves intended to represent the preferences, and sometimes the well-being, of a country as a whole. This is a handy tool for deriving quantities of trade in a two-good model, although its legitimacy depends on the existence of community preferences, which in turn requires very restrictive assumptions. See Leontief (1933).

Front 429

Community preferences

Back 429

A set of consumer preferences, analogous to those of an individual as might be represented by a utility function, but representing the preferences of a group of consumers. The existence of well-behaved community preferences requires restrictive assumptions about individual preferences and/or incomes.

Front 430

Company

Back 430

This word has many meanings, but in economics it is usually a synonym for firm.

Front 431

Comparative advantage

Back 431

The ability to produce a good at lower cost, relative to other goods, compared to another country. In a Ricardian model, comparison is of unit labor requirements; more generally it is of relative autarky prices. With perfect competition and undistorted markets, countries tend to export goods in which they have comparative advantage. See also absolute advantage. Due to Ricardo (1815).

Front 432

Comparative static

Back 432

Refers to a comparison of two equilibria from a static model, usually differing by the effects of a single small change in an exogenous variable.

Front 433

Compensated demand curve

Back 433

A demand curve constructed under the assumption that demander's income is not held constant, but rather is varied to hold level of utility at a constant level. The change in consumer surplus calculated from particular compensated demand curves measures compensating variation and equivalent variation.

Front 434

Compensating variation

Back 434

An amount of money that just compensates a person, group, or whole economy, for the welfare effects of a change in the economy, thus providing a monetary measure of that change in welfare. Same as willingness to pay. Contrasts with equivalent variation.

Front 435

Compensation

Back 435

1. The GATT principle that members who violate GATT rules must compensate other countries by lowering tariffs or making other concessions, or be subject to retaliation.

Front 436

Compensation

Back 436

2. The actual or potential payment by the winners from a change in trade or other policy to the losers, intended to undo the harm to the latter. Actual compensation is rare, but the potential for compensation is used as the basis for most evaluations of the gains from trade.

Front 437

Compensation principle

Back 437

As a basis for welfare comparisons, the idea that if a policy change (such as a tariff reduction) could be Pareto improving if it were accompanied by appropriate lump-sum transfers from winners to losers, then it is viewed as beneficial even when those transfers do not occur.

Front 438

Compensation trade

Back 438

Countertrade, including especially payment for foreign direct investment out of the proceeds from that investment.

Front 439

Competition

Back 439

The interactions between two or more sellers or buyers in a single market, each attempting to get or pay the most favorable price. Economists usually interpret and model these interactions as among individual economic agents -- firms or consumers. Popular terminology extends also to competition among nations, especially competing exporters.

Front 440

Competition policy

Back 440

Policies intended to prevent collusion among firms and to prevent individual firms from having excessive market power. Major forms include oversight of mergers and prevention of price fixing and market sharing. Called "anti-trust policy" in the U.S. One of the Singapore Issues.

Front 441

Competitive

Back 441

1. Applied to a market or industry, this usually means perfectly competitive. Contrasts with imperfectly competitive.

Front 442

Competitive

Back 442

2. Applied to a firm or the products of a country, this usually means having low price, high quality, or other characteristics that make it attractive to purchasers compared to products from other firms or countries. See competitiveness.

Front 443

Competitive advantage

Back 443

Competitiveness. Contrasts with comparative advantage.

Front 444

Competitive equilibrium

Back 444

See equilibrium.

Front 445

Competitive factor market

Back 445

A market for a factor in which both suppliers and demanders are perfectly competitive, taking the factor price as given.

Front 446

Competitiveness

Back 446

Usually refers to characteristics that permit a firm to compete effectively with other firms due to low cost or superior technology, perhaps internationally. Thus the condition of being competitive (definition #2). When applied to nations, instead of firms, the word has a mercantilist connotation.

Front 447

Complete information

Back 447

The assumption that economic agents (buyers and sellers, consumers and firms) know everything that they need to know in order to make optimal decisions. Types of incomplete information are uncertainty and asymmetric information.

Front 448

Complete specialization

Back 448

1. Non-production of some of the goods that a country consumes, as in definition 2 of specialization.

Front 449

Complete specialization

Back 449

2. Production only of goods that are exported or nontraded, but none that compete with imports.

Front 450

Complete specialization

Back 450

3. Production of only one good.

Front 451

Complete specialization

Back 451

4. Being the only country in the world to produce a good.

Front 452

Composite currency

Back 452

A currency defined as a specified combination of two or more currencies, normally existing only as a unit of account rather than as a physical currency. Examples include the SDR and the ECU.

Front 453

Composite good

Back 453

A fictional good that is used in economic analysis to stand in for a large number of goods, usually all other goods than the one that is the focus of attention.

Front 454

Compound tariff

Back 454

A tariff that combines both a specific and an ad valorem component.

Front 455

Compulsory licensing

Back 455

A legal requirement for the owner of a patent to let other firms produce its product, under specified terms. Countries sometimes require foreign patent holders to license domestic firms so as to improve access to the patented product at lower cost. This is permitted by the TRIPs Agreement for certain purposes, such as protecting public health.

Front 456

Computable general equilibrium

Back 456

Refers to economic models of microeconomic behavior in multiple markets of one or more economies, solved computationally for equilibrium values or changes due to specified policies. The equations are anchored with data from the countries being modeled, while behavioral parameters are either assumed or adapted from estimates elsewhere.

Front 457

Comvariance

Back 457

An analogue to covariance for three variables. For three variables x, y, and z with values xi, yi, zi, i=1,…,n, the comvariance is com(x,y,z) = Si=1…n(xi-m(x))(yi-m(y))(zi-m(z)), where m(·) is the mean of the values in its argument. Due to Deardorff (1982).

Front 458

Concave

Back 458

Said of a curve that bulges away from some reference point, usually the horizontal axis or the origin of a diagram. More formally, a curve is concave from below (or concave to something below it) if all straight lines connecting points on it lie on or below it. Contrasts with convex.

Front 459

Concentration

Back 459

See industrial concentration.

Front 460

Concentration ratio

Back 460

A common measure of industry concentration, defined as the percent of sales in the industry accounted for by the largest n firms. n is some small number such as 4 or 6, and the result is called the "n-firm concentration ratio."

Front 461

Concertina tariff reduction

Back 461

The reduction of a country's highest tariff to the level of the next highest, followed by the reduction of both to the level of the next highest after that, and so forth. Also called the concertina rule. This is known to raise welfare if all goods are net substitutes.

Front 462

Concession

Back 462

The term used in GATT negotiations for a country's agreement to bind a tariff or otherwise reduce import restrictions, usually in return for comparable "concessions" by other countries. Use of this term, with its connotation of loss, for what economic theory suggests is often a source of gain, is part of what has been called GATT-Speak.

Front 463

Concessional financing

Back 463

Loans made by a government at an interest rate below the market rate as an indirect method of providing a subsidy.

Front 464

Conditionality

Back 464

The requirements imposed by the IMF and World Bank on borrowing countries to qualify for a loan, typically including a long list of budgetary and policy changes comprising a structural adjustment program.

Front 465

Cone of diversification

Back 465

See diversification cone.

Front 466

Congestion

Back 466

The costs and inefficiencies that result when a space becomes crowded. For example, costs of international trade may rise due to congestion of ports, if these facilities are not expanded along with trade.

Front 467

Conservative Social Welfare Function

Back 467

A social welfare function that takes special account of the costs to individuals of losing relative to the status quo, and that therefore seeks to avoid large losses to significant groups within the population. Due to Corden (1974).

Front 468

Consignment

Back 468

1. Something that is put into the care of another, as when a batch of traded goods is consigned to a shipper for transport to another location.

Front 469

Consignment

Back 469

2.A method of marketing in which the seller entrusts a product to an agent, who then attempts to sell it on the seller's behalf, or "on consignment."

Front 470

Console

Back 470

A bond with no maturity date, which instead pays a fixed amount per year forever. Its simplicity makes it a convenient example in textbooks, where it appears much more frequently than in the real world.

Front 471

Constant dollars

Back 471

Dollars of constant purchasing power. That is, corrected for inflation. More precisely includes reference to a base year for comparison, e.g. "in constant 1992 dollars." Same as constant prices.

Front 472

Constant elasticity of substitution function

Back 472

See CES function

Front 473

Constant elasticity of transformation function

Back 473

A function representing an economy's transformation curve along which the elasticity of transformation is constant.

Front 474

Constant market share analysis

Back 474

A technique for decomposing the change in a country's trade into components that correspond to holding its market shares constant in various markets. Introduced to international trade by Tyszynski (1951), it is an application of shift and share analysis of Creamer (1943).

Front 475

Constant prices

Back 475

See constant dollars.

Front 476

Constant returns to scale

Back 476

A property of a production function such that scaling all inputs by any positive constant also scales output by the same constant. Such a function is also called homogeneous of degree one or linearly homogeneous. CRTS is a critical assumption of the H-O Model of international trade. Contrasts with increasing returns and decreasing returns.

Front 477

Constraint set

Back 477

The set of options among which a decision-maker is able to choose, given its resources and the market conditions that it faces.

Front 478

Constrict

Back 478

While this word generally means to make something narrower, in economics it is commonly used for making something, especially the money supply, smaller (or perhaps to allow it to grow more slowly).

Front 479

Consultative Group to Assist the Poor

Back 479

A consortium of public and private funding organizations working to expand access to financial services in poor countries.

Front 480

Consumer movement

Back 480

One of four modes of supply of traded services, this one entails the buyer moving (temporarily) to the foreign location of the seller, as in the case of tourism.

Front 481

Consumer price index

Back 481

A price index for the goods purchased by consumers in an economy, usually based on only a small sample of what they consume. Commonly used to measure inflation. Contrasts with the implicit price deflator.

Front 482

Consumer support estimate

Back 482

Introduced by the OECD to quantify agricultural policies, this measures transfers to or from consumers that are implicit in these policies. Since industrialized-country agricultural producers are routinely supported by raising prices, CSE estimates are usually negative. See also PSE.

Front 483

Consumer surplus

Back 483

The difference between the maximum that consumers would be willing to pay for a good and what they actually do pay. For each unit of the good, this is the vertical distance between the demand curve and price. For all units purchased at some price, it is the area below the demand curve and above the price. Normally useful only as the change in consumer surplus.

Front 484

Consumption externality

Back 484

An externality arising from consumption.

Front 485

Consumption function

Back 485

The function relating aggregate consumption to aggregate income and sometimes other variables such as wealth.

Front 486

Consumption possibility frontier

Back 486

A graph of the maximum quantities of goods (usually two) that an economy can consume in a specified situation, such as autarky and free trade. Used to illustrate the potential benefits from trade by showing that it can expand consumption possibilities.

Front 487

Contagion

Back 487

The phenomenon of a financial crisis in one country spilling over to another, which then suffers many of the same problems.

Front 488

Content protection

Back 488

See domestic content protection.

Front 489

Content requirement

Back 489

See domestic content requirement.

Front 490

Contestable market

Back 490

A market that, even though it has only a single or a small number of sellers, could readily admit more, so that the pricing behavior of current sellers is constrained by the potential for entry. Term introduced by Baumol et al. (1982)

Front 491

Contingent protection

Back 491

Administered protection.

Front 492

Continuous time

Back 492

The use of a continuous variable to represent time, as in an economic model.

Front 493

Continuum model

Back 493

A model in which some entities that are normally discrete and exist in finite numbers are modeled instead by a continuous variable. This can sometimes simplify the treatment of large numbers of entities. In trade theory, the most notable example is the continuum-of-goods model.

Front 494

Continuum-of-goods model

Back 494

A class of trade models in which goods are indexed by a continuous variable, approximating the case of very large numbers of goods. The classic, original examples are Dornbusch, Fischer, and Samuelson (1977, 1980).

Front 495

Contract curve

Back 495

1. In an Edgeworth Box for consumption, the allocations of 2 goods to 2 consumers that are Pareto efficient. Starting with an allocation that may not be on the contract curve, it shows the ways that the consumers might contract to exchange the goods with each other.

Front 496

Contract curve

Back 496

2. In an Edgeworth Box for production, this name is sometimes also used for the efficiency locus.

Front 497

Contracting party

Back 497

A country that has signed the GATT. The term Contracting Parties with both words capitalized means all Contracting Parties acting jointly.

Front 498

Contraction

Back 498

Economic contraction

Front 499

Contractionary

Back 499

Tending to cause aggregate output (GDP) and/or the price level to fall. Term is typically applied to monetary policy (a decrease in the money supply or an increase in interest rates) and to fiscal policy (a decrease in government spending or a tax increase), but may also apply to other macroeconomic shocks. Contrasts with expansionary.

Front 500

Convention

Back 500

A statement of principle as to acceptable behavior. For example, members of the International Labor Organization have agreed to a long list of conventions regarding the acceptable treatment of workers.

Front 501

Convergence

Back 501

The process of becoming quantitatively more alike. In an international context, it often refers to countries becoming more alike in terms of their factor prices or in terms of their per capita incomes, perhaps as a result of trade or other forms of economic integration.

Front 502

Convertible currency

Back 502

A currency that can legally be exchanged for another or for gold. In times of crisis, governments sometimes restrict such exchange, giving rise to black market exchange rates.

Front 503

Convex

Back 503

1. Said of a curve that bulges toward some reference point, usually the horizontal axis or the origin of a diagram. More formally, a curve is convex from below (or convex to something below it) if all straight lines connecting points on it lie on or above it. Contrasts with concave.

Front 504

Convex

Back 504

2. Said of a set that contains all straight line segments joining points within it.

Front 505

Convex combination

Back 505

The convex combination of two points (or vectors), x and y, is their weighted average, with nonnegative weights on each: lx + (1-l)y, where 0?l?1.

Front 506

Convex hull

Back 506

The boundary of the set of points that are either members of, or convex combinations of, points from two or more other sets. The convex hull of two or more isoquants consists of the innermost of the isoquants themselves plus the points between them on their common tangents.

Front 507

Convexity

Back 507

This is just the state of being convex. More generally in economics it refers to the sets (production possibilities, preferences, and constraints which, if they are convex, may yield well behaved economic equilibria. In contrast, models that are nonconvex tend to have multiple equilibria and display discontinuous behavior (jumps).

Front 508

Coordination

Back 508

Cooperation in setting economic policy, especially across countries, so that policies of different governments reinforce each other rather than canceling each other out.

Front 509

Copyright

Back 509

The legal right to the proceeds from and control over the use of a created product, such a written work, audio, video, film, or software. This right generally extends over the life of the author plus fifty years. Copyright is one form of intellectual property that is subject of the TRIPS agreement.

Front 510

Core

Back 510

The set of allocations that cannot be improved upon by a subset of consumers trading among themselves. In an pure exchange economy, the core is the contract curves.

Front 511

Core inflation

Back 511

The rate of inflation excluding certain sectors whose prices are most volatile, specifically food and energy.

Front 512

Core labor standard

Back 512

Several labor standards that are considered the most basic and fundamental. The ILO identifies eight conventions as "fundamental," covering the topics: freedom of association and collective bargaining, forced labor, child labor, and discrimination.

Front 513

Core propositions

Back 513

The core propositions of the HO Model are the factor price equalization theorem, the Heckscher-Ohlin Theorem, the Stolper-Samuelson Theorem, and the Rybczynski Theorem, according to Ethier (1974).

Front 514

Corn Laws

Back 514

British regulations on the import and export of grain, mainly wheat, intended to control its price. The laws were repealed in 1846, signaling a shift toward free trade.

Front 515

Corporate income tax

Back 515

A tax on the profits of corporations. Differences in corporate tax rates across countries can be a cause of foreign direct investment as well as transfer pricing.

Front 516

Corporate tax

Back 516

Corporate income tax.

Front 517

Correlation

Back 517

A measure of the extent to which two economic or statistical variables move together, normalized so that its values range from -1 to +1. It is defined as the covariance of the two variables divided by the square root of the product of their variances. The correlation is used in trade theory to express weak relationships among economic variables.

Front 518

Correlation result

Back 518

A theoretical property of models with arbitrary numbers of goods or other variables that takes the form of a correlation among variables rather than a strict prediction for each one. Thus represents a weaker average relationship among the variables. Used for comparative advantage and other properties of trade models in higher dimensions.

Front 519

Corruption

Back 519

Dishonest or partial behavior on the part of a government official or employee, such as a customs or procurement officer. Also actions by others intended to induce such behavior, such as bribery or blackmail.

Front 520

Cost advantage

Back 520

Possession of a lower cost of production or operation than a competing firm or country. In the case of countries, this could refer to an absolute advantage, although it is more likeliy a comparative advantage.

Front 521

Cost-benefit analysis

Back 521

The use of economic analysis to quantify the gains and losses from a policy or program as well as their distribution across different groups in a society.

Front 522

Cost function

Back 522

A function relating the minimized total cost in a firm or industry to output and factor prices.

Front 523

Cost, insurance, freight

Back 523

See CIF.

Front 524

Cost of living

Back 524

The cost of a representative bundle of goods and services in consumption, usually as measured by the consumer price index.

Front 525

Cotonou Agreement

Back 525

A partnership agreement between the EU and the ACP Countries signed in June 2000 in Cotonou, Benin, replacing the Lomé Convention. Its main objective is poverty reduction, "to be achieved through political dialogue, development aid and closer economic and trade cooperation."

Front 526

Council for Mutual Economic Assistance

Back 526

An international organization formed in 1956 among the Soviet Union and other Communist countries to coordinate economic development and trade. It was disbanded in 1991. Also known as COMECON.

Front 527

Countertrade

Back 527

Trade in which part or all of payment is made in goods or services. See barter.

Front 528

Countervailing duty

Back 528

A tariff levied against imports that are subsidized by the exporting country's government, designed to offset (countervail) the effect of the subsidy.

Front 529

Country of origin

Back 529

The country in which a good was produced, or sometimes, in the case of a traded service, the home country of the service provider.

Front 530

Country risk

Back 530

The risk associated with operating in, trading with, or especially holding the assets issued by, a particular country. In the case of assets, country risk helps to explain why borrowers in some country must pay higher interest rates than borrowers from other countries, thus paying a country risk premium.

Front 531

Country size

Back 531

Any of many measures of the size of a country. For most economic comparisons, however, country size refers to GDP.

Front 532

Coupon

Back 532

The interest payment on a bond, so-named because bonds originally were pieces of paper with small sections, called coupons, that were cut off and exchanged for the interest payments.

Front 533

Cournot competition

Back 533

The assumption, often assumed to be made by firms in an oligopoly, that other firms hold their outputs constant as they themselves change behavior. Contrasts with Bertrand competition. Both are used in models of international oligopoly, but Cournot competition is used more often.

Front 534

Cournot's law

Back 534

That the sum of the balances of payments or of trade across all countries must be zero. Term seems to have been coined by, and perhaps only used by, Mundell (1960, p. 102), who credited it to Cournot (1897).

Front 535

Court of International Trade

Back 535

See U.S. Court of International Trade.

Front 536

Covariance

Back 536

A measure of the extent to which two economic or statistical variables move up and down together. For two variables x and y with values xi, yi, i=1,…,n, the covariance is cov(x,y) = Si=1…n(xi-m(x))(yi-m(y)), where m(·) is the mean of the values in its argument.

Front 537

Cover

Back 537

To use the forward market to protect against exchange risk. Typically, an importer with a future commitment to pay in foreign currency would buy it forward, and exporter with a future receipt would sell it forward, and a purchaser of a foreign bond would sell forward the expected proceeds at maturity. See hedge.

Front 538

Coverage ratio

Back 538

A measure of the presence of nontariff barriers, defined as the value of imports subject to one or a group of NTBs, divided by the total value of imports. Contrasts with frequency ratio and tariff equivalent.

Front 539

Covered interest arbitrage

Back 539

A combination of transactions on two countries' securities and exchange markets designed to profit from failure of covered interest parity. A typical set of transactions would include selling bonds in one market, using the proceeds to buy spot foreign currency and foreign bonds, and selling forward the return at a future date. See also one-way arbitrage.

Front 540

Covered interest parity

Back 540

Equality of returns on otherwise comparable financial assets denominated in two currencies, assuming that the forward market is used to cover against exchange risk. As an approximation, covered interest parity requires that i = i* + p where i is the domestic interest rate, i* is the foreign interest rate, and p is the forward premium.

Front 541

Covered interest rate

Back 541

The covered interest rate, in a currency other than your own, is the nominal interest rate plus the forward premium on the currency; thus the percent you will earn holding the foreign asset while protecting against exchange-rate change by selling the foreign currency forward.

Front 542

CPI

Back 542

Consumer price index.

Front 543

Crawling peg

Back 543

An exchange rate that is pegged, but for which the par value is changed frequently by small amounts and in a preannounced fashion in response to signals from the exchange market.

Front 544

Creation

Back 544

See trade creation.

Front 545

Credibility

Back 545

The condition of being believed. Particularly relevant when a government or central bank tries to influence an economic variable, such as the exchange rate or the rate of inflation, since belief that it will fail induces market responses that hasten that failure.

Front 546

Credit

Back 546

1. Recorded as positive (+) in the balance of payments, any transaction that gives rise to a payment into the country, such as an export, the sale of an asset (including official reserves), or borrowing from abroad. Opposite of debit.

Front 547

Credit

Back 547

2. A loan. For example, a trade credit.

Front 548

Credit crunch

Back 548

A shortage of available loans. In well-functioning markets, this would simply mean a rise in interest rates, but in practice it often means that some borrowers cannot get loans at all, a situation of credit rationing.

Front 549

Credit tranche

Back 549

See tranche.

Front 550

Creditor nation

Back 550

A country whose assets owned abroad are worth more than the assets within the country that are owned by foreigners. Contrasts with debtor nation.

Front 551

Creeping inflation

Back 551

This term seems to be used both for a rate of inflation that is low but nonetheless high enough to cause problems, and for a rate of inflation that itself gradually moves higher over time.

Front 552

Crony capitalism

Back 552

Used to describe a capitalist economy in which government or corporate officials and insiders provide lucrative opportunities for their friends and relatives. Term became popular during the Asian Crisis to describe some of the victim countries, but is now often used elsewhere as well.

Front 553

Cross-border supply

Back 553

The provision of an internationally traded service across national borders without requiring physical movement of buyer or seller, as when the service can be provided by long-distance communication. One of four such modes of supply of traded services.

Front 554

Cross-country regression

Back 554

The use of regression analysis on data from multiple countries, the purpose being to describe and perhaps explain their differences. For example, regressions of country GDP growth rates on their levels of trade or openness show a strong positive relationship between trade and growth, though without establishing causation.

Front 555

Cross elasticity

Back 555

1. An elasticity that has been ignored by a student in a problem set.

Front 556

Cross elasticity

Back 556

2. The elasticity of supply or demand for one good or service with respect to the price of another.

Front 557

Cross-hauling

Back 557

The simultaneous shipment of the same product in opposite directions over the same route. The export of the same good by two countries to each other would be cross-hauling, if it occurs at the same time.

Front 558

Cross rate

Back 558

1. The exchange rate between two currencies as implied by their values with respect to a third currency.

Front 559

Cross rate

Back 559

2. Thus, since most currencies are commonly quoted in U.S. dollars, the exchange rate between any two currencies other than the dollar.

Front 560

Cross sectional variation

Back 560

The differences in an economic variable that exist at a point in time comparing different economic units, such as consumers, firms, industries, or countries. Often used to seek evidence of causes of trade, growth, and other behaviors. Contrasts with time series variation.

Front 561

Cross subsidy

Back 561

The use of profits from one activity to cover losses from another. Thus the use of high prices for some of a firm's products, for example, to permit it to price below cost for others. In international trade, this could be one explanation for dumping.

Front 562

CRS

Back 562

Constant returns to scale = CRTS

Front 563

CRTS

Back 563

Constant returns to scale

Front 564

Crude

Back 564

Crude oil.

Front 565

CSE

Back 565

Consumer support estimate

Front 566

CSME

Back 566

CARICOM Single Market and Economy

Front 567

CSO

Back 567

Civil society organization

Front 568

Cultural argument for protection

Back 568

The view that imports undermine a country's culture and identity -- for example by changing consumption patterns to ones more similar to those abroad, or by reducing demands for domestically produced art and music -- and therefore that imports should be restricted.

Front 569

Cumulation

Back 569

1. In an anti-dumping case against imports from more than one country, the summation of these imports for the purpose of determining injury. That is, the imports are deemed to have caused injury if all of them together could have done so, even if individually they would not.

Front 570

Cumulation

Back 570

2. In overlapping free trade areas, a provision that allows inputs from one FTA to qualify as originating under another FTA's rules of origin.

Front 571

Currency

Back 571

1. The money used by a country; e.g., the national currency of Japan is the yen.

Front 572

Currency

Back 572

2. The physical embodiment of money, in the forms of paper bills or notes, and metal coins.

Front 573

Currency area

Back 573

A group of countries that share a common currency. Originally defined by Mundell (1961) as a group that have fixed exchange rates among their national currencies.

Front 574

Currency basket

Back 574

A group of two or more currencies that may be used as a unit of account, or to which another currency may be pegged.

Front 575

Currency bloc

Back 575

1. A group of countries that share a common currency; a currency area.

Front 576

Currency bloc

Back 576

2. A group of countries that peg their different national currencies to a single currency.

Front 577

Currency board

Back 577

An extreme form of pegged exchange rate in which management of both the exchange rate and the money supply are taken away from the central bank and given to an agency with instructions to back every unit of circulating domestic currency with a specified amount of foreign currency. Operates similarly to the gold standard.

Front 578

Currency convertibility

Back 578

See convertible currency.

Front 579

Currency crisis

Back 579

The crisis that occurs when particpants in an exchange market come to perceive that an attempt to maintain a pegged exchange rate is about to fail, causing speculation against the peg that hastens the failure and forces a devaluation.

Front 580

Currency depreciation

Back 580

See depreciation.

Front 581

Currency factor

Back 581

The portion of a rate of return that is due to the currency in which the asset is denominated. The currency factor can be nonzero either because of currency risk or because of expected appreciation or depreciation.

Front 582

Currency in circulation

Back 582

The amount of a country's currency that is in the hands of the public (households, firms, banks, etc), as opposed to sitting in the vaults of the central bank.

Front 583

Currency intervention

Back 583

Exchange market intervention.

Front 584

Currency manipulation

Back 584

The use of exchange market intervetion to keep the exchange rate above or below the equilibrium exchange rate. The term is most likely to be applied to a country that keeps its currency undervalued for the purpose of making its good more competitive.

Front 585

Currency misalignment

Back 585

An exchange rate that is above or below the equilibrium exchange rate, perhaps but not necessarily due to currency manipulation.

Front 586

Currency mismatch

Back 586

Having assets that are denominated in a different currency than liabilities, so that a change in exchange rate between those currencies can have a large positive or negative effect on net wealth.

Front 587

Currency realignment

Back 587

A change in the par value of a pegged exchange rate.

Front 588

Currency reserves

Back 588

This usually means international reserves.

Front 589

Currency risk

Back 589

Uncertainty about the future value of a currency.

Front 590

Currency risk premium

Back 590

The extent to which the interest rate in on bonds denominated in a currency exceeds what can be explained by default risk and expected changes in the exchange rate. What remains is presumed to be compensation for currency risk.

Front 591

Currency speculation

Back 591

To buy or sell a currency in anticipation of its appreciation or depreciation respectively, the intent being to make a profit or avoid a loss. See speculation.

Front 592

Currency swap

Back 592

See swap.

Front 593

Currency union

Back 593

A group of countries that agree to peg their exchange rates and to coordinate their monetary policies so as to avoid the need for currency realignments.

Front 594

Current account

Back 594

A country's international transactions arising from current flows, as opposed to changes in stocks which are part of the capital account. Includes trade in goods and services (including payments of interest and dividends on capital) plus inflows and outflows of transfers.

Front 595

Current account balance

Back 595

Balance on current account

Front 596

Current account deficit

Back 596

Debits minus credits on current account. See deficit.

Front 597

Current account surplus

Back 597

Credits minus debits on current account. Same as balance on current account. See surplus.

Front 598

Current dollars

Back 598

The phrase, "in current dollars" means "not adjusted for inflation."

Front 599

Current prices

Back 599

Refers to prices in the present, rather than in some base year; e.g., "GDP at current prices" means GDP as measured, in contrast to real GDP, or "GDP at XXXX prices," where the latter is measured in the prices of year XXXX.

Front 600

CUSFTA

Back 600

Canada-US Free Trade Agreement.

Front 601

CUSTA

Back 601

Same as Canada-US Free Trade Agreement.

Front 602

Customs area

Back 602

A geographic area that is responsible for levying its own customs duties at its border.

Front 603

Customs classification

Back 603

1. The category defining the tariff to be applied to an imported good.

Front 604

Customs classification

Back 604

2. The act of determining this category, which may be subject to various rules and/or to the discretion of the customs officer.

Front 605

Customs clearance

Back 605

The processing of imported goods through a country's border procedures for inspection and taxation.

Front 606

Customs Cooperation Council Nomenclature

Back 606

An international system of classification of goods for specifying tariffs, called the Brussels Tariff Nomenclature prior to 1976, and later superseded by the Harmonized System of Tariff Nomenclature

Front 607

Customs declaration

Back 607

A written statement by an importer or traveler of the dutiable imports that they are bringing into a country.

Front 608

Customs duty

Back 608

An import tariff.

Front 609

Customs officer

Back 609

The government official who monitors goods moving across a national border and levies tariffs.

Front 610

Customs procedure

Back 610

The practices used by customs officers to clear goods into a country and levy tariffs. Includes clearance procedures such as documentation and inspection, methods of determining a good's classification, and methods of assigning its value as the base for an ad valorem tariff. Any of these can impede trade and constitute a NTB.

Front 611

Customs Service

Back 611

See U.S. Customs Service.

Front 612

Customs station

Back 612

An office through which imported goods must pass in order to be monitored and taxed by customs officers.

Front 613

Customs union

Back 613

A group of countries that adopt free trade (zero tariffs and no other restrictions on trade) on trade among themselves, and that also, on each product, agree to levy the same tariff on imports from outside the group. Equivalent to an FTA plus a common external tariff.

Front 614

Customs valuation

Back 614

The method by which a customs officer determines the value of an imported good for the purpose of levying an ad valorem tariff. When this method is biased against importing, it becomes an NTB.

Front 615

CVD

Back 615

Countervailing duty

Front 616

Cyclical unemployment

Back 616

The portion of unemployment that is due to the business cycle and thus rises in recessions but then disappears eventually after the recession ends.

Front 617

DAC

Back 617

Development Assistance Committee

Front 618

DAD

Back 618

Delivery against documents. The requirement by a shipper that the recipient provide certain documents in order to be given the shipment.

Front 619

DDA

Back 619

Doha Development Agenda

Front 620

DDN Index

Back 620

Deardorff-Dixit-Norman Index

Front 621

DDP

Back 621

Delivered duty paid

Front 622

DDU

Back 622

Delivered duty unpaid

Front 623

De minimis

Back 623

A legal term for an amount that is small enough to be ignored, too small to be taken seriously. Used to restrict legal provisions, including laws regarding international trade, to amounts of activity or trade that are not trivially small.

Front 624

Deadweight loss

Back 624

The net loss in economic welfare that is caused by a tariff or other source of distortion, defined as the total losses to those who lose, minus the total gains to those who gain. Usually identified in a supply-and-demand diagram in terms of change in consumer and producer surplus together with government revenue. The net of these appears as one or two welfare triangles.

Front 625

Deardorff-Dixit-Norman Index

Back 625

The value of net imports at autarky prices. Used by Deardorff (1980) and Dixit and Norman (1980) to indicate comparative advantage, it was named by Bernhofen and Brown (2005) and used to quantify comparative advantage and the gains from trade.

Front 626

Debase

Back 626

To reduce the value of. Classically, a currency is debased if its value in terms of gold or other precious metal is reduced.

Front 627

Debase

Back 627

1. A debt that is not backed by collateral, but only by the credit and good faith of the borrower.

Front 628

Debase

Back 628

2. A certificate issued by customs authorities entitling an exporter of imported goods to be paid back duties that have been paid when they were imported. Such a refund is called a drawback.

Front 629

Debit

Back 629

Recorded as negative (-) in the balance of payments, any transaction that gives rise to a payment out of the country, such as an import, the purchase of an asset (including official reserves), or lending to foreigners. Opposite of credit.

Front 630

Debt

Back 630

The amount that is owed, as a result of previous borrowing. A country's debt may refer to the debt of its government or to that of the country as a whole.

Front 631

Debt burden

Back 631

The debt of a country, when large enough that servicing it has become difficult.

Front 632

Debt cancellation

Back 632

The most extreme form of debt relief, in which a country's debts are completely forgiven, so that no repayment of interest or principal is required.

Front 633

Debt crisis

Back 633

1. Any situation in which a country, usually a developing country, finds itself unable to service its debts.

Front 634

Debt crisis

Back 634

2. The Latin American Debt Crisis.

Front 635

Debt/equity swap

Back 635

An exchange of debt for equity, in which a lender is given a share of ownership to replace a loan. Used as a method of resolving debt crises.

Front 636

Debt intolerance

Back 636

In the context of the financial problems experienced by developing countries and emerging economies, this refers to their inability to manage levels of external debt that would be manageable for advanced countries. That is, their credit ratings decline more rapidly with debt than would those of an advanced country.

Front 637

Debt overhang

Back 637

A situation in which the external debt of a country is larger than it will be able to repay. Often due to having borrowed in foreign currency and then had its own currency depreciate.

Front 638

Debt relief

Back 638

Any arrangement intended to reduce the burden of debt on a country, usually including forgiveness of part or all of what is owed to creditors who may include private banks and other entities, government, or international financial institutions.

Front 639

Debt service

Back 639

The payments made by a borrower on its debt, usually including both interest payments and partial repayment of principal.

Front 640

Debt sustainability

Back 640

The ability of a debtor country to service its debt on a continuing basis and not go into default. After a debt crisis, sustainability may be restored through debt rescheduling.

Front 641

Debtor nation

Back 641

A country whose assets owned abroad are worth less than the assets within the country that are owned by foreigners. Contrasts with creditor nation.

Front 642

Decile

Back 642

One of ten segments of a distribution that has been divided into tenths. For example, the second-from-the-bottom decile of an income distribution is those whose income exceeds the incomes of from 10% to 20% of the population.

Front 643

Declaration

Back 643

See customs declaration.

Front 644

Decouple

Back 644

Refers to the provision of government support to an enterprise, usually a farm, in a manner that does not provide an incentive to increase production. Farm subsidies that are decoupled are included in the green box and are therefore permitted by the WTO.

Front 645

Decreasing cost

Back 645

Average cost that declines as output increases, due to increasing returns to scale.

Front 646

Decreasing returns to scale

Back 646

A property of a production function such that changing all inputs by the same proportion changes output less than in proportion. Example: a function homogeneous of degree less than one. Also called simply decreasing returns. Not to be confused with diminishing returns, which refers to increasing some inputs while holding other inputs fixed. Contrasts with increasing returns and constant returns.

Front 647

Deep integration

Back 647

Refers to economic integration that goes well beyond removal of formal barriers to trade and includes various ways of reducing the international burden of differing national regulations, such as mutual recognition and harmonization. Contrasts with shallow integration.

Front 648

Default

Back 648

Failure to repay a loan. International loans by governments and private agents lack mechanisms to deal with default, comparable to the legal mechanisms that exist within countries.

Front 649

Deficiency Payment

Back 649

Payment to a producer of an amount equal to the difference between a guaranteed price and the market price, with the latter often determined on the world market. Thus a form of subsidy to production.

Front 650

Deficit

Back 650

1. In the balance of payments, or in any category of international transactions within it, the deficit is the sum of debits minus the sum of credits, or the negative of the surplus.

Front 651

Deficit

Back 651

2. In the government budget, the deficit is the excess of government expenditures over receipts from taxes.

Front 652

Deficit financing

Back 652

1. The method used by a government to finance its budget deficit, that is, to cover the difference between its tax receipts and its expenditures. The main choices are to issue bonds or to print money.

Front 653

Deficit financing

Back 653

2. The assumption that a change in government spending or taxes will be financed by a change in the government budget deficit, rather than by an accommodating additional change in spending or taxes to keep the budget balanced. Example: a "deficit-financed increase in government purchases."

Front 654

Deflation

Back 654

A fall in the general level of prices. Unlikely unless the rate of inflation is already low, it may then be due either to a surge in productivity or, less favorably, to a recession.

Front 655

Deflator

Back 655

The ratio of a nominal magnitude to its real counterpart. Usually refers, as with the GDP deflator, when the real magnitude has been constructed from underlying data and not by simply deflating the nominal magnitude by a corresponding price index, in which case the deflator itself may be used as though it were a price index.

Front 656

Deflection

Back 656

See trade deflection.

Front 657

Degree of openness

Back 657

See openness index.

Front 658

Degressive

Back 658

Declining with income or over time. A degressive income tax takes a smaller fraction of higher incomes. Degressivity in trade policy might be a tariff the ad valoren size of which is scheduled to decline over time, or a quota that is scheduled to expand faster than demand for imports.

Front 659

De-industrialization

Back 659

A decline over time in the share of manufacturing in an economy, usually accompanied by growth in the share of services. Typically accompanied by an increase in manufactured imports, it may raise concern that the country is losing valuable economic activity to others.

Front 660

Delivered duty paid

Back 660

Specified in a trade contract, this means that the seller is obliged to pay any import duty and to do whatever else is necessary to bring the goods through customs. Contrasts with delivered duty unpaid.

Front 661

Delivered duty unpaid

Back 661

Specified in a trade contract, this means that the seller is not obliged to pay any import duty or to do whatever else is necessary to bring the goods through customs. Contrasts with delivered duty paid.

Front 662

Delocalization

Back 662

Another term for fragmentation. Used by Leamer (1996).

Front 663

Delocation

Back 663

1. The movement of firms and their resulting employment from one country to another as a result of a change in trade policy.

Front 664

Delocation

Back 664

2. More specifically, the effect of an import tariff or export subsidy in causing firm entry at home and exit abroad, so that domestic consumers gain from increased competition and/or reduced transport costs, while foreign consumers similarly lose. Effect identified by Venables (1985,1987).

Front 665

Demand

Back 665

1. The act of offering to buy a product.

Front 666

Demand

Back 666

2. The quantity offered to buy.

Front 667

Demand

Back 667

3. The quantities offered to buy at various prices; the demand curve.

Front 668

Demand curve

Back 668

The graph of quantity demanded as a function of price, normally downward sloping, straight or curved, and drawn with quantity on the horizontal axis and price on the vertical axis. Demand curves for imports and for foreign exchange usually have the same qualitative properties as demand curves for goods, but for somewhat different reasons.

Front 669

Demand deposit

Back 669

A bank deposit that can be withdrawn "on demand." The term usually refers only to checking accounts, even though depositors in many other kinds of accounts may be able to write checks and thus regard their deposits as readily available.

Front 670

Demand elasticity

Back 670

Normally the price elasticity of demand. References to other elasticities of demand, such as the income elasticity are normally explicit. See import demand elasticity.

Front 671

Demand function

Back 671

The mathematical function explaining the quantity demanded in terms of its various determinants, including income and price; thus the algebraic representation of the demand curve.

Front 672

Demand price

Back 672

The price at which a given quantity is demanded; thus the demand curve viewed from the perspective of price as a function of quantity.

Front 673

Demand schedule

Back 673

A list of prices and corresponding quantities demanded, or the graph of that information. Thus a demand curve.

Front 674

Demand shock

Back 674

A shock on the demand side of a market. Thus an unexpected shift, up or down, in the demand curve.

Front 675

Demographic transition

Back 675

The change that typically takes place, as a country develops, in the birth and death rates of its population, both of which tend eventually to fall as per capita income rises.

Front 676

Demurrage

Back 676

A cost associated with delay. It takes different forms in different contexts, such as when a ship is delayed in loading or unloading, or when currency or gold are held over time.

Front 677

Dependency Theory

Back 677

The theory that less developed countries are poor because they allow themselves to be exploited by the developed countries through international trade and investment.

Front 678

Deposit

Back 678

An amount of money placed with a bank for safekeeping, convenience, and/or to earn interest.

Front 679

Depreciate

Back 679

See depreciation.

Front 680

Depreciation

Back 680

1. A fall in the value of a country's currency on the exchange market, relative either to a particular other currency or to a weighted average of other currencies. The currency is said to depreciate. Opposite of "appreciation."

Front 681

Depreciation

Back 681

2. The decline in value or usefulness of a piece of capital over time, and/or with use.

Front 682

Depression

Back 682

A severe recession that lasts several years.

Front 683

Deregulation

Back 683

The lessening or complete removal of government regulations on an industry, especially concerning the price that firms are allowed to charge and leaving price to be determined by market forces.

Front 684

Derivative

Back 684

1. In mathematics, the ratio of the change in a variable to the infinitessimal change in another variable upon which it depends. Often used in economics to specify both assumptions and results of models.

Front 685

Derivative

Back 685

2. In financial markets, a financial instrument whose value depends on some other financial variables. Old examples include forward and futures contracts.

Front 686

Derived demand

Back 686

Demand that arises or is defined indirectly from some other demand or underlying behavior; e.g., demand for foreign currency is derived from demand for foreign goods, bonds, etc., while demand for import of a homogeneous good is derived from domestic demand and supply.

Front 687

Derogation

Back 687

As used in the trade literature, this seems to mean a departure from the established rules, as when a country's policies are said to constitute a derogation from the GATT.

Front 688

Destabilizing speculation

Back 688

Speculation that increases the movements of the price in the market where the speculation occurs. Movement may be defined by amplitude, frequency, or some other measure. See stabilizing speculation.

Front 689

Destination principle

Back 689

The principle in international taxation that value added taxes be kept only by the country where the taxed product is being sold. Under the destination principle, value added taxes are collected on imports and rebated on exports. Contrasts with the origin principle.

Front 690

Deterministic

Back 690

Not random. Contrasts with stochastic. Most models of international trade are deterministic.

Front 691

Devaluation

Back 691

1. Depreciation.

Front 692

Devaluation

Back 692

2. A fall in the value of a currency that has been pegged, either because of an announced reduction in the par value of the currency with the peg continuing, or because the pegged rate is abandoned and the floating rate declines.

Front 693

Devaluation

Back 693

3. A fall in the value of a currency in terms of gold or silver, meaningful only under some form of gold standard or silver standard.

Front 694

Develop

Back 694

To experience a sustained and substantial increase in per capita income; thus to undergo economic development.

Front 695

Developed country

Back 695

A country whose per capita income is high by world standards.

Front 696

Developing country

Back 696

A country whose per capita income is low by world standards. Same as less developed country. As usually used, it does not necessarily connote that the country's income is rising.

Front 697

Development

Back 697

Economic development

Front 698

Development Assistance Committee

Back 698

The group of member countries of the OECD that form the "principal body through which the OECD deals with issues related to co-operation with developing countries." It has 23 members (as of August 1, 2009), which are generally those OECD member countries with the highest per capita incomes, plus the Commission of the European Communities.

Front 699

Development bank

Back 699

A multilateral institution that provides financing for development needs of a regional group of countries. Examples include the African, Asian, and Inter-American Development Banks.

Front 700

Development decade

Back 700

The United Nations General Assembly had, as of 27 September 2001, designated as "development decades" 1960-70, 1971-80, 1981-90, and 1991-2000.

Front 701

Development finance

Back 701

Provision of credit to a developing country to permit it to undertake development projects that it could not otherwise afford.

Front 702

Development finance institution

Back 702

A governmental or inter-governmental body that provides development finance.

Front 703

Development project

Back 703

A project intended to increase a developing country's ability to produce in the future. Such projects are most commonly additions to the country's capital stock, but they may involve improvements in infrastructure, educational facilities, discovery or development of natural resources, etc.

Front 704

Deviation

Back 704

See standard deviation.

Front 705

DFI

Back 705

Direct Foreign Investment

Front 706

DFS Model

Back 706

One of the continuum-of-goods models of Dornbusch, Fischer, and Samuelson (1977, 1980).

Front 707

Diagonal

Back 707

1. In a matrix, the elements on a straight line from the top left to the bottom right, or occasionally from the bottom left to the top right.

Front 708

Diagonal

Back 708

2. In an Edgeworth box, the straight line from the bottom left corner to the top right. Along the diagonal, the ratios of allocations of the two agents (industries or consumers) are constant and equal.

Front 709

Diagonal

Back 709

3. In an integrated world economy diagram, the straight line from the bottom left corner to the top right. Along the diagonal, the ratios of factor endowments of the two coutries are constant and equal.

Front 710

Differential treatment

Back 710

See special and differential treatment.

Front 711

Differentiated product

Back 711

1. A firm's product that is not identical to products of other firms in the same industry. Contrasts with homogeneous product.

Front 712

Differentiated product

Back 712

2. Sometimes applied to products produced by a country, even though there are many firms within the country whose products are the same, if buyers distinguish products based on country of origin. This is called the Armington assumption.

Front 713

Dillon Round

Back 713

The fifth round of multilateral trade negotiations that was held under GATT auspices, commencing 1960 and completed 1961. It was the first to be given a name, after C. Douglas Dillon, U.S. Undersecretary of State under Eisenhower and Treasury Secretary under Kennedy.

Front 714

Diminishing returns

Back 714

The fall in the marginal product of a factor or factors that eventually occurs as input of that factor rises, holding the input of at least one other factor fixed, according to the Law of Diminishing Returns.

Front 715

Diminishing returns to scale

Back 715

See decreasing returns to scale, which is the preferred term in order to distinguish it from diminishing returns to a single factor when at least one other is held fixed.

Front 716

Direct devaluation

Back 716

Devaluation of the nominal exchange rate. Can be viewed as an alternative to devaluing the real exchange rate by using other policies that change prices or expenditure.

Front 717

Direct factor content

Back 717

A measure of factor content that includes only the factors used in the last stage of production, ignoring factors used in producing intermediate inputs. Contrasts with direct-plus-indirect factor content.

Front 718

Direct foreign investment

Back 718

Foreign direct investment

Front 719

Direction of trade

Back 719

1. Refers to the particular countries and kinds of countries toward which a country's exports are sent, and from which its imports are brought, in contrast to the commodity composition of its exports and imports. Thus the pattern of its bilateral trade.

Front 720

Direction of trade

Back 720

2. Direction of Trade Statistics

Front 721

Direction of Trade Statistics

Back 721

Publication of the International Monetary Fund.

Front 722

Direct-plus-indirect factor content

Back 722

A measure of factor content that includes factors used in producing intermediate inputs, factors used in producing intermediate inputs to the intermediate inputs, and so forth. That is, it includes all primary factors that contributed however indirectly to production of the good. Contrasts with direct factor content.

Front 723

Directly Unproductive Profit-Seeking Activities

Back 723

Activities that have no direct productive purpose (neither increasing consumer utility nor contributing to production of a good or service that would increase utility) and are motivated by the desire to make profit, typically from market distortions created by government policies. Examples are rent seeking and revenue seeking. Term coined by Bhagwati (1982).

Front 724

Director General

Back 724

Title given to the persons who head certain international organizations, including the WTO.

Front 725

Dirigiste

Back 725

Centrally planned; that is, under the direction of a central authority, normally the government. Contrasts with decentralized, or a system in which economic decisions are determined by market forces in a market economy.

Front 726

Dirty float

Back 726

Same as managed float.

Front 727

Disarticulation

Back 727

The absence of linkage among sectors of an economy, so that growth in some does not spill over into improved productivity and well being in others.

Front 728

DISC

Back 728

Domestic International Sales Corporation

Front 729

Discount

Back 729

1. Any reduction in price or value, especially when below a stated or normal price.

Front 730

Discount

Back 730

2. To buy or sell commercial paper at a price below face value to account for interest to accrue before maturity.

Front 731

Discount rate

Back 731

1. The rate, per year, at which future values are diminished to make them comparable to values in the present. Can be either subjective (reflecting personal time preference) or objective (a market interest rate).

Front 732

Discount rate

Back 732

2. The interest rate that the Fed charges commercial banks for very short-term loans of reserves. One of the tools of monetary policy.

Front 733

Discount window

Back 733

The mechanism by which the Fed makes loans to commercial banks, charging them an interest rate that is the discount rate and also sometimes exerting some pressure on the banks to limit their borrowing.

Front 734

Discounted present value

Back 734

Present value.

Front 735

Discrete time

Back 735

The division of time into indivisible units. In economic models, these units represent periods, such as days, quarters, or years.

Front 736

Discretionary licensing

Back 736

See licensing.

Front 737

Discriminatory tariff

Back 737

A higher tariff against one source of imports than against another. Except in special circumstances, such as anti-dumping duties, this is a violation of MFN and is prohibited by the WTO against other members.

Front 738

Diseconomies of scale

Back 738

Decreasing returns to scale.

Front 739

Disequilibrium

Back 739

1. Inequality of supply and demand.

Front 740

Disequilibrium

Back 740

2. An untenable state of an economic system, from which it may be expected to change.

Front 741

Disguised protection

Back 741

Any policy other than a tariff or other border measure that has the effect of benefiting a domestic industry and cannot be justified as correcting a distortion.

Front 742

Disintegration

Back 742

Another term for fragmentation. Used by Feenstra (1998).

Front 743

Disinvest

Back 743

1. To allow a stock of capital to become smaller over time, either by selling parts of it or by allowing it to depreciate without replacing it.

Front 744

Disinvest

Back 744

2. To reduce inventories, either absolutely or by more than any increase in plant and equipment.

Front 745

Disinvest

Back 745

3. To sell all or a portion of a portfolio of financial assets.

Front 746

Disparity

Back 746

Inequality, usually income disparity.

Front 747

Disposable income

Back 747

Income minus taxes. More accurately, income minus direct taxes plus transfer payments; that is, the income available to be spent (including on imports) and saved.

Front 748

Dispute settlement

Back 748

In the GATT, the adjudication of disputes among parties. In the WTO this is done by the dispute settlement mechanism.

Front 749

Dispute Settlement Body

Back 749

The entity within the WTO that formally deals with disputes between members. It consists of all WTO members meeting together to consider reports of panels and the Appellate Body.

Front 750

Dispute settlement mechanism

Back 750

The procedure by which the WTO settles disputes among members, primarily by means of a three-person panel that hears the case and issues a report, subject to review by the Appellate Body.

Front 751

Dissipate rent

Back 751

To use up, in real resources, the full value of the economic rents that are being sought by rent seeking.

Front 752

Distortion

Back 752

Any departure from the ideal of perfect competition that therefore interferes with economic agents maximizing social welfare when they maximize their own. Includes taxes and subsidies, tariffs and NTBs, externalities, incomplete information, and imperfect competition. Same as market imperfection.

Front 753

Distribution

Back 753

1. The productive activity of getting produced goods from the factory into the hands of consumers.

Front 754

Distribution

Back 754

2. The amounts of income or wealth in the hands of different portions of a population.

Front 755

Diversification cone

Back 755

For given prices in the Heckscher-Ohlin Model, a set of factor endowment combinations that are consistent with producing the same set of goods and having the same factor prices. Such a set has the form of a cone. Concept first used by McKenzie (1955).

Front 756

Diversified portfolio

Back 756

A portfolio that includes a variety of assets whose prices are not likely all to change together. In international economics, this usually means holding assets denominated in different currencies.

Front 757

Diversify

Back 757

To produce more than one thing. In the Heckscher-Ohlin Model with two goods, it means to produce both of them. With more than two goods, it may mean to produce two, or it may mean to produce all of the goods that are possible.

Front 758

Diversion

Back 758

See trade diversion.

Front 759

Dividend

Back 759

The amount paid each quarter by a corporation to its stockholders for each share of stock.

Front 760

Division of labor

Back 760

Splitting a production process across multiple workers, each performing a different task repeatedly rather than having a single worker perform all tasks. Adam Smith (1776) pointed out the increased productivity that can result, as well as the potential for gains from trade when division of labor takes place across countries.

Front 761

Dixit-Stiglitz function

Back 761

Really just a symmetric CES function, the innovation of Dixit and Stiglitz (1977) (and earlier Spence (1976)) was to allow the number of arguments to be variable. Used originally as a utility function, with elasticity of substitution greater than one the function displays a preference for variety. Used as a component of a production function, the same property implies that costs fall with variety. Also called the Spence-Dixit-Stiglitz function.

Front 762

Dixit-Stiglitz utility

Back 762

The Dixit-Stiglitz function used as a utility function.

Front 763

Doha Declaration

Back 763

The document agreed upon by the trade ministers of the member countries of the WTO at the Doha Ministerial meeting. It initiates negotiations on a range of some 21 subjects. A distinctive feature is the emphasis placed on the interests of developing countries.

Front 764

Doha Ministerial

Back 764

The WTO ministerial meeting held in Doha, Qatar, November 10-14, 2001, at which it was agreed to begin a new round of multilateral trade negotiations, the Doha Round.

Front 765

Doha Round

Back 765

The round of multilateral trade negotiations begun January 2002 as a result of agreement at the Doha Ministerial. Also called the Doha Development Round or the Doha Development Agenda.

Front 766

Dollar standard

Back 766

An international financial system in which the U.S. dollar is used by most countries as the primary reserve asset, in contrast to the gold standard in which gold played this role.

Front 767

Dollarization

Back 767

The official adoption by a country other than the United States of the U.S. dollar as its local currency.

Front 768

Domestic

Back 768

From or in one's own country. A domestic producer is one that produces inside the home country. A domestic price is the price inside the home country. Opposite of "foreign" or "world."

Front 769

Domestic arrears

Back 769

The amount by which a government has fallen behind in its payment of interest and principal on debt to lenders within its own country.

Front 770

Domestic bias

Back 770

Home bias.

Front 771

Domestic content protection

Back 771

Use of trade policies such as domestic content requirements to increase the portion of a product's value that is provided by domestic factors of production, either in direct production or through produced inputs.

Front 772

Domestic content requirement

Back 772

A requirement that goods sold in a country contain a certain minimum of domestic value added.

Front 773

Domestic credit

Back 773

Credit extended by a country's central bank to domestic borrowers, including the government and commercial banks. In the United States, the largest component by far is the Fed's holdings of U.S. government bonds, but it also makes some short-term loans to banks to use as their reserves.

Front 774

Domestic demand

Back 774

Demand for a product by buyers in one's own country.

Front 775

Domestic distortions argument for protection

Back 775

See second best argument.

Front 776

Domestic International Sales Corporation

Back 776

A type of U.S. corporation, authorized in 1971, with income primarily from exports. Usually wholly owned U.S. subsidiaries, DISCs had special treatment in borrowing or taxation. A 1976 GATT case found against the U.S., which reached a compromise settlement with the EC in 1981. DISC was replaced in 1984 by foreign sales corporations.

Front 777

Domestic law

Back 777

The laws and legal system of a country, which may be constrained by international obligations such as WTO membership. Sometimes a domestic law is inconsistent with such obligations and must be changed. This may be seen as a threat to the country's sovereignty.

Front 778

Domestic market

Back 778

The market within a country's own borders. Dumping, for example, may be defined by comparing the price charged for export with the price charged on the domestic market, i.e., to buyers within the exporting country.

Front 779

Domestic resource cost

Back 779

A measure, in terms of real resources, of the opportunity cost of producing or saving foreign exchange. It is an ex ante measure of comparative advantage, used to evaluate projects and policies. The term was introduced to the economics literature by Bruno (1963, 1972).

Front 780

Domestic supply

Back 780

Supply of a product by sellers in one's own country.

Front 781

Domestic support

Back 781

A policy that assists domestic industry, including a subsidy to production, payment not to produce, price support, and other means of increasing the income of producers.

Front 782

Domestic trade

Back 782

Commerce within a country; wholesale and retail trade.

Front 783

DOT

Back 783

Direction of Trade

Front 784

DOTS

Back 784

Direction of Trade Statistics

Front 785

Double counting

Back 785

Counting the same thing twice, or more than twice. For example, the total value of output of all firms in a country overstates the country's output, since the value of produced inputs is counted again in the value of what they help to produce. To avoid this, GDP is measured either from value added or from only final goods.

Front 786

Double switching

Back 786

Reswitching

Front 787

Dow Jones Industrial Average

Back 787

An index of prices of stocks, based on U.S. stocks of 30 large industrial companies.

Front 788

Downstream dumping

Back 788

The export of a good whose cost is reduced by access to a domestically produced intermediate input that is sold below cost. This is not (yet) eligible under any anti-dumping statute for an anti-dumping duty.

Front 789

Drawback

Back 789

Rebate of import duties when the imported good is re-exported or used as input to the production of an exported good.

Front 790

DRC

Back 790

Domestic resource cost

Front 791

DSM

Back 791

Dispute settlement mechanism

Front 792

DUKS

Back 792

See baffling pigs.

Front 793

Dummy

Back 793

In a regression analysis, a dummy (or dummy variable) is used to capture an explanatory variable that is either on (with a value of one) or off (zero). For example, in a gravity equation, the coefficient on a common-language dummy would measure the effect on trade flow between two countries of their sharing a common language.

Front 794

Dumping

Back 794

Export price that is "unfairly low," defined as either below the home market price (normal value) (hence price discrimination) or below cost. With the rare exception of successful predatory dumping, dumping is economically beneficial to the importing country as a whole (though harmful to competing producers) and often represents normal business practice.

Front 795

Dumping margin

Back 795

In a case of dumping, the difference between the "fair price" and the price charged for export. Used as the basis for setting anti-dumping duties.

Front 796

Duopoly

Back 796

An oligopoly with two firms.

Front 797

DUP Activities

Back 797

Directly Unproductive Profit-Seeking Activities

Front 798

Durable good

Back 798

A good that can continue to be used over an extended period of time.

Front 799

Dutch disease

Back 799

The adverse effect on a country's other industries that occurs when one industry substantially expands its exports, causing a real appreciation of the country's currency. Named after the effects of natural gas discoveries in the Netherlands, and most commonly applied to effects of exports in natural resource extractive industries on manufacturing.

Front 800

Dutiable imports

Back 800

Imports on which a positive duty, or tariff, is levied. (The term seems like it ought to include imports on which the duty is zero but which a government is somehow free, or able, to levy a positive duty. That does not seem to be the way the term is used, however.)

Front 801

Duty

Back 801

Tax. That is, an import duty is a tariff.

Front 802

Duty drawback

Back 802

See drawback.

Front 803

Duty-free

Back 803

Without tariff, usually applied to imports on which normally a tariff would be charged, but that for some reason are exempt. Travelers, for example, may be permitted to import a certain amount duty-free.

Front 804

Dynamic comparative advantage

Back 804

A changing pattern of comparative advantage over time due to changes in factor endowments or technology.

Front 805

Dynamic economies of scale

Back 805

A form of increasing returns to scale in which average cost declines over time as producers accumulate experience, so that average product rises with total output of the firm or industry accumulated over time. See learning by doing, infant industry protection.

Front 806

Dynamic effects

Back 806

Refers to certain poorly understood effects of trade and trade liberalization, including both multilateral and preferential trade agreements, that extend beyond the static gains from trade. Such dynamic effects are thought to make the gains from trade substantially larger than in the static model.

Front 807

Dynamic gains from trade

Back 807

The hoped-for benefits from trade that accrue over time, in addition to the conventional static gains from trade of trade theory. Sources of these gains are not well understood or documented, although there exists a variety of possible theoretical reasons for them and some empirical evidence that countries have benefited more than the static gains alone would suggest.

Front 808

Dynamic model

Back 808

Any model with an explicit time dimension. To be meaningfully dynamic, however, it should include variables and behavior that, at one time, depend on variables or behavior at another time. Models may be formulated in discrete time or in continuous time. Contrasts with a static model.

Front 809

Dynamic time path question

Back 809

The question of whether the creation of preferential trading areas leads toward or away from greater multilateral free trade. More succinctly, are PTAs building blocs or stumbling blocs in the path toward free trade? Asked by Bhagwati (1993), this prompted a large, inconclusive literature.

Front 810

Early harvest

Back 810

A term, in trade negotiations, for agreeing to accept the results of a portion of the negotiations before the rest of the negotiations are completed.

Front 811

Earnings

Back 811

The total amount earned, usually by a worker as wages, or by a firm as profits.

Front 812

Earth Summit

Back 812

Rio Summit.

Front 813

Easy money

Back 813

A monetary policy that is expansionary, thus with low interest rates for borrowing. Contrasts with tight money.

Front 814

EBRD

Back 814

European Bank for Reconstruction and Development.

Front 815

EBITDA

Back 815

Earnings before interest, taxes, depreciation, and amortization of a firm. Sometimes used as an optimistic indicator of potential profitability.

Front 816

EC

Back 816

European Communities

Front 817

ECB

Back 817

European Central Bank

Front 818

ECLAC

Back 818

Economic Commission for Latin America and the Caribbean

Front 819

Eco-dumping

Back 819

Environmental dumping

Front 820

Econometric model

Back 820

A set of equations that have been estimated by econometric methods and that are then used, together, to forecast the economy or to calculate effects of changes in the economy.

Front 821

Econometrics

Back 821

The application of statistical methods to the empirical estimation of economic relationships. Econometric analysis is used extensively in international economics to estimate the causes and effects of international trade, exchange rates, and international capital movements.

Front 822

Economic and Monetary Union

Back 822

The currency area formed in 1999 as a result of the Maastricht Treaty. Members of the EMU share the common currency, the euro.

Front 823

Economic and Social Commission for Asia and the Pacific

Back 823

Regional development commission of the United Nations that deals with Asia and the Pacific. It works in three main areas: poverty reduction; managing globalization; and tackling emerging social issues.

Front 824

Economic Commission for Latin America and the Caribbean

Back 824

One of five regional commissions of the United Nations, contributing to the economic and social development of Latin America and the Caribbean. Headquartered in Santiago, Chile. Established in 1948.

Front 825

Economic contraction

Back 825

The downward phase of the business cycle, in which GDP is falling and unemployment is rising over time.

Front 826

Economic cooperation

Back 826

This could mean many things, including any of the many ways that countries work together in the economic sphere to achieve mutual objectives. Most commonly, it means reducing barriers to trade and international investment and pursuing means to encourage economic growth.

Front 827

Economic cost

Back 827

The monetary cost of an object or action, including reductions in wages, profits, and property values, but not including such nonmonetary costs as adverse consequences for health or safety, or negative effects on others.

Front 828

Economic decision

Back 828

A decision about an economic issue, most commonly about how to allocate resources among multiple purposes.

Front 829

Economic development

Back 829

Sustained increase in the economic standard of living of a country's population, normally accomplished by increasing its stocks of physical and human capital and improving its technology.

Front 830

Economic efficiency

Back 830

The extent to which a given set of resources is being allocated across uses or activities in a manner that maximizes whatever value they are intended to produce, such as output, market value, or utility. Contrasts with engineering efficiency, which focuses within a single activity on the output it produces per unit input.

Front 831

Economic expansion

Back 831

The upward phase of the business cycle, in which GDP is rising and unemployment may be falling over time.

Front 832

Economic exposure

Back 832

Same as exchange rate exposure.

Front 833

Economic factor

Back 833

Any of the considerations that are relevant to a decision and that involve economic variables, such as prices and wages.

Front 834

Economic freedom

Back 834

Freedom to engage in economic transactions, without government interference but with government support of the institutions necessary for that freedom, including rule of law, sound money, and open markets.

Front 835

Economic geography

Back 835

See New Economic Geography.

Front 836

Economic growth

Back 836

The increase over time in the capacity of an economy to produce goods and services and (ideally) to improve the well-being of its citizens.

Front 837

Economic indicator

Back 837

A variable that is measured and publicly reported and that is considered meaningful not only for itself but as a sign of how rapidly the larger economy is expanding or contracting.

Front 838

Economic integration

Back 838

See integration.

Front 839

Economic interdependence

Back 839

The extent to which economic performance (GDP, inflation, unemployment, etc.) in one country depends positively or negatively on performance in other countries.

Front 840

Economic justice

Back 840

1. Fairness and equity in economic affairs, presumably by having laws, governments, and institutions that treat people equally and avoid favoring particular individuals or groups.

Front 841

Economic justice

Back 841

2. As most often used, the term carries a connotation that economic justice can only be achieved by lessening the power and changing the practices of international financial institutions, transnational corporations, and rich-country governments.

Front 842

Economic model

Back 842

A collection of assumptions, often expressed as equations relating variables, from which inferences can be derived about economic behavior and performance.

Front 843

Economic nationalism

Back 843

A preference for supporting a country's own firms, industries, and workers -- and, in the case of firms and other assets, keeping them owned within the country -- even at the expense of the economic gains that could be had from trade and international investment.

Front 844

Economic profit

Back 844

Revenue from an activity minus the opportunity cost of the resources used in that activity.

Front 845

Economic rate of return

Back 845

The net benefits to all members of society, as a percentage of cost, taking into account externalities and other market imperfections.

Front 846

Economic relations

Back 846

Economic activity that involves participants of two countries, most obviously trade but other forms as well. Some pairs of countries that have essentially no political relations nonetheless have economic relations.

Front 847

Economic rent

Back 847

See rent.

Front 848

Economic sanction

Back 848

The use of an economic policy as a sanction.

Front 849

Economic slump

Back 849

Recession or a slowing of the rate of economic growth that comes close to being a recession.

Front 850

Economic structure

Back 850

The major features of a country or region's economy, including what and how much it produces and trades, and how it spends its income.

Front 851

Economic union

Back 851

A common market with the added feature that additional policies -- monetary, fiscal, welfare -- are also harmonized across the member countries.

Front 852

Economic variable

Back 852

Any economic magnitude the size of which may change and is subject to explanation by an economic model. Examples are endless, including consumption, the price of a good, the exchange rate, the tax receipts of a government, the number of children per family, etc.

Front 853

Economic welfare

Back 853

See welfare.

Front 854

Economies of scale

Back 854

Increasing returns to scale.

Front 855

Economies of scope

Back 855

The property that a firm's average cost falls as it produces a larger number of different products.

Front 856

Economist, The

Back 856

A weekly newsmagazine (which calls itself a newspaper), published in the United Kingdom but distributed worldwide. Since it was established in 1843, it has been a champion of free trade.

Front 857

ECSC

Back 857

European Coal and Steel Community

Front 858

ECU

Back 858

European Currency Unit

Front 859

Edgeworth-Bowley Box

Back 859

A geometric device showing allocations of 2 goods to 2 consumers in a rectangle with dimensions equal to the quantities of the goods. Preferences enter as indifference curves relative to opposite corners of the box, tangencies defining efficient allocations and the contract curve. First drawn by Pareto (1906), based originally, though only partially, on a diagram of Edgeworth (1881). This and the Edgeworth production box are often called just the Edgeworth Box, even though Edgeworth never drew either.

Front 860

Edgeworth Box

Back 860

See Edgeworth-Bowley Box and Edgeworth production box.

Front 861

Edgeworth Production Box

Back 861

A variation of the consumption Edgeworth Box that instead represents the allocations of 2 factors to 2 industries for use in production functions. Efficient allocations now appear as tangencies between isoquants, while the contract curve becomes the efficiency locus.

Front 862

EEA

Back 862

European Economic Area

Front 863

EEC

Back 863

European Economic Community

Front 864

Effect of trade

Back 864

This term normally refers, often only implicitly, to the effect of a change in some policy or other exogenous variable that will increase the quantity of trade. Since in trade models, trade itself is endogenous, the effects associated with a change in trade depend on what caused it.

Front 865

Effective exchange rate

Back 865

An index of a currency's value relative to a group (or basket) of other currencies, where the currencies in the basket are given weights based on the amount of trade between the countries that use the currencies. Also called a trade-weighted exchange rate.

Front 866

Effective protection

Back 866

The concept that the protection provided to an industry depends on the tariffs and other trade barriers on both its inputs and its outputs, since a tariff on inputs raises cost. Measured by the effective rate of protection.

Front 867

Effective protective rate

Back 867

Same as effective rate of protection.

Front 868

Effective rate of protection

Back 868

A measure of the protection provided to an industry by the entire structure of tariffs, taking into account the effects of tariffs on inputs as well as on outputs. Letting bij be the share of input i in the value of output j, and ti be the tariff on good i, the ERP of industry j is ERPj = (tj-Sibijti)/(1-Sibij). Due to Corden (1966).

Front 869

Effective tariff

Back 869

Effective rate of protection.

Front 870

Efficiency

Back 870

See economic efficiency.

Front 871

Efficiency locus

Back 871

The set of efficient allocations in an Edgeworth production box. It is usually a curve, similar to a contract curve, and in fact is sometimes called that.

Front 872

Efficiency loss

Back 872

In economics, efficiency loss usually refers to the reduction in economic welfare due to a market imperfection or distortion. The deadweight loss due to a tariff is a good example of an efficiency loss.

Front 873

Efficient allocation

Back 873

An allocation that it is impossible unambiguously to improve upon, in the sense of producing more of one good without producing less of another.

Front 874

Efficient capital market

Back 874

An asset market in which, at a minimum, current price changes are independent of past price changes, or, more strongly, price reflects all (publicly) available information. Some believe foreign exchange markets to be efficient, which in turn implies that future exchange rates cannot profitably be predicted.

Front 875

Efficient market

Back 875

Efficient capital market

Front 876

Efficient quantity

Back 876

In a market with undistorted supply and demand, the quantity at which the supply price equals the demand price. That is efficient, because supply price is the marginal cost and demand price the marginal benefit of an additional unit.

Front 877

EFTA

Back 877

European Free Trade Association

Front 878

Elastic

Back 878

Having an elasticity greater than one. For a price elasticity of demand, this means that expenditure rises as price falls. For an income elasticity it means that expenditure share rises with income, a superior good. Contrasts with inelastic and unit elastic. Elastic demand for either exports or imports is sufficient to satisfy the Marshall-Lerner condition.

Front 879

Elastic offer curve

Back 879

An offer curve along which import demand is always elastic. It is therefore not backward bending. Contrasts with inelastic offer curve.

Front 880

Elasticities approach

Back 880

1. The method of analyzing the determination of the balance of trade, especially due to a devaluation, that focuses on the price elasticities of exports and imports. According to this approach, the effect depends critically on the Marshall-Lerner Condition.

Front 881

Elasticities approach

Back 881

2. The explanation of exchange rates using supply and demand curves.

Front 882

Elasticity

Back 882

A measure of responsiveness of one economic variable to another -- usually the responsiveness of quantity to price along a supply or demand curve -- comparing percentage changes (%D) or changes in logarithms (d ln). The arc elasticity of x with respect to y is e = %Dx/%Dy. The point elasticity is e = d lnx/d lny = (y/x)(dx/dy).

Front 883

Elasticity of demand for exports

Back 883

This is normally the price elasticity of demand for exports of a country, either for a single industry or for the aggregate of all imports. Equals the rest of world's elasticity of demand for imports, which therefore also enters the Marshall-Lerner condition.

Front 884

Elasticity of demand for imports

Back 884

This is normally the price elasticity of demand for imports of a country, either for a single industry or for the aggregate of all imports. The latter plays a critical role in determining how the country's balance of trade responds to the exchange rate. See Marshall-Lerner condition.

Front 885

Elasticity of substitution

Back 885

The elasticity of the ratio of two inputs to a production (or utility) function with respect to the ratio of their marginal products (or utilities). With competitive demands, this is also the elasticity with respect to their price ratio. For example, with factors L,K and factor prices w,r, the elasticity of substitution of a production function F(K,L) is s = (wL/rK)d(K/L)/d(w/r).

Front 886

Elasticity of transformation

Back 886

The elasticity of an economy's output of one good with respect to its output of another (holding other outputs, if there are any, constant).

Front 887

Elasticity pessimism

Back 887

The view that elasticities of demand for imports are sufficiently small that the Marshall-Lerner Condition will be violated. See Machlup (1950).

Front 888

EMA

Back 888

European Monetary Agreement

Front 889

Embargo

Back 889

The prohibition of some category of trade. May apply to exports and/or imports, of particular products or of all trade, vis a vis the world or a particular country or countries.

Front 890

Emerging economy

Back 890

1. Originally this term was applied to countries that had recently ceased to be part of the Soviet Union and its satellites, and thus emerging from centrally planned communist economies. The term drew attention to their transition to becoming market economies.

Front 891

Emerging economy

Back 891

2. Rather quickly, perhaps acknowledging the importance of central planning and the failure of markets in many other countries, the term has expanded to encompass also developing countries, not necessarily ever communist, as they expanded the role of markets.

Front 892

Emerging market

Back 892

1. Coined in the early 1980s by World Bank economist Antoine van Agtmael to describe "economies with low-to-middle per capita income" according to Financial Times Oct 20, 2006.

Front 893

Emerging market

Back 893

2. Same as emerging economy.

Front 894

Emerging market

Back 894

3. The securities market of an emerging economy.

Front 895

EMI

Back 895

European Monetary Institute

Front 896

Emigration

Back 896

The migration of people out of a country.

Front 897

Empirical finding

Back 897

Something that is observed from real-world observation or data, in contrast to something that is deduced from theory.

Front 898

Employment

Back 898

People working for pay or in a family-owned enterprise or farm. Much more specific definitions are used for measuring employment by national statistical agencies such as the US Bureau of Labor Statistics. Contrasts with unemployment.

Front 899

Employment argument for protection

Back 899

The use of a tariff or other trade restriction to promote employment, either in the economy at large or in a particular industry. This is a second best argument, since other policies -- such as a fiscal stimulus or a production subsidy -- could achieve the same effect at lower economic cost.

Front 900

EMS

Back 900

European Monetary System

Front 901

EMU

Back 901

Economic and Monetary Union

Front 902

Enabling Clause

Back 902

The decision of the GATT in 1979 to give developing countries special and differential treatment.

Front 903

Endogenous

Back 903

1. Something that depends on other things, which should be taken into account in an analysis.

Front 904

Endogenous

Back 904

2. Endogenous variable

Front 905

Endogenous growth

Back 905

Economic growth whose long-run rate depends on behavior and/or policy.

Front 906

Endogenous protection

Back 906

Protection that is explained as the outcome of economic and/or political forces. See political economy of protection.

Front 907

Endogenous variable

Back 907

An economic variable that is determined within a model. It is therefore not subject to direct manipulation by the modeler, since that would override the model. In trade models, the quantity of trade itself is almost always endogenous. Contrasts with exogenous variable.

Front 908

Endowment

Back 908

The amount of something that a person or country simply has, rather than their having somehow to acquire it. In the H-O Model of trade theory, endowments refer to primary factors of production, ignoring the fact that some of them -- especially capital and skill -- are deliberately accumulated.

Front 909

Enemy

Back 909

See natural enemy.

Front 910

Engine of growth

Back 910

Term sometimes used to describe the role that exports may have played in economic development, both of some of the regions of recent settlement in the nineteenth century and of today's NICs.

Front 911

Engineering efficiency

Back 911

See economic efficiency.

Front 912

Enterprise

Back 912

A firm.

Front 913

Entrepôt trade

Back 913

The import and then export of a good without further processing, usually passing through an entrepôt which is a storage facility from which goods are distributed. See reexports.

Front 914

Entrepreneur

Back 914

A person who starts a business.

Front 915

Entrepreneurship

Back 915

The talent, knowledge, and willingness to engage in new activities, especially those that may result in new kinds of firms.

Front 916

Entry barrier

Back 916

A natural or artificial impediment to a firm beginning to operate in an industry. Entry barriers give a first mover advantage to firms already in an industry, and these are often national firms in competition with potential foreign entrants.

Front 917

Entry writer

Back 917

An employee of the customs service whose job is to establish the correct tariff treatment of an imported good by identifying its proper classification.

Front 918

Envelope

Back 918

The outermost points traced out by a moving curve.

Front 919

Environmental dumping

Back 919

Export of a good from a country with weak or poorly enforced environmental regulations, reflecting the idea that the exporter's cost of production is below the true cost to society, providing an unfair advantage in international trade. Also called eco-dumping.

Front 920

Environmental Kuznets Curve

Back 920

An inverse U-shaped relationship hypothesized between per capita income and environmental degradation. Named after the Kuznets Curve dealing with inequality. Idea due to Grossman and Krueger (1993).

Front 921

Environmental protection argument for a trade intervention

Back 921

The view that trade should be restricted in order to help the environment. Examples include embargos on imports made from endangered species, limits on imports produced by methods harmful to the atmosphere, and restrictions on investment into locations with lax environmental standards. This is usually a second-best argument.

Front 922

Environmental subsidy

Back 922

A subsidy intended for environmental purposes. A subsidy for adapting existing facilities to new environmental laws or regulations is non-actionable under WTO rules.

Front 923

EPU

Back 923

European Payments Union.

Front 924

EPZ

Back 924

Export processing zone.

Front 925

Equalization

Back 925

See factor price equalization.

Front 926

Equation of Exchange

Back 926

M´V = P´Q, where M is the quantity of money in an economy, V is the velocity of money, P is the price level, and Q is the real output of the economy. The equation is true by definition because it implicitly defines velocity of money. It is central to the quantity theory of money.

Front 927

Equilibrium

Back 927

1. A state of balance between offsetting forces for change, so that no change occurs.

Front 928

Equilibrium

Back 928

2. In competitive markets, equality of quantity supplied and quantity demanded.

Front 929

Equilibrium exchange rate

Back 929

This is ambiguous, since there is no single agreed upon model of the exchange rate:

Front 930

Equilibrium exchange rate

Back 930

1. The exchange rate at which supply and demand for a currency are equal.

Front 931

Equilibrium exchange rate

Back 931

2. The exchange rate at which there is balance of payments equilibrium.

Front 932

Equilibrium exchange rate

Back 932

3. The exchange rate at which purchasing power parity holds, in some form.

Front 933

Equilibrium exchange rate

Back 933

4. The exchange rate at which the expected change in the exchange rate, in the near future, is zero.

Front 934

Equilibrium exchange rate

Back 934

5. The exchange rate at which the country's international reserves are neither rising nor falling.

Front 935

Equilibrium level

Back 935

The value taken on by an economic variable in equilibrium, as opposed either to some other value, or to its rate of change.

Front 936

Equilibrium position

Back 936

Same as equilibrium level, though perhaps of several variables at once, perhaps as displayed in a graph.

Front 937

Equilibrium terms of trade

Back 937

The terms of trade at which the country's excess supply of each good to the world market equals the world market's excess demand. If the country is a small open economy, whose excess supplies and demands are therefore negligible, then this is simply calculated from given world prices.

Front 938

Equity

Back 938

Share in the ownership of a corporation; more commonly called a stock, as in the stock market.

Front 939

Equivalent quota

Back 939

The quota that sets the same level of imports that is entering a country under a tariff, or perhaps under some other NTB.

Front 940

Equivalent tariff

Back 940

Tariff equivalent.

Front 941

Equivalent variation

Back 941

The amount of money that, paid to a person, group, or whole economy, would make them as well off as a specified change in the economy. Provides a monetary measure of the welfare effect of that change that is similar to, but not in general the same as, compensating variation.

Front 942

ERM

Back 942

Exchange Rate Mechanism

Front 943

ERP

Back 943

Effective rate of protection

Front 944

ERR

Back 944

Economic rate of return

Front 945

Escalation

Back 945

1. Regarding the structure of tariffs, see tariff escalation.

Front 946

Escalation

Back 946

2. In the context of a trade war, escalation refers to the increase in tariffs that occurs as countries retaliate again and again.

Front 947

ESCAP

Back 947

Economic and Social Commission for Asia and the Pacific.

Front 948

Escape clause

Back 948

1. The portion of a legal text that permits departure from its provisions in the event of specified adverse circumstances.

Front 949

Escape clause

Back 949

2. The U.S. statute (section 201, 1974 trade act) that permits imports to be restricted, for a limited time and on a nondiscriminatory basis, if they have caused injury to U.S. firms or workers. The escape clause accords with the Safeguards Clause (Article XIX) of the GATT.

Front 950

Ethical trade

Back 950

As used by the Ethical Trading Initiative, this term refers primarily to trade that conforms with high levels of labor standards, including the avoidance of child labor, forced labor, sweatshops, adverse health and safety conditions, and violations of labor rights.

Front 951

Ethical Trading Initiative

Back 951

An alliance of multinational companies, nongovernmental organizations, and labor unions seeking to promote and identify ethical trade.

Front 952

ETI

Back 952

Ethical Trading Initiative

Front 953

ETSG

Back 953

European Trade Study Group

Front 954

EU

Back 954

European Union

Front 955

EU15

Back 955

The 15 members of the European Union from 1995 through 2003, prior to its 2004 enlargement.

Front 956

EU enlargement

Back 956

The process of taking more member countries into the EU.

Front 957

Euler's Theorem

Back 957

1. The property of a function X=F(V) that is homogeneous of degree N that SiVi?F/?Vi=NX.

Front 958

Euler's Theorem

Back 958

2. The useful implication of this that, for a production function X=F(V) with constant returns to scale, the competitive payments to factors sum to the value of output: SiwiVi=pX.

Front 959

Euratom

Back 959

The European Atomic Energy Community, created in 1956 along with the EEC.

Front 960

Euribor

Back 960

Stands for the Euro Interbank Offered Rate, a euro-denominated interest rate charged by large banks among themselves on euro-denominated loans. Analogous to LIBOR for the euro.

Front 961

Euro

Back 961

The common currency of a subset of the countries of the EU, adopted January 1, 1999, with paper notes and coins put into circulation January 1, 2002.

Front 962

Euro-Mediterranean Partnership

Back 962

An declaration at a 1995 conference in Barcelona between the 15 members of the European Union and its 12 Mediterranean partners to enter a new phase in their relationship, promoting peace and stability, free trade, and cultural understanding. Also called the Barcelona Process.

Front 963

Euro Zone

Back 963

The countries of the EMU. That is, the group of European countries, members of the EU, that adopted the common currency, the euro. See baffling pigs.

Front 964

Eurobond

Back 964

A bond that is issued outside of the jurisdiction of any single country, denominated in a eurocurrency.

Front 965

Eurocurrency

Back 965

See Eurodollar.

Front 966

Eurodad

Back 966

A European network of NGOs working to reduce poverty and empower the poor in developing countries through improved economic and financial policies.

Front 967

Eurodollar

Back 967

Originally referred to U.S. dollar-denominated deposits in commercial banks located in Europe. Over time, the term came to include deposits in a commercial bank in any country denominated in any currency other than that of the country. Now sometimes called eurocurrencies.

Front 968

Europe 1992

Back 968

An initiative, begun with the Single European Act in 1987 by the European Union, to fully integrate the markets of the member countries by the end of 1992. The process involved extensive harmonization of laws and regulations that would otherwise interfere with the cross-border movement of goods and services.

Front 969

Europe Agreement

Back 969

An agreement between the EU and each of ten Eastern European countries (starting with Hungary and Poland in 1994) creating free trade areas and establishing additional forms of political and economic cooperation in preparation for these countries' eventual membership in the EU.

Front 970

European Bank for Reconstruction and Development

Back 970

An international financial institution that supports primarily private-sector projects in countries from Central Europe to Central Asia.

Front 971

European Central Bank

Back 971

The central bank of the Euro Zone -- the group of countries using the euro as their currency.

Front 972

European Coal and Steel Community

Back 972

An economic agreement in 1951 among six countries of Western Europe -- Belgium, France, Germany, Italy, Luxembourg, and Netherlands -- that preceded formation of the EEC and ultimately the EU.

Front 973

European Communities

Back 973

The name adopted in 1967 by the European Economic Community when it merged with the ECSC and Euratom. This name and the acronym EC was used until 1992 when it was replaced by European Union.

Front 974

European Currency Unit

Back 974

A composite currency that is a basket of most of the currencies of countries in the European Union. Conceived in 1979, it has been used as a unit of account of the European Monetary System.

Front 975

European Economic Area

Back 975

The group of countries comprised of the EU together with EFTA. The two groups have agreed to deepen their economic integration.

Front 976

European Economic Community

Back 976

A customs union formed in 1958 by the Treaty of Rome among six countries of Europe: Belgium, France, Germany, Italy, Luxembourg, and Netherlands; predecessor to the EC in 1967 and the EU in 1992.

Front 977

European Free Trade Association

Back 977

A free trade area made up of countries in Europe that did not join the European Economic Community. EFTA was established in 1960 among Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the United Kingdom. As of 2007 it includes Iceland, Liechtenstein, Norway, and Switzerland.

Front 978

European Monetary Agreement

Back 978

An intergovernmental organization administered by the OECD that facilitated settlement of balance of payments accounts among its member states from 1958 to 1972. It replaced the EPU, and its functions were taken over by the IMF in 1972.

Front 979

European Monetary Institute

Back 979

A temporary institution that existed from January 1994 to June 1998 during the years leading up to the European Central Bank and the introduction of the euro. It's purpose was to facilitate cooperation and coordination among the central banks of the EU and to pave the way for the shift to the euro.

Front 980

European Monetary System

Back 980

A currency union formed by some of the members of the EEC in 1979 that continued, with changing membership, until replaced by the EMU and the euro in 1999.

Front 981

European Payments Union

Back 981

An international arrangement for settling payments among member countries in Europe during a period in which many of the countries' currencies were not convertible. The EPU functioned from 1950 to 1958, after which it was replaced by the EMA.

Front 982

European Recovery Program

Back 982

See Marshall Plan.

Front 983

European single market

Back 983

See single market.

Front 984

European Trade Study Group

Back 984

A group that meets annually for conferences on the economics of international trade.

Front 985

European Union

Back 985

A group of European countries that have chosen to integrate many of their economic activities, including forming a customs union and harmonizing many of their rules and regulations. Preceded by EEC and EC. As of January 1, 2007, the EU had 27 member countries.

Front 986

Eurozone

Back 986

1. The Euro Zone.

Front 987

Eurozone

Back 987

2. Pertaining to the Euro Zone or the euro.

Front 988

Eurozone bonds

Back 988

Bonds denominated in euros.

Front 989

Even case

Back 989

In international trade models with multiple goods and factors, this is the special case of an equal number of goods and factors. It is convenient for analysis, because the matrix of factor input requirements is square and therefore potentially invertible.

Front 990

Everything But Arms

Back 990

The name given by the EU to its decision in 2001 to eliminate quotas and tariffs on all products except arms from the world's 48 poorest countries.

Front 991

Ex ante

Back 991

Before the fact; that is, before some event has taken place.

Front 992

Ex ante analysis

Back 992

Analysis of the effects of a policy, such as trade liberalization or formation of a PTA, based only on information available before the policy is undertaken. Also prospective analysis.

Front 993

Ex factory

Back 993

Applied to a price, this means the price at the factory, and does not include any other charges, such as delivery or subsequent taxes.

Front 994

Ex post

Back 994

After the fact; that is, after some event has taken place.

Front 995

Ex post analysis

Back 995

Analysis of the effects of a policy, such as trade liberalization or formation of a PTA, based on information available after the policy has been implemented and its performance observed. Also retrospective analysis.

Front 996

Ex works

Back 996

Ex factory.

Front 997

Ex post tariff

Back 997

Implicit tariff.

Front 998

Excess demand

Back 998

Demand minus supply. Thus a country's demand for imports of a homogeneous good is its excess demand for that good.

Front 999

Excess profit

Back 999

Profit of a firm over and above what provides its owners with a normal (market equilibrium) return to capital.

Front 1000

Excess supply

Back 1000

Supply minus demand. Thus a country's supply of exports of a homogeneous good is its excess supply of that good.

Front 1001

Exchange

Back 1001

1. To engage in trade, either within a country or internationally.

Front 1002

Exchange

Back 1002

2. Foreign exchange.

Front 1003

Exchange control

Back 1003

Rationing of foreign exchange, typically used when the exchange rate is fixed and the central bank is unable or unwilling to enforce the rate by exchange-market intervention.

Front 1004

Exchange economy

Back 1004

See pure exchange economy.

Front 1005

Exchange equalization fund

Back 1005

The unit within a government or central bank that manages a pegged exchange rate. It manages reserves of foreign currencies, which it uses to buy and sell domestic currency as needed to keep the exchange rate within specified bounds.

Front 1006

Exchange market

Back 1006

1. The market on which national currencies are exchanged for one another.

Front 1007

Exchange market

Back 1007

2. The actual exchange market, which exists primarily among large international banks. Others who wish to exchange currencies do it through these banks.

Front 1008

Exchange market

Back 1008

3. The theoretical representation of the exchange market as either the interaction of supply and demand arising from exchange-market transactions or as an asset market equilibrium between currencies.

Front 1009

Exchange market intervention

Back 1009

Usually done by a country's central bank, this is the purchase and sale of the country's currency on the exchange market in order to influence or fully determine its price. These transactions, unless they are sterilized, change the monetary base of the country and thus its money supply.

Front 1010

Exchange rate

Back 1010

The price at which one country's currency trades for another, typically on the exchange market.

Front 1011

Exchange rate determination

Back 1011

The process by which a country's exchange rate comes to be what it is. With a floating exchange rate, this may be modeled in various ways, including the elasticities approach, the monetary approach, the portfolio approach, and the asset approach.

Front 1012

Exchange rate exposure

Back 1012

The extent to which the stock-market value of a firm varies with changes in exchange rates. Also called economic exposure.

Front 1013

Exchange Rate Mechanism

Back 1013

A system that was operated by some central banks within the European Union, which intervened in exchange markets to limit the fluctuations of their currencies relative to one another, while letting all of them collectively float.

Front 1014

Exchange rate overshooting

Back 1014

The response of an exchange rate to a shock by first moving beyond where it will ultimately settle. Thought to help explain exchange rate volatility, this was first modeled by Dornbusch (1976).

Front 1015

Exchange rate pass-through

Back 1015

See pass-through.

Front 1016

Exchange rate protection

Back 1016

The manipulation of the exchange rate so as to increase the domestic prices of, and demand for, domestically produced goods. Since an undervalued currency stimulates demand for all domestically produced tradable goods, this form of protection, unlike tariff protection, can only be provided to the tradable sector as a whole, not to individual industries.

Front 1017

Exchange rate regime

Back 1017

The rules under which a country's exchange rate is determined, especially the way the monetary or other government authorities do or do not intervene in the exchange market. Regimes include floating exchange rate, pegged exchange rate, managed float, crawling peg, currency board, and exchange controls.

Front 1018

Exchange rate risk

Back 1018

Exchange risk

Front 1019

Exchange rate stability

Back 1019

Lack of movement over time in the exchange rate of a country.

Front 1020

Exchange rate target

Back 1020

See target.

Front 1021

Exchange rationing

Back 1021

See exchange control or ration foreign exchange.

Front 1022

Exchange risk

Back 1022

Uncertainty about the value of an asset, liability, or commitment due to uncertainty about the future value of an exchange rate. Unless they cover themselves in the forward market, traders with commitments to pay or receive foreign currency in the future bear exchange risk. So do holders of assets and liabilities denominated in foreign currency.

Front 1023

Exchange stabilization fund

Back 1023

A government institution sometimes used to handle exchange market intervention, charged with the explicit function of smoothing exchange rate fluctuations.

Front 1024

Excise subsidy

Back 1024

A subsidy paid on production or sale (consumption) of a particular good.

Front 1025

Excise tax

Back 1025

A tax on production or sale (consumption) of a particular good.

Front 1026

Exercise

Back 1026

To execute the terms of a contract. See option.

Front 1027

Exhaustion

Back 1027

1. In intellectual property regimes, the transaction at which rights terminate. Under national exhaustion, rights end with first sale in a country, preventing parallel imports. Under international exhaustion, rights end with first sale anywhere, permitting parallel imports.

Front 1028

Exhaustion

Back 1028

2. Product exhaustion

Front 1029

Exogenous

Back 1029

Coming from outside, usually in the context of an economic model, in which it means only that it is not explained within the model.

Front 1030

Exogenous growth

Back 1030

Economic growth that occurs without being the result of deliberate policy or behavior. The term arises because neoclassical growth models converge to a steady state in which per capita income is constant over time. Growth, then, requires exogenous technical progress.

Front 1031

Exogenous variable

Back 1031

A variable that is taken as given by an economic model. It therefore is subject to direct manipulation by the modeler. In most models, policy variables such as tariffs and par values of pegged exchange rates are exogenous. Contrasts with endogenous variable.

Front 1032

Expansion

Back 1032

Economic expansion

Front 1033

Expansionary

Back 1033

Tending to cause aggregate output (GDP) and/or the price level to rise. Term is typically applied to monetary policy (an increase in the money supply or a decrease in interest rates) and to fiscal policy (an increase in government spending or a tax cut), but may also apply to other macroeconomic shocks. Contrasts contractionary.

Front 1034

Expectation

Back 1034

The expectation of a variable is the same as its expected value, and is also used with both meanings.

Front 1035

Expected value

Back 1035

1. The mathematical expected value of a random variable. Equals the sum (or integral) of the values that are possible for it, each multiplied by its probability.

Front 1036

Expected value

Back 1036

2. What people think a variable is going to be. In general, the expectation in this second sense may be more important than the first for determining behavior on a market, such as the exchange market.

Front 1037

Expenditure share

Back 1037

The fraction of expenditure (usually consumer expenditure) that is spent on a particular good or purpose. With Cobb-Douglas preferences, expenditure shares are constant, independent of prices and income.

Front 1038

Experience good

Back 1038

A product whose value can be better known after having consumed it. Producers of experience goods may temporarily charge a price lower than marginal cost to induce buyers to try the product. Done with an export, this would be legally considered dumping.

Front 1039

Exploit

Back 1039

To take advantage of someone or something for one's own benefit. Economists often use the term with a neutral or positive connotation, advocating that one should fully exploit one's resources for example. Others see the term as quite negative, viewing exploitation as being done at the expense of others, which in some cases (e.g., monopsony) it is.

Front 1040

Export

Back 1040

1. A good that moves outward across a country's border for commercial purposes.

Front 1041

Export

Back 1041

2. A product, which might be a service, that is provided to foreigners by a domestic producer.

Front 1042

Export

Back 1042

3. To cause a good or service to be an export under definitions 1 and/or 2.

Front 1043

Export bias

Back 1043

Any bias in favor of exporting. Most often applied to growth that is based disproportionately on accumulation of the factor used intensively in the export industry and/or technological progress favoring that industry.

Front 1044

Export cartel

Back 1044

A cartel of exporting countries or firms.

Front 1045

Export credit

Back 1045

A loan to the buyer of an export, extended by the exporting firm when shipping the good prior to payment, or by a facility of the exporting country's government. In the latter case, by setting a low interest rate on such loans, a country can indirectly subsidize exports.

Front 1046

Export credit insurance

Back 1046

A program to guarantee payment to exporting firms who extend export credits.

Front 1047

Export elasticity

Back 1047

This could be any of several elasticities, including that of demand for, or supply of, a country's exports, either total or for particular products, with respect to particular prices or income.

Front 1048

Export elasticity of substitution

Back 1048

This is the elasticity of substitution in demand for a country's exports of a product relative to the exports of another country of that product, both to a particular importing country, with respect to the relative price of the two exporting countries' exports.

Front 1049

Export facilitation

Back 1049

Anything intended to make it easier to export, but usually refers to government services or programs with this objective.

Front 1050

Export-import company

Back 1050

A firm whose business consists mainly of international trade: buying goods in one country and selling them in another, thus both exporting and importing. Same as import-export company.

Front 1051

Export incentive

Back 1051

A government program that makes it more attractive for a firm, industry, or country to export. Most simply, an export subsidy.

Front 1052

Export insurance

Back 1052

Insurance available to those who export to cover risks such as damage to the product in transit, nonpayment, and political risks.

Front 1053

Export intensity

Back 1053

The fraction of the output of a firm, or sometimes an industry within a country, that is exported.

Front 1054

Export led growth

Back 1054

Growth of an economy over time that is thought to be caused by expansion of the country's exports. See export promotion, engine of growth.

Front 1055

Export licensing

Back 1055

See licensing.

Front 1056

Export limitation

Back 1056

Any policy that restricts exports.

Front 1057

Export multiplier

Back 1057

The multiplier for a change in exports; that is, the increase in GDP caused by a one-unit increase in exports.

Front 1058

Export parity price

Back 1058

The price that a producer gets or can expect to get for its product if exported, equal to the f.o.b. price minus the costs of getting the product from the farm or factory to the border. This and the import parity price together define a range of the possible equilibrium prices for an equivalent domestically produced good.

Front 1059

Export penetration

Back 1059

The ability of domestic producers to penetrate foreign markets, as measured by the ratio of exports to output of a domestic firm or industry.

Front 1060

Export performance requirement

Back 1060

Export requirement.

Front 1061

Export pessimism

Back 1061

The view that efforts to expand exports by developing countries will lead to a decline in their terms of trade because of an inability (due to weak demand) or unwillingness (expressed via protection) of developed countries to absorb these exports.

Front 1062

Export platform

Back 1062

The use of a country or region as a place to produce for export to another country. Used especially when a preferential trade arrangement provides easier access to the destination country.

Front 1063

Export platform FDI

Back 1063

Foreign direct investment from a source country into a host country for the purpose of exporting to a third country.

Front 1064

Export price index

Back 1064

Price index of the goods that a country exports.

Front 1065

Export processing zone

Back 1065

A designated area in a country in which firms can import duty-free so long as the imports are used as inputs to production of exports.

Front 1066

Export promotion

Back 1066

A strategy for economic development that stresses expanding exports, often through policies to assist them such as export subsidies. The rationale is to exploit a country's comparative advantage, especially in the common circumstance where an over-valued currency would otherwise create bias against exports. Contrasts with import substitution.

Front 1067

Export quantity index

Back 1067

Quantity index of the goods that a country exports.

Front 1068

Export quota

Back 1068

A quantitative restriction on exports, often the means of implementing a VER.

Front 1069

Export requirement

Back 1069

A requirement by the government of the host country of FDI that the investor export a certain amount or percentage of its output.

Front 1070

Export similarity index

Back 1070

A measure of the extent to which two countries export the same products. Defined for exporting countries j and k as XSjk = Si[min(Xij,Xik)´100], where Xij,Xik are the shares of product i in their total exports. XSjk ranges from zero if they have no exports in common to 100 if they export the same things in the same proportions.

Front 1071

Export subsidy

Back 1071

1. A subsidy to exports; that is, a payment to exporters of a good per unit of the good exported.

Front 1072

Export subsidy

Back 1072

2. Sometimes applied to any payments to producers that lead to an increase in exports.

Front 1073

Export tariff

Back 1073

A tax on exports, more commonly called an export tax.

Front 1074

Export tax

Back 1074

A tax on exports.

Front 1075

Exposure

Back 1075

See exchange rate exposure.

Front 1076

Expropriate

Back 1076

To transfer ownership of private property, against the will of its owner, to government. The possibility of expropriation is one of the risks of foreign direct investment.

Front 1077

Extensive margin

Back 1077

Refers to varying the amount of trade (or other activity) of a firm, industry, or country by varying the number of products that it trades, as opposed to the intensive margin at which it would vary the quantity of trade of a given number of products.

Front 1078

External balance

Back 1078

1. Balance of payments equilibrium.

Front 1079

External balance

Back 1079

2. Any target value for the balance on current account, balance on capital account, or balance of payments. Contrasts with internal balance.

Front 1080

External benefit

Back 1080

A positive (i.e., beneficial) externality.

Front 1081

External cost

Back 1081

A negative (i.e., harmful) externality.

Front 1082

External debt

Back 1082

The amount that a country owes to foreigners, including the debts of both the country's government and its private sector.

Front 1083

External deficit

Back 1083

Trade deficit or current account deficit.

Front 1084

External diseconomy

Back 1084

Negative externality.

Front 1085

External economies of scale

Back 1085

A form of increasing returns to scale in which productivity and thus costs of individual firms depend on the output of their entire industry, rather than just their own. Unlike more conventional (internal) scale economies, these are consistent with perfect competition.

Front 1086

External economy

Back 1086

Positive externality.

Front 1087

External equilibrium

Back 1087

External balance, in contrast to internal equilibrium or internal balance.

Front 1088

External increasing returns to scale

Back 1088

External economies of scale.

Front 1089

External position

Back 1089

The balance of trade or the balance on current account.

Front 1090

Externalities argument for protection

Back 1090

The (second best) argument that an industry should be protected because it generates positive externalities for other industries or consumers.

Front 1091

Externality

Back 1091

An effect of one economic agent's actions on another, such that one agent's decisions make another better or worse off by changing their utility or cost. Beneficial effects are positive externalities; harmful ones are negative externalities.

Front 1092

Facilitating payment

Back 1092

A facilitating (or facilitation) payment is a payment for "routine governmental action," such as providing normal government services. It is, in fact, a bribe, but a small one that does not induce illegal or exceptional behavior. Making such a payment abroad is legal for U.S. firms under the Foreign Corrupt Practices Act, but not for U.K. or German firms, and it is also illegal in many countries where payments are made.

Front 1093

Factor

Back 1093

1. Primary factor.

Front 1094

Factor

Back 1094

2. Sometimes refers to any input to production.

Front 1095

Factor

Back 1095

3. Anything that helps to cause something, as a "contributing factor."

Front 1096

Factor abundance

Back 1096

The abundance or scarcity of a primary factor of production. Because, in the short run at least, the supplies of primary factors are more or less fixed, this can be taken as given for determining much about a country's trade and other economic variables. Fundamental to the H-O Model.

Front 1097

Factor accumulation

Back 1097

An increase in the quantity of a factor, usually capital or sometimes human capital.

Front 1098

Factor augmenting

Back 1098

Said of a technological change or technological difference if production functions differ by scaling of a factor input only: F2(V1,V2)=F1(lV1,V2), where F1(·) and F2(·) are the production functions being compared, V1 is the factor being augmented, V2 is a vector of all other factor inputs, and l is a constant.

Front 1099

Factor bias

Back 1099

See bias.

Front 1100

Factor content

Back 1100

The amounts of primary factors used in the production of a good or service, or a vector of quantities of goods and services, such as the factor content of trade of the factor content of consumption. Can be either direct or direct-plus-indirect.

Front 1101

Factor content pattern of trade

Back 1101

The trade pattern of a country or the world, focusing on factor content of the goods and services that are traded, as opposed to the commodity pattern of trade.

Front 1102

Factor cost

Back 1102

The cost of the factors used in production. The term is used especially when the value of economic activity in a sector or an economy can be measured or valued either at "factor cost," adding up payments to factors, or at "market value or market price," adding up revenues from goods sold.

Front 1103

Factor endowment

Back 1103

The quantity of a primary factor present in a country. See endowment.

Front 1104

Factor income

Back 1104

The total earnings of a factor, thus its factor price times the quantity of factor service that it provides.

Front 1105

Factor intensity

Back 1105

The relative importance of one factor versus others in production in an industry, usually compared across industries. Most commonly defined by ratios of factor quantities employed at common factor prices, but sometimes by factor shares or by marginal rates of substitution between factors.

Front 1106

Factor intensity reversal

Back 1106

A property of the technologies for two industries such that their ordering of relative factor intensities is different at different factor prices. For example, one industry may be relatively capital intensive compared to the other at high relative wages and labor intensive at low relative wages. Some propositions of the Heckscher-Ohlin Model require the absence of FIRs.

Front 1107

Factor intensity uniformity

Back 1107

The absence of factor intensity reversals.

Front 1108

Factor market

Back 1108

The market for a factor of production, such as labor or capital, in which supply and demand interact to determine the equilibrium price of the factor.

Front 1109

Factor mobility

Back 1109

The degree to which a factor of production, such as labor or capital, is able to move, either among industries or among countries, in response to differences in its factor price, thus tending to eliminate such differences.

Front 1110

Factor movement

Back 1110

International factor movement.

Front 1111

Factor of production

Back 1111

Factor (definition 1).

Front 1112

Factor payment

Back 1112

The amount paid to a factor for its service in production.

Front 1113

Factor price

Back 1113

The price paid for the services of a unit of a primary factor of production per unit time. Includes the wage or salary of labor and the rental prices of land and capital. Does not normally refer to the price of acquiring ownership of the factor itself, which might be called the "purchase price."

Front 1114

Factor price equalization

Back 1114

The tendency for trade to cause factor prices in different countries to become identical. Ohlin (1933) argued that trade would bring factor prices closer together. Samuelson (1948, 1949) showed formally the circumstances under which they would actually become equal.

Front 1115

Factor Price Equalization Theorem

Back 1115

One of the major theoretical results of the Heckscher-Ohlin Model with at least as many goods as factors, showing that free and frictionless trade will cause FPE between two countries if they have identical, linearly homogeneous technologies and their factor endowments are sufficiently similar to be in the same diversification cone.

Front 1116

Factor price frontier

Back 1116

A curve in factor space showing the minimum combinations of factor prices consistent with absence of profit in producing one or more goods, given their prices. Since, with perfect competition, profit implies disequilibrium, this shows a lower bound on equilibrium factor prices.

Front 1117

Factor-price space

Back 1117

A graph with factor prices on the axes.

Front 1118

Factor productivity

Back 1118

1. The productivity of a single factor may refer to either its marginal or its average product.

Front 1119

Factor productivity

Back 1119

2. Total factor productivity.

Front 1120

Factor proportions

Back 1120

1. The ratios of factors employed in different industries. See factor intensities.

Front 1121

Factor proportions

Back 1121

2. The ratios of factors with which different countries are endowed. See factor endowments.

Front 1122

Factor Proportions Model

Back 1122

The Heckscher-Ohlin Model of trade.

Front 1123

Factor reversal

Back 1123

See factor intensity reversal.

Front 1124

Factor-saving

Back 1124

Biased in favor of using less of a particular factor.

Front 1125

Factor scarcity

Back 1125

See factor abundance.

Front 1126

Factor service

Back 1126

The input that a factor provides to the productive process, such as man-hours of labor, acre-months of land, etc.

Front 1127

Factor share

Back 1127

The fraction of payments to value added in an industry that goes to a particular primary factor.

Front 1128

Factor space

Back 1128

A graph in which the axes measure quantities of factors.

Front 1129

Factor-using

Back 1129

Biased in favor of using more of a particular factor.

Front 1130

Factory gate price

Back 1130

Ex factory price.

Front 1131

Fair price

Back 1131

1. In anti-dumping cases, the price to which the export price is compared, which is either the price charged in the exporter's own domestic market or some measure of their cost, both adjusted to include any transportation cost and tariff needed to enter the importing country's market. See dumping.

Front 1132

Fair price

Back 1132

2. In the context of the Fair Trade Movement, a fair price is a price that, when paid to the individual producers of a product such as coffee or handicrafts, gives them access to a viable standard of living, including nutrition, health care, education, and cultural autonomy.

Front 1133

Fair trade

Back 1133

In the context of the Fair Trade Movement, this is international trade in which producers are paid a fair price.

Front 1134

Fair Trade Movement

Back 1134

A system overseen by several international NGOs, in which products of developing countries are purchased at a fair price from individual producers and sold with a fair trade label to consumers in developed countries. These intermediaries also seek to promote other objectives, including environmental sustainability and capacity building, while keeping prices to consumers low by bypassing more conventional intermediaries.

Front 1135

Fairness argument for protection

Back 1135

The view that it is unfair to force domestic firms to compete with foreign firms that have an advantage, either in terms of low wages or due to foreign government policies. This misinterprets economic activity as a game, the purpose of which is to win, rather than as a means of using limited resources to satisfy human needs. See level playing field.

Front 1136

FAO

Back 1136

Food and Agriculture Organization of the United Nations

Front 1137

Farm subsidy

Back 1137

Payments by governments to farmers. These may be in return for producing, as when government buys a crop at a higher-than-market price; for not producing, as when it pays to leave land uncultivated; or for neither, as when payments are made independently of crop size for income maintenance or environmental purposes.

Front 1138

FAS

Back 1138

Same as FOB but without the cost of loading onto a ship. Stands for "free alongside ship."

Front 1139

FASB

Back 1139

Financial Accounting Standards Board

Front 1140

Fast track

Back 1140

A procedure adopted by the U.S. Congress, at the request of the President, committing it to consider trade agreements without amendment. In return, the President must adhere to a specified timetable and other procedures. Introduced in the Trade Act of 1974. See trade promotion authority.

Front 1141

FATS

Back 1141

Foreign Affiliates Trade in Services

Front 1142

Favorable exchange rate

Back 1142

An exchange rate different from the market or official rate, provided by the government on a transaction as an indirect way of providing a subsidy.

Front 1143

FCA

Back 1143

Free carrier

Front 1144

FCPE

Back 1144

Formerly centrally planned economy

Front 1145

FDI

Back 1145

Foreign Direct Investment

Front 1146

FDI inflow

Back 1146

Property located within the domestic country acquired by a foreign owner.

Front 1147

FDI outflow

Back 1147

Property acquired abroad by a domestic owner.

Front 1148

FDI spillover

Back 1148

See spillover.

Front 1149

Fear of floating

Back 1149

The resistance by many countries with officially floating exchange rates to allowing their currencies to move as much as the market would require. Term used by Calvo and Reinhart (2002).

Front 1150

Fed

Back 1150

The Federal Reserve System of the United States.

Front 1151

Federal budget deficit

Back 1151

The budget deficit of the federal (i.e., national, in a country composed of states) government.

Front 1152

Federal funds rate

Back 1152

The interest rate on very short-term loans from one commercial bank to another in the United States. This rate is used as a target for monetary policy by the Fed.

Front 1153

Federal Reserve System

Back 1153

The central bank of the United States.

Front 1154

FEER

Back 1154

Fundamental equilibrium exchange rate

Front 1155

Feldstein-Horioka puzzle

Back 1155

The finding by Feldstein and Horioka (1980) that levels of savings and investment are highly correlated across countries, suggesting that international capital mobility is less that many had previously thought.

Front 1156

Fiat money

Back 1156

A money whose usefulness results, not from any intrinsic value or guarantee that it can be converted into gold or another currency, but only from a government's order (fiat) that it must be accepted as a means of payment.

Front 1157

Fifty Years Is Enough

Back 1157

50 Years Is Enough.

Front 1158

FII

Back 1158

Foreign institutional investor.

Front 1159

Fill rate

Back 1159

See quota fill rate.

Front 1160

Final good

Back 1160

A good that requires no further processing or transformation to be ready for use by consumers, investors, or government. Contrasts with intermediate good.

Front 1161

Financial account

Back 1161

This is the term used in the balance of payments statistics, since sometime in the 1990s, for what used to be called the "capital account." See capital account, the "common" definition 2.

Front 1162

Financial Accounting Standards Board

Back 1162

The private-sector organization that sets accounting standards for the United States, the Generally Accepted Accounting Principles.

Front 1163

Financial asset

Back 1163

An asset whose value arises not from its physical embodiment (as would a building or a piece of land or capital equipment) but from a contractual relationship: stocks, bonds, bank deposits, currency, etc.

Front 1164

Financial capital

Back 1164

The value of financial assets, as opposed to real assets such as buildings and capital equipment.

Front 1165

Financial crisis

Back 1165

A loss of confidence in a country's currency or other financial assets causing international investors to withdraw their funds from the country.

Front 1166

Financial flow

Back 1166

Any and all of the transactions in the financial account of the balance of payments, most importantly international borrowing and lending and acquisition across borders of financial and real assets.

Front 1167

Financial instrument

Back 1167

A document, real or virtual, having legal force and embodying or conveying monetary value.

Front 1168

Financial integration

Back 1168

Financial market integration

Front 1169

Financial intermediary

Back 1169

An institution that provides indirect means for funds from those who wish to save or lend to be channeled to those who wish to invest or borrow. Examples include banks and other depository institutions, mutual funds, and some government programs.

Front 1170

Financial market

Back 1170

A market for a financial instrument, in which buyers and sellers find each other and create or exchange financial assets. Sometimes these are organized in a particular place and/or institution, but often they exist more broadly through communication among dispersed buyers and sellers, including banks, over long distances.

Front 1171

Financial market integration

Back 1171

Freedom of participants in the financial markets of two countries to transact on markets in both countries, thereby causing returns on comparable assets in the two countries to be equalized through arbitrage.

Front 1172

Financial stability

Back 1172

The avoidance of financial crisis.

Front 1173

Financial system

Back 1173

The complex of institutions, including especially banks and the government and international institutions that regulate them, that facilitate payments and link lenders with borrowers and investors with the assets they invest in. Increasingly, separate national financial systems have become integrated to form a global financial system.

Front 1174

Financial transaction

Back 1174

Most transactions -- e.g., purchases and sales of goods or property -- have a financial component: payment. However, this term usually means a transaction that is only financial, such as the act of borrowing, depositing funds in a bank account, purchasing a contract on a forward market, etc.

Front 1175

Financial transparency

Back 1175

This, according to the SEC, means "means timely, meaningful and reliable disclosures about a company's financial performance." It is a crucial requirement for informed investment in companies. It is also necessary for exposing, and therefore preventing, bribery and other forms of corruption.

Front 1176

FIR

Back 1176

Factor intensity reversal.

Front 1177

Firm

Back 1177

An organization, possibly as small as a single person or as large as many thousands, that produces a good and/or provides a service that it sells to the public, the government, or other firms, using the proceeds to cover its costs. Also a business, a company, or an enterprise.

Front 1178

First best

Back 1178

See second best.

Front 1179

First degree homogeneous

Back 1179

Homogeneous of degree 1.

Front 1180

First mover advantage

Back 1180

The advantage that a firm or country may derive from being the first to enter a market, or from being the first to use a new technology, advertising technique, etc.

Front 1181

First order condition

Back 1181

One of the mathematical necessary conditions for maximization, used routinely in solving economic models. Typically, it consists of setting equal to zero the derivative of the function being maximized (or its Lagrangian) with respect to a variable that can be controlled.

Front 1182

First theorem of welfare economics

Back 1182

The proposition of welfare economics that a competitive general equilibrium is Pareto optimal. A corollary is that free trade is Pareto optimal among countries.

Front 1183

Fiscal crisis

Back 1183

This occurs when a unit of government runs a fiscal deficit and is unable to borrow to finance it. For a national government this is most likely due to a large accumulated debt together with doubts about its ability or willingness to service that debt.

Front 1184

Fiscal deficit

Back 1184

A deficit in the government budget of a country. Thus the budget deficit.

Front 1185

Fiscal discipline

Back 1185

Management of the government budget so as to avoid excessive fiscal deficits. Thus restraint of government spending and/or willingness to tax.

Front 1186

Fiscal policy

Back 1186

Any macroeconomic policy involving the levels of government purchases, transfers, or taxes, usually implicitly focused on domestic goods, residents, or firms.

Front 1187

Fiscal stimulus

Back 1187

A tax cut and/or an increase in government spending. So called because it tends to increase aggregate demand and therefore the level of economic activity in the short run.

Front 1188

Fisher Effect

Back 1188

The theory that a change in the expected rate of inflation will lead to an equal change in the nominal interest rate, thus keeping the real interest rate unchanged. Due to Fisher (1930).

Front 1189

Fixed cost

Back 1189

The cost that a firm bears if it produces at all and that is independent of its output. The presence of a fixed cost tends to imply increasing returns to scale. Contrasts with variable cost.

Front 1190

Fixed exchange rate

Back 1190

Usually synonymous with a pegged exchange rate. Although "fixed" seems to imply less likelihood of change, in practice countries seldom if ever achieve a truly fixed rate.

Front 1191

Fixed factor

Back 1191

A factor of production the quantity of which cannot be changed. This is usually the case only in the short run.

Front 1192

Flexible exchange rate

Back 1192

Same as floating exchange rate.

Front 1193

Flexible price model

Back 1193

Most microeconomic models and models of international trade assume that prices adjust flexibly so as to achieve equilibrium in all markets. In contrast, some macroeconomic models assume that some prices are sticky.

Front 1194

Floating exchange rate

Back 1194

A regime in which a country's exchange rate is allowed to fluctuate freely and be determined without intervention in the exchange market by the government or central bank.

Front 1195

Floor

Back 1195

See price floor.

Front 1196

Flow

Back 1196

A flow, or flow variable, is an economic magnitude describing behavior that occurs over time and is therefore meaningful only relative to the unit of time. Examples are the value of exports (dollars per year), demand for foreign exchange (euros per day), and migration (persons per month). Contrasts with a stock.

Front 1197

Fluctuate

Back 1197

To move up and down.

Front 1198

Fluctuating exchange rate

Back 1198

Same as flexible or floating exchange rate.

Front 1199

Flying Geese

Back 1199

The Flying Geese model (or paradigm) of economic development depicts changing patterns of comparative advantage and trade as developing countries follow more advanced countries from which they acquire technologies through trade and investment. The name derives from a graph of Akamatsu (1961), (but 1937 in Japanese) that resembles a formation of flying geese. The graph shows paths over time of a developing country's imports, production, and exports of a product, similar to the product cycle.

Front 1200

FMI

Back 1200

Fondo Monetario Internacional (Spanish for International Monetary Fund

Front 1201

FOB

Back 1201

The price of a traded good excluding transport cost. It stands for "free on board," but is used only as these initials (usually lower case: f.o.b.). It means the price after loading onto a ship but before shipping, thus not including transportation, insurance, and other costs needed to get a good from one country to another. Contrasts with CIF and FAS.

Front 1202

FOC

Back 1202

First order condition.

Front 1203

FOGS Negotiations

Back 1203

In the Uruguay Round, this portion of the negotiations dealt with the Functioning of the GATT System and resulted ultimately in the formation of the WTO and its dispute settlement mechanism.

Front 1204

Food and Agriculture Organization of the United Nations

Back 1204

A UN body whose purpose is to "defeat hunger" throughout the world mostly by sharing information and expertise.

Front 1205

Food security

Back 1205

1. The reliable availability of a sufficient quantity and quality of nutritious food for a population.

Front 1206

Food security

Back 1206

2. As used by some NGOs, the term also requires that localities or regions be self sufficient, in apparent ignorance of the impossibility of combining this with the first definition.

Front 1207

Footloose factor

Back 1207

A factor that can move easily across national borders, in contrast to one that, due to inclination or constraints, cannot. Footloose factors are sometimes thought to have an advantage in a globalized economy.

Front 1208

Footloose industry

Back 1208

An industry that is not tied to any particular location or country, and can relocate across national borders in response to changing economic conditions. Many manufacturing industries seem to have this characteristic.

Front 1209

Forced labor

Back 1209

The use of labor that is compelled to work, subject to physical punishment if it does not.

Front 1210

Foreign Affiliates Trade in Services

Back 1210

Exports and imports of services by domestically located affiliates of foreign firms.

Front 1211

Foreign asset position

Back 1211

The amount of assets that residents of a country own abroad. Also used to mean the net foreign asset position.

Front 1212

Foreign Corrupt Practices Act

Back 1212

U.S. law, enacted 1977, that prohibits U.S. firms from bribing foreign officials to obtain or retain business. The law permits, however, facilitating payments.

Front 1213

Foreign debt

Back 1213

The amount a country owes to foreigners. More precisely, the negative of the net foreign asset position.

Front 1214

Foreign direct investment

Back 1214

Acquisition or construction of physical capital by a firm from one (source) country in another (host) country. The term sometimes refers to the flow per unit time, sometimes to the accumulated stock.

Front 1215

Foreign exchange

Back 1215

Foreign currency; any currency other than a country's own.

Front 1216

Foreign exchange market

Back 1216

The exchange market.

Front 1217

Foreign exchange rate

Back 1217

The exchange rate.

Front 1218

Foreign exchange reserves

Back 1218

International reserves

Front 1219

Foreign exchange risk

Back 1219

Exchange risk.

Front 1220

Foreign institutional investor

Back 1220

An institutional investor based in another country. Some countries place upper limits on the share of a domestic company that an FII can own.

Front 1221

Foreign investment argument for protection

Back 1221

The use of protection to attract FDI from abroad. It does work, since much FDI has been motivated by firms trying to get behind a tariff wall to sell their products. In an otherwise nondistorted economy, however, the cost in terms of more expensive goods is higher than the benefit from additional capital.

Front 1222

Foreign portfolio investment

Back 1222

Portfolio investment across national borders and/or across currencies.

Front 1223

Foreign repercussion

Back 1223

The feedback effect on a domestic economy when its macroeconomic changes cause large enough changes abroad for those in turn to cause further changes at home. Most commonly, a rise in income stimulates imports, causing an expansion abroad that in turn raises demand for the home country's exports.

Front 1224

Foreign reserves

Back 1224

International reserves

Front 1225

Foreign reserves crisis

Back 1225

The financial crisis that results from (or causes) a central bank coming close to running out of international reserves.

Front 1226

Foreign Sales Corporation

Back 1226

Refers to a provision of the U.S. tax code that grants income-tax rebates to American exporters if they form what may be a largely artificial foreign subsidiary called an FSC. This has been the subject of a trade dispute with the EU, which complained to the WTO that this constitutes an illegal export subsidy.

Front 1227

Foreign sector

Back 1227

This term seems to be used in many ways, including the following:

Front 1228

Foreign sector

Back 1228

1. The portion of an economy or an economic model that includes exports and imports, and perhaps other international transactions.

Front 1229

Foreign sector

Back 1229

2. The portion of an economy that is owned by foreigners.

Front 1230

Foreign sector

Back 1230

3. The rest of the world, outside of the country being considered.

Front 1231

Foreign sector

Back 1231

4. In the accounts of a country, all those involving international transactions.

Front 1232

Foreign trade

Back 1232

Trade (definition #3)

Front 1233

Foreign trade deficit

Back 1233

Trade deficit

Front 1234

Foreign trade zone

Back 1234

An area within a country where imported goods can be stored or processed without being subject to import duty. Also called a "free zone," "free port," or "bonded warehouse."

Front 1235

Forfaiting

Back 1235

The purchase of an exporter's receivables -- the amounts owed by importers to whom goods have already been delivered -- at a discount by a specialized financing firm or a department of a bank. This is one method of trade finance.

Front 1236

Formula approach

Back 1236

A procedure for organizing multilateral trade negotiations using a formula for tariff reductions as a starting point.

Front 1237

Forward

Back 1237

On the forward market.

Front 1238

Forward contract

Back 1238

A binding commitment to buy or sell currency on a forward market.

Front 1239

Forward curve

Back 1239

In a forward market, the pattern of forward rates, or forward premia, over various time horizons.

Front 1240

Forward discount

Back 1240

Opposite of forward premium.

Front 1241

Forward integration

Back 1241

Acquisition by a firm of a larger part of its distribution chain, moving it closer to selling directly to its ultimate customers.

Front 1242

Forward linkage

Back 1242

The provision by one firm or industry of produced inputs to another firm or industry.

Front 1243

Forward market

Back 1243

A market for exchange of currencies in the future. Participants in a forward market enter into a contract to exchange currencies, not today, but at a specified date in the future, typically 30, 60, or 90 days from now, and at a price (forward exchange rate) that is agreed upon today.

Front 1244

Forward premium

Back 1244

The difference between a forward exchange rate and the spot exchange rate, expressed as an annualized percentage return on buying foreign currency spot and selling it forward.

Front 1245

Forward price

Back 1245

In any forward market, the price of the item being traded for delivery at a future date; in exchange markets, the forward rate.

Front 1246

Forward rate

Back 1246

Also called the forward exchange rate, this is the exchange rate on a forward market transaction.

Front 1247

Four-firm concentration ratio

Back 1247

See concentration ratio.

Front 1248

Four Tigers

Back 1248

The four Asian economies that were the first to show rapid economic development after the success of Japan: Hong Kong, South Korea, Singapore, and Taiwan.

Front 1249

FPE

Back 1249

Factor price equalization.

Front 1250

Fragmentation

Back 1250

The splitting of production processes into separate parts that can be done in different locations, including in different countries. One of many terms for the same phenomenon, this particular one (which I seem to favor) originated with Jones and Kierzkowski (1990).

Front 1251

Free at frontier

Back 1251

Refers to the value of an imported product at the moment that it falls under the customs jurisdiction of the importing country. Does not include any customs duty. [Unclear, to me, how this differs from c.i.f..]

Front 1252

Free capital markets

Back 1252

This is not a standard term, but it seems to be used, variously, to describe the absence of government regulation of international capital flows, the absence of government or central bank intervention in exchange markets, and the absence of interference with national financial and development policies by international financial institutions.

Front 1253

Free carrier

Back 1253

A term, abbreviated FCA, denoting that a good for export to a buyer is to be delivered to a carrier specified by the buyer.

Front 1254

Free enterprise

Back 1254

A system in which economic agents are free to own property and engage in commercial transactions. See laissez faire, economic freedom, .

Front 1255

Free entry

Back 1255

The assumption that new firms are permitted to enter an industry and can do so costlessly. Together with free exit, it implies that profit must be zero in equilibrium.

Front 1256

Free exit

Back 1256

The assumption that firms are permitted to leave an industry and can do so costlessly. See free entry.

Front 1257

Free-floating exchange rate

Back 1257

Floating exchange rate. Contrasts with a managed float.

Front 1258

Free list

Back 1258

A list of goods that a country has designated as able to be imported without being subject to tariff or import licensing.

Front 1259

Free market

Back 1259

A market that is not interfered with by government constraints on transactions. Most would say, however, that a market that is subject to a modest and transparent tax can still be considered free.

Front 1260

Free on board

Back 1260

See FOB.

Front 1261

Free port

Back 1261

See foreign trade zone.

Front 1262

Free rider

Back 1262

Someone who enjoys the benefits of a public good without bearing the cost. An example, in trade policy, is that trade liberalization benefits the majority of consumers without their lobbying for it. This may tip policy in the direction of protection, for which there are fewer free riders.

Front 1263

Free trade

Back 1263

A situation in which there are no artificial barriers to trade, such as tariffs and NTBs. Usually used, often only implicitly, with frictionless trade, so that it implies that there are no barriers to trade of any kind. For a traded homogeneous product, it follows that domestic and world price must be equal.

Front 1264

Free trade agreement

Back 1264

A negotiated treaty among two or more countries to form a free trade area.

Front 1265

Free trade area

Back 1265

A group of countries that adopt free trade (zero tariffs and no other policy restrictions) on trade among themselves, while not necessarily changing the barriers that each member country has on trade with the countries outside the group.

Front 1266

Free Trade Area of the Americas

Back 1266

A preferential trading arrangement being negotiated among most of the countries (all but Cuba) of the western hemisphere.

Front 1267

Free trade association

Back 1267

Free Trade Area.

Front 1268

Free trade zone

Back 1268

An export processing zone.

Front 1269

Free zone

Back 1269

See foreign trade zone.

Front 1270

Frequency

Back 1270

The speed of the up and down movements of a fluctuating economic variable; that is, the number of times per unit of time that the variable completes a cycle of up and down movement. See destabilizing speculation.

Front 1271

Frequency ratio

Back 1271

A measure of the presence of nontariff barriers, defined as the percentage of a country's tariff lines that are subject to one or a group of NTBs. Contrasts with coverage ratio and tariff equivalent.

Front 1272

Frictional unemployment

Back 1272

Unemployment of people who are changing jobs, careers, or locations.

Front 1273

Frictionless trade

Back 1273

The absence of natural barriers to trade, such as transport costs.

Front 1274

Friedman rule

Back 1274

The rule for the optimal conduct of monetary policy proposed by Friedman (1969), that it should generate a rate of deflation that makes the nominal interest rate equal to zero.

Front 1275

Friend

Back 1275

See natural friend.

Front 1276

Friends and enemies version

Back 1276

A weak version of the Stolper-Samuelson Theorem, involving natural friends and enemies, that holds with multiple goods and factors.

Front 1277

FSC

Back 1277

Foreign Sales Corporation

Front 1278

FTA

Back 1278

Free trade area or free trade agreement

Front 1279

FTAA

Back 1279

Free Trade Area of the Americas

Front 1280

FTZ

Back 1280

Free trade zone

Front 1281

Functional distribution of income

Back 1281

How the income of an economy is divided among the owners of different factors of production, into wages, rents, etc.

Front 1282

Fundamental equilibrium exchange rate

Back 1282

This seems to mean the same as equilibrium exchange rate. Adding "fundamental" does not seem to remove its ambiguity.

Front 1283

Futures contract

Back 1283

A binding commitment to buy or sell a commidity or currency on a futures market.

Front 1284

Futures market

Back 1284

A market for exchange (of currencies, in the case of the exchange market) in the future. That is, participants contract to exchange currencies, not today, but at a specified calendar date in the future, and at a price (exchange rate) that is agreed upon today.

Front 1285

G-6

Back 1285

1. The six largest countries of the world: Canada, France, Germany, Japan, the United Kingdom, and the United States.

Front 1286

G-6

Back 1286

2. The six largest countries of the European Union, ministers from which sometimes meet to discuss issues of common concern. The countries are France, Germany, Italy, Poland, Spain, and the United Kingdom.

Front 1287

G-6

Back 1287

3. A group of countries that has met several times to resolve disagreements that prevent progress in the Doha Round. The group includes Australia, India, Japan, the United States, the European Union, and either Brazil or China (I've seen both mentioned).

Front 1288

G-7

Back 1288

A group of seven major industrialized countries whose heads of state have met annually since 1976 in summit meetings to discuss economic and political issues. The seven are United States, Canada, Japan, Britain, France, Germany, and Italy (plus the EU).

Front 1289

G-8

Back 1289

The G-7 plus Russia, which have met as a full economic and political summit since 1998.

Front 1290

G-10

Back 1290

Group of Ten.

Front 1291

G-20

Back 1291

1. An international forum of finance ministers and central bank governors from 19 countries and the EU, plus the IMF and World Bank. Created in 1999 by the finance ministers of the G-7, it meets annually to discuss financial and economic concerns among industrialized economies and emerging markets.

Front 1292

G-20

Back 1292

2. A group of developing countries established Aug. 20, 2003 that joined together in the Cancún Ministerial of the WTO's Doha Round in order to negotiate collectively with the U.S. and E.U., especially seeking the elimination of developed-country agricultural subsidies. Membership in the group has fluctuated, but the name G-20 now seems to have stuck. The group has been led by Brazil, other important members including Argentina, China, India, and South Africa.

Front 1293

G-24

Back 1293

A group of developing countries established in 1971 with the aim of taking positions on monetary and development finance issues.

Front 1294

G-77

Back 1294

A coalition of developing countries within the United Nations, established in 1964 at the end of the first session of UNCTAD, intended to articulate and promote the collective economic interests of its members and enhance their negotiating capacity. Originally with 77 members, it now (in 2007) has 130.

Front 1295

GAAP

Back 1295

Generally Accepted Accounting Principles

Front 1296

GAFTA

Back 1296

Greater Arab Free Trade Area

Front 1297

Gains from trade

Back 1297

The net benefits that countries experience as a result of lowering import tariffs and otherwise liberalizing trade.

Front 1298

Gains from trade theorem

Back 1298

The theoretical proposition that (in the absence of distortions) there will be gains from trade for any economy that moves from autarky to free trade, as well as for a small open economy and for the world as a whole if tariffs are reduced appropriately. Due to Samuelson (1939, 1962).

Front 1299

Game

Back 1299

A theoretical construct in game theory in which players select actions or strategies and the payoffs depend on the actions or strategies of all players.

Front 1300

Game theory

Back 1300

The modeling of strategic interactions among agents, used in economic models where the numbers of interacting agents (firms, governments, etc.) are small enough that each has a perceptible influence on the others.

Front 1301

Gastarbeiter

Back 1301

Guest worker.

Front 1302

GATS

Back 1302

General Agreement on Trade in Services

Front 1303

GATT

Back 1303

General Agreement on Tariffs and Trade

Front 1304

GATT Articles

Back 1304

The individual sections of the GATT agreement, conventionally identified by their Roman numerals. Most were originally drafted in 1947, but are still included in the WTO.

Front 1305

GATT-Speak

Back 1305

Variation on GATT-think.

Front 1306

GATT-Think

Back 1306

A somewhat derogatory term for the language of GATT negotiations, in which exports are good, imports are bad, and a reduction in a barrier to imports is a concession. Similar to mercantilism. Due to Krugman (1991b).

Front 1307

GCC

Back 1307

Gulf Cooperation Council

Front 1308

GDP

Back 1308

Gross domestic product.

Front 1309

GDP deflator

Back 1309

The deflator for GDP, thus the ratio of nominal GDP to real GDP (usually multiplied, as with a price index, by 100).

Front 1310

GDP per capita

Back 1310

GDP divided by population.

Front 1311

Geese

Back 1311

See Flying Geese.

Front 1312

General Agreement on Tariffs and Trade

Back 1312

A multilateral treaty entered into in 1948 by the intended members of the International Trade Organization, the purpose of which was to implement many of the rules and negotiated tariff reductions that would be overseen by the ITO. With the failure of the ITO to be approved, the GATT became the principal institution regulating trade policy until it was incorporated into the WTO in 1995.

Front 1313

General Agreement on Trade in Services

Back 1313

The agreement, negotiated in the Uruguay Round, that brings international trade in services into the WTO. It provides for countries to provide national treatment to foreign service providers and for them to select and negotiate the service sectors to be covered under GATS.

Front 1314

General equilibrium

Back 1314

Equality of supply and demand in all markets of an economy simultaneously. The number of markets does not have to be large. The simplest Ricardian model has markets only for two goods and one factor, labor, but this is a general equilibrium model. Contrasts with partial equilibrium.

Front 1315

Generalized System of Preferences

Back 1315

Tariff preferences for developing countries, by which developed countries let certain manufactured and semi-manufactured imports from developing countries enter at lower tariffs than the same products from developed countries.

Front 1316

Generally Accepted Accounting Principles

Back 1316

The accounting principles set by the Financial Accounting Standards Board and required for use by United States companies. Contrasts with International Financial Reporting Standards used in Europe and other countries.

Front 1317

Genetically modified organism

Back 1317

Plants or animals (or products thereof) whose genetic makeup has been determined or altered by genetic engineering. Trade in GMOs has been the source of disagreement and controversy between the US and the EU.

Front 1318

Geneva Ministerial

Back 1318

The second ministerial meeting of the World Trade Organization, held in Geneva, Switzerland, May 18-20, 1998. It did not do much.

Front 1319

Geneva Round

Back 1319

The first (1947) and fourth (1955-56) of the trade rounds conducted under the auspices of the GATT.

Front 1320

Geographical indication

Back 1320

A label identifying where a product was produced or grown, and implying characteristics or quality particular to that location. Use of such labels by producers from other countries, has increasingly been the subject of international dispute.

Front 1321

Geography

Back 1321

See New Economic Geography.

Front 1322

GEP

Back 1322

Global Economic Prospects.

Front 1323

GI

Back 1323

Geographical indication

Front 1324

Giffen good

Back 1324

A good that is so inferior and so heavily consumed at low incomes that the demand for it rises when its price rises. The reason is that the price increase lowers income sufficiently that the positive income effect (because it is inferior) outweighs the negative substitution effect.

Front 1325

Gini Coefficient

Back 1325

A measure of income inequality within a population, ranging from zero for complete equality, to one if one person has all the income. It is defined as the area between the Lorenz Curve and the diagonal, divided by the total area under the diagonal.

Front 1326

Global competitiveness

Back 1326

Competitiveness, applied internationally.

Front 1327

Global Economic Prospects

Back 1327

An annual publication of the World Bank.

Front 1328

Global optimum

Back 1328

An allocation that is better, by some criterion, than all others possible; optimum optimorum.

Front 1329

Global quota

Back 1329

An import quota that specifies the permitted quantity of imports from all sources combined. This may be without regard to country of origin, and thus available on a first-come-first-served basis, or it may be allocated to specific suppliers.

Front 1330

Global Trade Analysis Project

Back 1330

A project based at Purdue University, providing a data base and CGE modeling tools for analysis of global trade.

Front 1331

Globalization

Back 1331

1. The increasing world-wide integration of markets for goods, services and capital that began to attract special attention in the late 1990s.

Front 1332

Globalization

Back 1332

2. Also used to encompass a variety of other changes that were perceived to occur at about the same time, such as an increased role for large corporations (MNCs) in the world economy and increased intervention into domestic policies and affairs by international institutions such as the IMF, WTO, and World Bank.

Front 1333

Globalization

Back 1333

3. Among countries other than the United States, especially developing countries, the term sometimes refers to the domination of world economic affairs and commerce by the United States.

Front 1334

GMO

Back 1334

Genetically modified organism.

Front 1335

Gnomes of Zurich

Back 1335

Term used by the British Labor government to refer to Swiss bankers and financiers who engaged in currency speculation that forced the devaluation of the British pound in 1964.

Front 1336

GNP

Back 1336

Gross national product.

Front 1337

Gold Exchange Standard

Back 1337

A monetary system that sought to restore features of the Gold Standard in the 1920s and again in the Bretton Woods System, while economizing on gold. Instead of money being backed directly by gold, central banks issued liabilities against foreign currency assets (mostly U.S. dollars under Bretton Woods) that were in turn backed by gold.

Front 1338

Gold Standard

Back 1338

A monetary system in which both the value of a unit of the currency and the quantity of it in circulation are specified in terms of gold. If two currencies are both on the gold standard, then the exchange rate between them is approximately determined by their two prices in terms of gold.

Front 1339

Gold tranche

Back 1339

See tranche.

Front 1340

Good

Back 1340

A product that can be produced, bought, and sold, and that has a physical identity. Sometimes said, inaccurately, to be anything that "can be dropped on your foot" or, also inaccurately, to be "visible." Contrasts with service. Trade in goods is much easier to measure than trade in services, and thus much more thoroughly documented and analyzed.

Front 1341

Government budget

Back 1341

1. An itemized accounting of the payments received by government (taxes and other fees) and the payments made by government (purchases and transfer payments).

Front 1342

Government budget

Back 1342

2. The net inflow (surplus) or outflow (deficit) of these payments.

Front 1343

Government debt

Back 1343

The amount that a country's government has borrowed as a result of budget deficits, usually by issuing government bonds or, in developing countries, from international financial institutions. Often called the national debt.

Front 1344

Government procurement

Back 1344

Purchase of goods and services by government and by state-owned enterprises. Transparency in government procurement is one of the Singapore Issues.

Front 1345

Government procurement practice

Back 1345

The methods by which units of government and state-owned enterprises determine from whom to purchase goods and services. When these methods include a preference for domestic firms, they constitute an NTB. Subject of a Tokyo Round Code, and later a WTO plurilateral agreement.

Front 1346

Government regulation

Back 1346

Includes all of the government-imposed restrictions on, and requirements of, people, firms, and organizations in a country, including on foreign people and firms that travel or engage in business there. Regulation of the latter, especially, can constitute nontariff barriers to trade in goods and services.

Front 1347

GPI

Back 1347

Gross progress indicator

Front 1348

Graduation

Back 1348

Termination of a country's eligibility for GSP tariff preferences on the grounds that it has progressed sufficiently, in terms of per capita income or another measure, that it is no longer in need to special and differential treatment.

Front 1349

Grandfather clause

Back 1349

A provision in an agreement, including the GATT but not the WTO, that allows signatories to keep certain of their previously existing laws that otherwise would violate the agreement.

Front 1350

Gravity equation

Back 1350

An estimated equation of the gravity model.

Front 1351

Gravity model

Back 1351

A model of the flows of bilateral trade based on analogy with the law of gravity in physics: Tij = AYiYj /Dij , where Tij is exports from country i to country j, Yi,Yj are their national incomes, Dij is the distance between them, and A is a constant. Other constants as exponents and other variables are often included. Due independently to Tinbergen (1962) and Pöyhönen (1963).

Front 1352

Gray area measure

Back 1352

A policy or practice whose conformity with existing rules in unclear, such as a VER under the GATT prior to the WTO.

Front 1353

Gray market

Back 1353

Refers to goods that are sold for a price lower than, or through a distributor different than, that intended by the manufacturer. Most commonly, goods that are intended by their manufacturer for one national market that are bought there, exported, and sold in another national market. See parallel imports.

Front 1354

Grease payment

Back 1354

Same as facilitating payment.

Front 1355

Greater Arab Free Trade Area

Back 1355

A pact by members of the Arab League aimed at establishing a free trade area.

Front 1356

Green box

Back 1356

Category of subsidies permitted under the WTO Agriculture Agreement; includes those not directed at particular products, direct income support for farmers unrelated to production or prices, subsidies for environmental protection and regional development. See box.

Front 1357

Green exchange rate

Back 1357

An exchange rate used within the EU's Common Agricultural Policy to convert subsidy and support payments into local currencies, avoiding the variability of the rate set in the exchange market.

Front 1358

Green field investment

Back 1358

FDI that involves construction of a new plant, rather then the purchase of an existing plant or firm. Contrasts with brown field investment.

Front 1359

Green room group

Back 1359

A group of GATT/WTO member countries or their delegates -- including the larger members and selected smaller and less developed ones -- that have met together during negotiations (originally in a green room at WTO Geneva headquarters) to agree among themselves, before taking decisions to the full membership for the required consensus.

Front 1360

Gresham's Law

Back 1360

The proposition that "bad money drives out good." It means that if two moneys have equal value in exchange, perhaps by fiat, but different values for other purposes (as when melted down), then the more valuable money will disappear from circulation, perhaps by leaving the country. Named for Sir Thomas Gresham (1519-1579).

Front 1361

Gross

Back 1361

Before deduction. Contrasts with net. Just what is deducted to get from gross to net depends on the context.

Front 1362

Gross domestic investment

Back 1362

The additions to the capital stock located within the country, without any deductions for depreciation of capital that had been previously produced.

Front 1363

Gross domestic product

Back 1363

The total value of new goods and services produced in a given year within the borders of a country, regardless of by whom. It is "gross" in the sense that it does not, in contrast to NDP, deduct depreciation of previously produced capital.

Front 1364

Gross international reserves

Back 1364

International reserves, without any deduction for the fact that some of them may have been borrowed. Contrasts with net international reserves.

Front 1365

Gross national income

Back 1365

National income plus capital consumption allowance.

Front 1366

Gross national product

Back 1366

The total value of new goods and services produced in a given year by a country's domestically owned factors of production, regardless of where. It is "gross" in the sense that, in contrast to NNP, it does not deduct depreciation of previously produced capital.

Front 1367

Gross output

Back 1367

The total output of a firm, industry, or economy without deducting intermediate inputs. For a firm or industry, this is larger than its value added which is net of its own intermediate inputs. For an economy, gross output is greater than net output, which deducts the amount of the good itself used as an intermediate input.

Front 1368

Gross progress indicator

Back 1368

An alternative to gross domestic product that is intended to take account of costs that are not internalized by economic agents, such as crime and pollution.

Front 1369

Gross substitutes

Back 1369

Two goods are gross substitutes if a rise in the price of one causes and increase in demand for the other.

Front 1370

Group of Seven (or Eight)

Back 1370

G-7 (or G-8)

Front 1371

Group of Seventy Seven

Back 1371

G-77.

Front 1372

Group of Ten

Back 1372

A group of ten countries, members of the IMF, that together with Switzerland agreed to make resources available outside their IMF quotas. Since 1963 the governors of the G10 central banks have met on the occasion of the bimonthly BIS meetings.

Front 1373

Growth

Back 1373

See economic growth.

Front 1374

Growth accounting

Back 1374

Decomposition of the sources of economic growth into the contributions from increases in capital, labor, and other factors. What remains, called the Solow residual, is usually attributed to technology.

Front 1375

Growth model

Back 1375

A model of an economy in which quantities of factors can expand over time. The model on which most others are based is the Solow Model.

Front 1376

Growth regression

Back 1376

The attempt to ascertain the causes of economic growth by regression of country growth rates on country characteristics. The main pitfall is that many characteristics may themselves have been altered by growth, making causation ambiguous.

Front 1377

Grubel-Lloyd index

Back 1377

The measure of the intra-industry trade suggested by Grubel and Lloyd (1975). For an industry i with exports Xi and imports Mi the index is I = [(Xi+Mi) - |Xi- Mi|]100/(Xi+Mi). This is the fraction of total trade in the industry, Xi+Mi, that is accounted for by IIT (times 100).

Front 1378

GSP

Back 1378

Generalized System of Preferences

Front 1379

GSP social clause

Back 1379

See social clause.

Front 1380

GTAP

Back 1380

Global Trade Analysis Project

Front 1381

Guest worker

Back 1381

A foreign worker who is permitted to enter a country temporarily in order to take a job for which there is shortage of domestic labor.

Front 1382

Gulf Cooperation Council

Back 1382

An agreement among six countries of the Persian Gulf region in 1981 with the aim of coordinating and integrating their economic policies.

Front 1383

Harberger-Laursen-Metzler Effect

Back 1383

The conjecture or result that a terms of trade deterioration will cause a decrease in savings due to the decrease in real income, and therefore that a real depreciation will cause an increase in real expenditure. Due to Harberger (1950) and Laursen and Metzler (1950).

Front 1384

Harberger triangle

Back 1384

The triangular area, or areas, in a supply and demand diagram that measures the net welfare loss, or dead-weight loss due to a market distortion or policy, such as a tariff.

Front 1385

Hard currency

Back 1385

A currency that is widely accepted around the world, usually because it is the currency of a country with a large and stable market. Examples today include the U.S. dollar and the euro.

Front 1386

Hard peg

Back 1386

A pegged exchange rate with a credible commitment never to change the par value, thus subordinating monetary policy to the needs of the exchange market and denying access to devaluation as a policy tool. In practice, the effects of a hard peg are achieved only through a currency board or by adopting another country's currency, e.g. dollarization.

Front 1387

Harkin bill

Back 1387

The Child Labor Deterrence Act, introduced into the US Senate by Iowa Senator Tom Harkin several times from 1992 through 1999 but never passed into law.

Front 1388

Harmful externality

Back 1388

Negative externality.

Front 1389

Harmonization

Back 1389

1. The changing of government regulations and practices, as a result of an international agreement, to make those of different countries the same or more compatible.

Front 1390

Harmonization

Back 1390

2. In the case of tariffs, this means making tariff rates more similar across industries and/or across countries.

Front 1391

Harmonized System

Back 1391

An international system for classifying goods in international trade and for specifying the tariffs on those goods. It was adopted at the beginning of 1989, replacing the previously used schedules in over 50 countries, including the Brussels Tariff Nomenclature.

Front 1392

Harrod neutral

Back 1392

A particular specification of technological change or technological difference that is labor augmenting.

Front 1393

Hat algebra

Back 1393

The Jones (1965) technique for comparative static analysis in trade models. By totally differentiating a model in the logarithms of its variables, a linear system is obtained relating small proportional changes (denoted by carats (^), or "hats") in terms of various elasticities and shares. (The published article used *, not ^, because of typographical constraints.)

Front 1394

Havana Charter

Back 1394

The charter for the never-implemented International Trade Organization. The draft was completed at a conference in Havana, Cuba, in 1948.

Front 1395

HDI

Back 1395

Human Development Index

Front 1396

Headcount index

Back 1396

A common measure of poverty, defined as the percentage of the population living below the poverty line.

Front 1397

Headline inflation

Back 1397

The rate of inflation that attempts to include everything that contributes to the cost of living. Contrasts with core inflation, which excludes prices of food and energy.

Front 1398

Headquarters services

Back 1398

The activities of a firm that typically occur at its main location and that contribute in a broad sense to its productivity at all of its locations and plants. These may include management, accounting, marketing, and R&D.

Front 1399

Heavily indebted poor countries

Back 1399

The name given to those poor countries with large debts, the target of initiatives to forgive that debt as a means of assisting development.

Front 1400

Heckscher-Ohlin Core Propositions

Back 1400

See core propositions.

Front 1401

Heckscher-Ohlin Model

Back 1401

A model of international trade in which comparative advantage derives from differences in relative factor endowments across countries and differences in relative factor intensities across industries. Sometimes refers only to the textbook or 2x2x2 model, but more generally includes models with any numbers of factors, goods, and countries. Model was originally formulated by Heckscher (1919), fleshed out by Ohlin (1933), and refined by Samuelson (1948, 1949, 1953).

Front 1402

Heckscher-Ohlin-Samuelson Model

Back 1402

Usually synonymous with the Heckscher-Ohlin Model, although sometimes the term is used to distinguish the more formalized, mathematical version that Samuelson used from the more general but less well-defined conceptual treatment of Heckscher and Ohlin.

Front 1403

Heckscher-Ohlin Theorem

Back 1403

The proposition of the Heckscher-Ohlin Model that countries will have comparative advantage in, and therefore export, the goods that use relatively intensively their relatively abundant factors.

Front 1404

Heckscher-Ohlin-Vanek Model

Back 1404

The Heckscher-Ohlin Model for the case of identical techniques of production (due either to FPE or Leontief technologies), used to derive the strong prediction about the factor content of trade known as the Heckscher-Ohlin-Vanek Theorem.

Front 1405

Heckscher-Ohlin-Vanek Theorem

Back 1405

The prediction of the H-O-V Model that a country's net factor content of trade equals its own factor endowment minus its world-expenditure share of the world factor endowment. That is, for country i, Fi = Vi – siVW, where Fi is the factor content of its trade, Vi,VW its and the world's factor endowments, and si its share of world expenditure. Due to Vanek (1968).

Front 1406

Hedge

Back 1406

To offset risk. In the foreign exchange market, hedgers use the forward market to cover a transaction or open position and thereby reduce exchange risk. The term applies most commonly to trade.

Front 1407

Hedonic pricing

Back 1407

The use of statistical techniques such as regression analysis to determine, from the prices of goods with different measurable characteristics, the prices that are associated with those characteristics. The latter can then be used to construct what the comparable price of a good would be from its characteristics.

Front 1408

Helms-Burton Act

Back 1408

A United States law enacted in 1996 that penalized companies for doing business in Cuba. Since the law applied to non-U.S. companies as well as U.S. companies, other governments objected.

Front 1409

Herfindahl index

Back 1409

A standard measure of industry concentration, defined as the sum of the squares of the market shares (in percentages) of the firms in the industry.

Front 1410

Heterogeneous

Back 1410

Not all the same. Not homogeneous.

Front 1411

Heterogeneous firm model

Back 1411

An economic model in which firms in an industry are not all the same, as for example a Melitz model.

Front 1412

Hicks-Kaldor improvement

Back 1412

Potential Pareto improvement

Front 1413

Hicks-neutral

Back 1413

Said of a technological change or technological difference if production functions differ by scaling of output only: F2(V)=lF1(V), where F1(·) and F2(·) are the production functions being compared, V is a vector of factor inputs, and l>0 is a constant.

Front 1414

Hicksian composite unit-value isoquant

Back 1414

For given constant-returns-to-scale technologies for two or more goods and given prices of those goods, this is the convex hull of the unit value isoquants of those goods. It thus represents the most efficient ways of allocating factors so as to produce one unit of value by producing one or more of the goods.

Front 1415

High dimension

Back 1415

In trade theory, this refers to having more than two goods, factors, and/or countries, or to having arbitrary numbers of these. Contrasts with the two-ness of the 2x2x2 Model.

Front 1416

High powered money

Back 1416

Same as monetary base, in the sense of currency plus commercial bank reserves.

Front 1417

HIPC

Back 1417

Heavily indebted poor countries.

Front 1418

H-O Model

Back 1418

Heckscher-Ohlin Model.

Front 1419

Holdup problem

Back 1419

In the context of a potential mutually beneficial agreement, the disincentive for one party to invest in that agreement, due to the potential for the other party to extract such benefits, after the investment, as would leave the first party at a loss. Problem arises in many contexts, including international trade that requires, say, an exporter to bear an initial fixed cost.

Front 1420

Hollowing out

Back 1420

The shrinking of the manufacturing sector that has sometimes been thought to result from international trade or outsourcing.

Front 1421

Home bias

Back 1421

A preference, by consumers or other demanders, for products produced in their own country compared to otherwise identical imports. This was proposed by Trefler (1995) as a possible explanation for the mystery of the missing trade.

Front 1422

Home market effect

Back 1422

The tendency in industries with increasing returns to scale for large countries to be net exporters. Due to Krugman (1980)

Front 1423

Homogeneous

Back 1423

1. Having the property that all constituent elements are the same, as a homogeneous good. Contrasts with heterogeneous.

Front 1424

Homogeneous

Back 1424

2. Possessing a certain form of uniformity, as a homogeneous function.

Front 1425

Homogeneous function

Back 1425

A function with the property that multiplying all arguments by a constant changes the value of the function by a monotonic function of that constant: F(lV)=g(l)F(V), where F(·) is the homogeneous function, V is a vector of arguments, l>0 is any constant, and g(·) is some strictly increasing positive function. Special cases include homogeneous of degree N and linearly homogeneous.

Front 1426

Homogeneous good

Back 1426

A good all units of which are the same; a homogeneous product.

Front 1427

Homogeneous of degree 1

Back 1427

The same as linearly homogeneous and, for a production function, constant returns to scale. See homogeneous of degree N.

Front 1428

Homogeneous of degree N

Back 1428

A homogeneous function where the monotonic function is the constant raised to the exponent N: F(lV)=lNF(V). For N>1, see increasing returns to scale; for N<1, see decreasing returns to scale.

Front 1429

Homogeneous of degree zero

Back 1429

The property of a function that, if you scale all arguments by the same proportion, the value of the function does not change. See homogeneous of degree N. In the H-O Model, CRTS production functions imply that marginal products have this property, which is critical for FPE.

Front 1430

Homogeneous product

Back 1430

The product of an industry in which the outputs of different firms are indistinguishable. Contrasts with differentiated product.

Front 1431

Homohypallagic

Back 1431

Having a constant elasticity of substitution. One of the inventors of the CES function tried to christen it this in Minhas (1962), where he also explored its theoretical and empirical implications for the Heckscher-Ohlin Theorem, but the name did not catch on.

Front 1432

Homothetic

Back 1432

A function of two or more arguments is homothetic if all ratios of its first partial derivatives depend only on the ratios of the arguments, not their levels. For competitive consumers or producers optimizing subject to homothetic utility or production functions, this means that ratios of goods demanded depend only on relative prices, not on income or scale.

Front 1433

Homothetic demand

Back 1433

Demand functions derived from homothetic preferences. The demand functions are not themselves literally homothetic.

Front 1434

Homothetic preferences

Back 1434

Together with identical preferences, this assumption is used for many propositions in trade theory, in order to assure that consumers with different incomes but facing the same prices will demand goods in the same proportions.

Front 1435

Homothetic tastes

Back 1435

Homothetic preferences.

Front 1436

Hong Kong Ministerial

Back 1436

The 6th WTO ministerial meeting, held in Hong Kong, China, December 13-18, 2005. Intended to achieve significant progress in the negotiations for the Doha Round, it ended with only minimal progress but was nonetheless declared a success.

Front 1437

Horizontal discipline

Back 1437

The use of a rule, as in the regulations of trade policies under the GATT or GATS, that applies across the board to all sectors of the economy.

Front 1438

Horizontal FDI

Back 1438

Foreign direct investment by a firm to establish manufacturing facilities in multiple countries, all producing essentially the same thing but for their respective domestic or nearby markets. Contrasts with vertical FDI.

Front 1439

Horizontal integration

Back 1439

Production of different varieties of the same product, or different products at the same level of processing, within a single firm. This may, but need not, take place in subsidiaries in different countries.

Front 1440

Horizontal intraindustry trade

Back 1440

Intraindustry trade in which the exports and imports are at the same stage of processing. Likely due to product differentiation. Contrasts with vertical IIT.

Front 1441

Hormone dispute

Back 1441

See beef hormone case.

Front 1442

HOS Model

Back 1442

Heckscher-Ohlin-Samuelson Model.

Front 1443

Host country

Back 1443

The country into which a foreign direct investment is made.

Front 1444

Hostage effect

Back 1444

One reason why a firm might choose to acquire less than 100% of a foreign firm that it buys, in spite of the extra administrative cost of managing shared ownership: it gives the seller a stake in the acquired firm, and thus incentive to behave and communicate helpfully.

Front 1445

HOT

Back 1445

Heckscher-Ohlin Theorem.

Front 1446

Hot money

Back 1446

Holdings of very liquid assets, which may be sold or cashed on short notice and then removed from a country, often in response to expectations of devaluation or other financial crisis.

Front 1447

HOV Model

Back 1447

Heckscher-Ohlin-Vanek Model.

Front 1448

HS

Back 1448

Harmonized System

Front 1449

Hub and spoke integration

Back 1449

A pattern of economic integration in which one country (the "hub") forms preferential trading arrangements with two or more other countries (the "spokes") that do not form such arrangements with each other.

Front 1450

Human capital

Back 1450

1. The stock of knowledge and skill, embodied in an individual as a result of education, training, and experience, that makes him or her more productive.

Front 1451

Human capital

Back 1451

2. The stock of knowledge and skill embodied in the population of an economy.

Front 1452

Human Development Index

Back 1452

An index produced by UNDP for 177 countries (as of June 2008) to measure three aspects of human development: life expectancy and health; knowledge; and standard of living.

Front 1453

Human rights

Back 1453

The conditions and expectations to which every person, by virtue of his or her existence as a human being, is entitled.

Front 1454

Hyperinflation

Back 1454

Inflation at a very high and rising rate. Defined by Cagan (1956) to be over 50%.

Front 1455

Hysteresis

Back 1455

1. The failure of an economic variable to return to its initial equilibrium after a temporary shock. For example, an industry or trade flow might disappear due to an exchange rate change, then not reappear after the change is reversed.

Front 1456

Hysteresis

Back 1456

2. A time lag between a cause and an effect. (Though this seems to be the more standard dictionary definition, economists seem to prefer definition 1.)

Front 1457

IADB

Back 1457

Inter-American Development Bank

Front 1458

IASB

Back 1458

International Accounting Standards Board

Front 1459

IBRD

Back 1459

International Bank for Reconstruction & Development

Front 1460

ICA

Back 1460

International commodity agreement

Front 1461

ICC

Back 1461

International Chamber of Commerce

Front 1462

Iceberg transport cost

Back 1462

A cost of transporting a good that uses up only some fraction of the good itself, rather than using any other resources. Based on the idea of floating an iceberg, which is costless except for the amount of the iceberg itself that melts. It is a very tractable way of modeling transport costs since it impacts no other market. Due to Samuelson (1954).

Front 1463

ICN

Back 1463

International Competition Network

Front 1464

ICOR

Back 1464

Incremental capital output ratio

Front 1465

ICP

Back 1465

International Comparison Program

Front 1466

ICSID

Back 1466

International Centre for Settlement of Investment Disputes

Front 1467

IDA

Back 1467

International Development Association

Front 1468

IDB

Back 1468

Inter-American Development Bank

Front 1469

Identical preferences

Back 1469

The assumption that individuals -- either within a country or in different countries -- have the same preferences. To be useful, since individuals' and countries' incomes may differ, the assumption is often used together with homothetic preferences.

Front 1470

IFAD

Back 1470

International Fund for Agricultural Development

Front 1471

IFRS

Back 1471

International Financial Reporting Standards

Front 1472

IFC

Back 1472

International Finance Corporation

Front 1473

IFI

Back 1473

International financial institution

Front 1474

IFS

Back 1474

International Financial Statistics

Front 1475

IIDE

Back 1475

Institute for International and Development Economics

Front 1476

IIT

Back 1476

Intraindustry trade

Front 1477

ILO

Back 1477

International Labor Organization

Front 1478

Imbalance

Back 1478

1. Any departure from equality.

Front 1479

Imbalance

Back 1479

2. In the balance of payments, any surplus or deficit.

Front 1480

IMF

Back 1480

International Monetary Fund

Front 1481

IMF Quota

Back 1481

The amount of money that each IMF member country is required to contribute to the institution, partly in their own currency and partly in U.S. dollars, gold, or other member-country currencies. A country's quota is based upon the country's GDP. Countries have voting power in the IMF in proportion to their IMF quotas.

Front 1482

Immigration

Back 1482

The migration of people into a country.

Front 1483

Immiserizing growth

Back 1483

Economic growth that makes the country worse off. Bhagwati (1958) coined this term for growth that expands exports and worsens the terms of trade sufficiently that real income falls. Johnson (1955) had shown that a market distorted by a tariff could lose from growth and had also, independently, worked out conditions for Bhagwati's result.

Front 1484

Immiserizing transfer

Back 1484

A transfer that makes the receiving country worse off.

Front 1485

Impairment

Back 1485

See nonviolation

Front 1486

Imperfect capital mobility

Back 1486

Any departure from perfect capital mobility, permitting interest rates or returns to capital to differ between countries.

Front 1487

Imperfect competition

Back 1487

Any departure from perfect competition. However, imperfect competition usually refers to one of the market structures other than perfect competition.

Front 1488

Imperfectly competitive

Back 1488

Refers to an economic agent (firm or consumer), group of agents (industry), model, or analysis that is characterized by imperfect competition. Contrasts with perfectly competitive.

Front 1489

Implicit price deflator

Back 1489

A broad measure of prices derived from separate estimates of real and nominal expenditures for GDP or a subcategory of GDP. Without qualification the term refers to the GDP deflator and is thus an index of prices for everything that a country produces, unlike the CPI, which is restricted to consumption and includes prices of imports.

Front 1490

Implicit tariff

Back 1490

1. Tariff revenue on a good or group of goods, divided by the corresponding value of imports. Often lower than the official or statutory tariff, due both to PTAs and to failures in customs collection.

Front 1491

Implicit tariff

Back 1491

2. The difference between the price just inside a border and the price just outside it, especially in the case of a good protected by an import quota.

Front 1492

Import

Back 1492

1. A good that crosses into a country, across its border, for commercial purposes.

Front 1493

Import

Back 1493

2. A product, which might be a service, that is provided to domestic residents by a foreign producer.

Front 1494

Import

Back 1494

3. To cause a good or service to be an import under definitions 1 and/or 2.

Front 1495

Import authorization

Back 1495

The requirement that imports be authorized by a special agency before entering a country, similar to import licensing.

Front 1496

Import bias

Back 1496

1. Any bias in favor of importing.

Front 1497

Import bias

Back 1497

2. Applied to growth, it tends to mean a bias against importing, and against trading more generally. Thus growth that is based disproportionately on accumulation of the factor used intensively in the import-competing industry and/or technological progress favoring that industry.

Front 1498

Import-competing

Back 1498

Refers to an industry that competes with imports. That is, in a two-good model with trade, one good is the export good and the other is the import-competing good.

Front 1499

Import demand elasticity

Back 1499

The elasticity of demand for imports with respect to price.

Front 1500

Import deposit

Back 1500

A requirement that importers put some amount of money in an account for some period of time. The purpose may be to assure that import duties will be paid, if they apply (as in the case of a tourist bringing in a car), or the deposit may simply be a nontariff barrier intended to discourage imports.

Front 1501

Import duty

Back 1501

A tariff on imports.

Front 1502

Import elasticity

Back 1502

Usually means the import demand elasticity.

Front 1503

Import-export company

Back 1503

A firm whose business consists mainly of international trade: buying goods in one country and selling them in another, thus both exporting and importing. Same as export-import company.

Front 1504

Import liberalization

Back 1504

Trade liberalization

Front 1505

Import license

Back 1505

The license to import under an import quota or under exchange controls.

Front 1506

Import licensing

Back 1506

See licensing.

Front 1507

Import monitoring

Back 1507

A practice introduced by the US, first for steel and later for textiles and apparel, whereby the Department of Commerce records the volume of imports of specified products in order to make these data publicly available earlier than would otherwise be possible. Implicitly, these procedures are intended to facilitate faster administered protection.

Front 1508

Import parity price

Back 1508

The price that a purchaser pays or can expect to pay for an imported good, thus the c.i.f. import price plus tariff plus transport cost to the purchaser's location. This and the export parity price together define a range of the possible equilibrium prices for an equivalent domestically produced good.

Front 1509

Import penetration

Back 1509

A measure of the importance of imports in the domestic economy, either by sector or overall, usually defined as the value of imports divided by the value of apparent consumption.

Front 1510

Import price index

Back 1510

Price index of the goods that a country imports.

Front 1511

Import promotion

Back 1511

Any policy that encourages imports. A policy of export promotion generally has the side effect of stimulating imports as well. Today the term is more commonly used for policies used by developed countries intended to assist developing countries in exporting to them.

Front 1512

Import propensity

Back 1512

The marginal propensity to import (or sometimes the average propensity, if they are different).

Front 1513

Import protection

Back 1513

See protection.

Front 1514

Import quantity index

Back 1514

Quantity index of the goods that a country imports.

Front 1515

Import quota

Back 1515

See quota.

Front 1516

Import relief

Back 1516

Usually refers to some form of restraint of imports in a particular sector in order to assist domestic producers, and with the connotation that these producers have been suffering from competition with imports. If done formally under existing statutes, it is administered protection, but it may also be done informally using a VER.

Front 1517

Import substitute

Back 1517

A good produced on the domestic market that competes with imports, either as a perfect substitute or as a differentiated product.

Front 1518

Import substituting industrialization

Back 1518

A strategy for economic development based on replacing imports with domestic production. (ISI)

Front 1519

Import substitution

Back 1519

A strategy for economic development that replaces imports with domestic production. It may be motivated by the infant industry argument, or simply by the desire to mimic the industrial structure of advanced countries. Contrasts with export promotion.

Front 1520

Import surcharge

Back 1520

A tax levied uniformly on most or all imports, in addition to already-existing tariffs.

Front 1521

Import surveillance

Back 1521

The monitoring of imports, usually by means of automatic licensing.

Front 1522

Import tariff

Back 1522

Tariff

Front 1523

Import tax

Back 1523

Tariff

Front 1524

Import-weighted average tariff

Back 1524

See trade weighted average tariff.

Front 1525

Imports

Back 1525

The quantity or value of all that is imported into a country.

Front 1526

Impossible trinity

Back 1526

The impossibility of combining all three of the following: monetary independence, exchange rate stability, and full financial market integration.

Front 1527

Impost

Back 1527

A tax or tariff. (This is not a commonly used word.)

Front 1528

Improve the terms of trade

Back 1528

To increase the terms of trade; that is, to increase the relative price of exports compared to imports. Because it represents an increase in what the country gets in return for what it gives up, this is associated with an improvement in the country's welfare, although whether that actually occurs depends on the reason prices change.

Front 1529

Improve the trade balance

Back 1529

This conventionally refers to an increase in exports relative to imports, which thus causes the balance of trade to become larger if positive or smaller if negative. The terminology ignores that exports drain resources while imports satisfy domestic needs, and reflects instead the association of exports with either accumulation of wealth or jobs.

Front 1530

In kind

Back 1530

Referring to a payment made with goods instead of money.

Front 1531

Incidence

Back 1531

See tax incidence.

Front 1532

Income

Back 1532

1. The amount of money (nominal or real) received by a person, household, or other economic unit per unit time in return for services provided or goods sold.

Front 1533

Income

Back 1533

2. National income.

Front 1534

Income

Back 1534

3. The return earned on an asset per unit time.

Front 1535

Income disparity

Back 1535

Inequality of income, usually referring to differences in average per capita incomes across countries.

Front 1536

Income distribution

Back 1536

A description of the fractions of a population that are at various levels of income. The larger are the differences in income, the "worse" the income distribution is usually said to be, the smaller the "better." International trade and factor movements can alter countries' income distributions by changing prices of low- and high-paid factors.

Front 1537

Income effect

Back 1537

That portion of the effect of price on quantity demanded that reflects the change in real income due to the price change. Contrasts with substitution effect.

Front 1538

Income elastic

Back 1538

Having an income elasticity greater than one.

Front 1539

Income elasticity

Back 1539

Normally the income elasticity of demand; that is, the elasticity of demand with respect to income.

Front 1540

Income-expenditure analysis

Back 1540

The simplest Keynesian model for determining national income, in which desired expenditure (consumption plus investment plus government purchases) depends on income, which is in turn determined so that desired expenditure equals income. Gives rise to the income-expenditure multiplier.

Front 1541

Income inelastic

Back 1541

Having an income elasticity less than one.

Front 1542

Income redistribution argument for a tariff

Back 1542

The argument that tariffs should be used in order to redistribute income towards the poor. In a rich country, where unskilled labor is the scarce factor, this can make sense as explained in the Stolper-Samuelson Theorem, but it is a second-best argument.

Front 1543

Incomplete information

Back 1543

See complete information.

Front 1544

Incomplete specialization

Back 1544

Production of goods that compete with imports.

Front 1545

Incoterms

Back 1545

International commercial terms; that is, the language of international commerce. Examples include CIF, ex works, and FOB. The name was coined by the International Chamber of Commerce, which maintains and updates their definitions.

Front 1546

Increasing cost

Back 1546

1. Referring to a single firm or industry, the rise in cost of production that occurs when output is increased by expanding variable inputs while holding some fixed input constant. A corollary of the Law of Diminishing Returns.

Front 1547

Increasing cost

Back 1547

2. In general equilibrium, increasing opportunity cost.

Front 1548

Increasing opportunity cost

Back 1548

The characteristic of an economy that the opportunity cost of a good rises as it produces more of it, resulting in a transformation curve that is concave to the origin. In the HO Model, this happens in spite of CRTS if sectors have different factor intensities.

Front 1549

Increasing returns to scale

Back 1549

A property of a production function such that changing all inputs by the same proportion changes output more than in proportion. Common forms include homogeneous of degree greater than one and production with constant marginal cost but positive fixed cost. Also called economies of scale, scale economies, and simply increasing returns. Contrasts with decreasing returns and constant returns.

Front 1550

Incremental capital output ratio

Back 1550

The amount of additional capital that a developing country requires to increase its output by one unit; thus the reciprocal of the marginal product of capital. Used as an (inverse) indicator of how efficiently a country is using the scarce capital it acquires.

Front 1551

Indebtedness

Back 1551

The amount that is owed; thus amount of an entity's (individual, firm, or government's) financial obligations to creditors.

Front 1552

Index

Back 1552

A quantitative measure, usually of something the measurement of which is not straightforward, such as an average of many diverse prices, or a concept such as economic development or human rights.

Front 1553

Index number

Back 1553

A numerical index, usually indicating, by comparison with a base value of 100, the size of the index relative to a base year or other benchmark for comparison. Thus, for example, a CPI of 115 in 2004 with a base year of 1999 means that prices have risen 15% from 1999 to 2004.

Front 1554

Index number problem

Back 1554

A question the answer to which depends on a choice of weights. E.g., the effect of trade on the real wage of labor in the specific factors model is an index number problem, depending on how much workers consume of (lower-priced) imported and (higher-priced) exported goods.

Front 1555

Index of openness

Back 1555

Openness index

Front 1556

Index of sustainable economic welfare

Back 1556

An alternative to GDP intended as a measure of welfare rather than simply production. As such it would take account of such things as income distribution, environmental impact, and leisure. No single measure of ISEW seems to have been agreed upon.

Front 1557

Indifference curve

Back 1557

A means of representing the preferences and well being of consumers. Formally, it is a curve representing the combinations of arguments in a utility function that yield a given level of utility.

Front 1558

Indirect exchange rate

Back 1558

The foreign-currency price of a unit of domestic currency. (This definition appears in several places, but it is a mystery to me why this is any less direct than its reciprocal.)

Front 1559

Industrial concentration

Back 1559

The extent to which a small number of firms dominates an industry, often measured by a concentration ratio or by a Herfindahl index. Concentration is, in effect, the opposite of competition, although in an open economy imports complicate the relationship.

Front 1560

Industrial policy

Back 1560

Government policy to influence which industries expand and, perhaps implicitly, which contract, via subsidies, tax breaks, and other aids for favored industries. The purpose, aside from political favor, may be to foster competitive advantage where there are beneficial externalities and/or scale economies.

Front 1561

Industrialization

Back 1561

The establishment and subsequent growth of industrial production in a country, usually meaning heavy manufacturing.

Front 1562

Industrialized

Back 1562

Having experienced substantial industrialization. Industrialized countries are usually the same as developed countries.

Front 1563

Industry

Back 1563

1. The portion of an economy that produces a particular related group of products; e.g., the motor vehicle industry, the tourism industry, the mining industry. A list of industries might well include agriculture.

Front 1564

Industry

Back 1564

2. One of three main sectors of an economy, the other two being the agriculture and service sectors. Industry in turn includes mining and manufacturing.

Front 1565

Inelastic

Back 1565

Having an elasticity less than one. For a price elasticity of demand, this means that expenditure falls as price falls. For an income elasticity it means that expenditure share falls with rising income. Contrasts with elastic and unit elastic.

Front 1566

Inelastic offer curve

Back 1566

An offer curve with inelastic demand for imports. That inelasticity implies that exports decline as imports increase, and it therefore means that the offer curve is backward bending. Strictly speaking, the natural definition of an offer curve's elasticity would be negative in this case, not just less than one, but that definition is seldom used.

Front 1567

Inequality

Back 1567

Differences in per capita income or household income across populations within a country or across countries.

Front 1568

Infant industry argument

Back 1568

The theoretical rationale for infant industry protection.

Front 1569

Infant industry protection

Back 1569

Protection of a newly established domestic industry that is less productive than foreign producers. If productivity will rise with experience enough to pass Mill's and Bastable's tests, there is a second-best argument for protection. The term is very old, but a classic treatment may be found in Baldwin (1969).

Front 1570

Inferior good

Back 1570

A good the demand for which falls as income rises. The income elasticity of demand is therefore negative.

Front 1571

Inflation

Back 1571

Increase in the overall price level of an economy, usually as measured by the CPI or by the implicit price deflator.

Front 1572

Inflation adjusted

Back 1572

Adjusted for inflation.

Front 1573

Inflation rate

Back 1573

The percentage increase in the price level per year. See inflation.

Front 1574

Inflation targeting

Back 1574

A principle of monetary policy that the rate of inflation should be kept within a pre-specified range, using expansionary policy when the rate is below that range and contractionary policy above it.

Front 1575

Inflow

Back 1575

See capital inflow.

Front 1576

Inframarginal

Back 1576

Inside of, as opposed to at, the margin. Example: for a firm that is producing 100 units, marginal cost is the cost of the 101st unit, while inframarginal cost is the cost of units 1,...,100.

Front 1577

Inframarginal rent

Back 1577

The quasi rent earned by a perfectly competitive firm in the short run. If price equals marginal cost, then it earns nothing on the marginal unit, but if marginal cost increases with output due to a fixed factor, then price exceeds marginal cost for inframarginal units.

Front 1578

Infrastructure

Back 1578

The facilities that must be in place in order for a country or area to function as an economy and as a state, including the capital needed for transportation, communication, and provision of water and power, and the institutions needed for security, health, and education.

Front 1579

Injury

Back 1579

Harm to an industry's owners and/or workers. Import protection under the safeguards, AD, and CVD provisions of the GATT require a finding of serious (for safeguards) or material (for AD/CVD) injury (as determined by, in the U.S., the ITC). Known as the injury test.

Front 1580

Injury margin

Back 1580

In cases of anti-dumping and counterailing duties, the difference between the import price and the price that would be needed to prevent injury.

Front 1581

Innovation

Back 1581

The creation or introduction of something new, especially a new product or a new way of producing something.

Front 1582

Input

Back 1582

1. Anything that is used in a production process, including both the services of primary factors and intermediate inputs.

Front 1583

Input

Back 1583

2. Sometimes input refers only to intermediate inputs, as distinct from primary factors.

Front 1584

Input-output

Back 1584

Refers to the structure of intermediate transactions among industries, in which one industry's output is an input to another, or even to itself.

Front 1585

Input-output table

Back 1585

A table of all inputs and outputs of an economy's industries, including intermediate transactions, primary inputs, and sales to final users. As developed by Wassily Leontief, the table can be used to calculate gross outputs and primary factor inputs needed to produce specified net outputs. Leontief (1954) used this to find the factor content of U.S. trade, generating the Leontief Paradox

Front 1586

Inshoring

Back 1586

Term used occasionally as an opposite to offshoring, when a foreign firm relocates a part of its productive activity into the domestic economy.

Front 1587

Insignificant

Back 1587

1. Too small to matter, usually meaning that the size of a variable or effect is small enough that it will not be noticed in comparison to whatever else is going on.

Front 1588

Insignificant

Back 1588

2. Not statistically significant.

Front 1589

Insourcing

Back 1589

Same as inshoring, and opposite of outsourcing.

Front 1590

Instability

Back 1590

The property of not being stable; thus, moving around over time, and/or uncertain in its movement over time.

Front 1591

Institute for International and Development Economics

Back 1591

A web-based network of research economists in Europe and North America focusing on the global economy, trade and financial integration, and international development.

Front 1592

Institutional investor

Back 1592

An owner of financial assets other than a person, and for whom such ownership is a main part of its business. Main examples are banks, hedge funds, insurance companies, mutual funds, and pension funds.

Front 1593

Instrument

Back 1593

1. An economic variable that is controlled by policy makers and can be used to influence other variables, called targets. Examples are monetary and fiscal policies used to achieve external and internal balance.

Front 1594

Instrument

Back 1594

2. See financial instrument.

Front 1595

Insurance

Back 1595

A financial arrangement to reduce risk. The purchaser of insurance pays a fixed amount, in return for which the seller agrees to pay some larger amount if an unlikely adverse event occurs.

Front 1596

Integrated World Economy

Back 1596

A hypothetical, theoretical benchmark in which both goods and factors move costlessly between countries. The IWE is associated with a rectangular diagram depicting allocation of factors to countries, showing conditions for FPE. The name was coined by Dixit and Norman (1980), but the concept and technique was introduced by Travis (1964).

Front 1597

Integrated World Economy diagram

Back 1597

A box diagram, somewhat analogous to an Edgeworth box, depicting alternative allocations of world endowments of two factors between two countries. It is used to illustrate the conditions for factor price equalization. See figure.

Front 1598

Integration

Back 1598

Economic integration refers to reducing barriers among countries to transactions and to movements of goods, capital, and labor, including harmonization of laws, regulations, and standards. Common forms include FTAs, customs unions, and common markets. Sometimes classified as shallow integration vs. deep integration.

Front 1599

Intellectual property

Back 1599

Products of the mind, such as inventions, works of art, music, writing, film, etc.

Front 1600

Intellectual property protection

Back 1600

Laws that establish and maintain ownership rights to intellectual property. The principal forms of IP protection are patents, trademarks, and copyrights.

Front 1601

Intellectual property right

Back 1601

The right to control and derive the benefits from something one has invented, discovered, or created.

Front 1602

Intensity

Back 1602

The amount that something is used, as compared to something else. See factor intensity.

Front 1603

Intensive

Back 1603

Of production, using a relatively large amount of an input. See factor intensity.

Front 1604

Intensive margin

Back 1604

Refers to varying the amount of trade (or other activity) of a firm, industry, or country by varying the quantity that it trades of a given number of products, as opposed to the extensive margin at which it would vary the number of products.

Front 1605

Inter-American Development Bank

Back 1605

A development bank for the countries of Latin America and the Caribbean.

Front 1606

Interbank rate

Back 1606

The rate of interest charged by a bank on a loan to another bank. See LIBOR.

Front 1607

Interdependence

Back 1607

See economic interdependence.

Front 1608

Interest

Back 1608

The amount paid by a borrower to a lender above the amount (the principal) that has been borrowed.

Front 1609

Interest arbitrage

Back 1609

A form of arbitrage intended to profit from a difference in interest rates in different markets. It consists of simultaneously borrowing at the low interest rate and lending at the higher interest rate in order to profit from the difference. If done in two different currencies, it may be covered or uncovered.

Front 1610

Interest bearing account

Back 1610

An account in a bank or other financial institution that pays interest to the depositor.

Front 1611

Interest equalization tax

Back 1611

A tax levied between 1963 and 1974 by the United States of 15% on interest received from foreign borrowers, intended to discourage capital outflows.

Front 1612

Interest parity

Back 1612

Equality of returns on otherwise identical financial assets denominated in different currencies. May be uncovered, with returns including expected changes in exchange rates, or covered, with returns including the forward premium or discount. Also called interest rate parity and interest parity condition.

Front 1613

Interest rate

Back 1613

The rate of return on bonds, loans, or deposits. When one speaks of "the" interest rate, it is usually in a model where there is only one.

Front 1614

Interest rate parity

Back 1614

Interest parity

Front 1615

Interindustry trade

Back 1615

Trade in which a country's exports and imports are in different industries. Typical of models of comparative advantage, such as the Ricardian Model and Heckscher-Ohlin Model. Contrasts with intraindustry trade.

Front 1616

Intermediate good

Back 1616

Same as intermediate input.

Front 1617

Intermediate input

Back 1617

An input to production that has itself been produced and that, unlike capital, is used up in production. As an input it is in contrast to a primary input and as an output it is in contrast to a final good. A very large portion of international trade is in intermediate inputs.

Front 1618

Intermediate transaction

Back 1618

The sale of a product by one firm to another, presumably to be used as an intermediate input.

Front 1619

Intermittent dumping

Back 1619

Dumping that occurs for short periods of time, presumably to dispose of temporary surpluses of goods and not intended to eliminate competition. Same as sporadic dumping.

Front 1620

Intermodalism

Back 1620

The use of more than one form (mode) of transportation, as when a shipment travels by both sea and rail.

Front 1621

Internal balance

Back 1621

A target level for domestic aggregate economic activity, such as a level of GDP that minimizes unemployment without being inflationary. See the assignment problem. Contrasts with external balance.

Front 1622

Internal debt

Back 1622

The amount owed by a country to, in effect, itself. It includes, for example, the portion of the government debt that is denominated in the country's own currency and held by domestic residents.

Front 1623

Internal economies of scale

Back 1623

Economies of scale that are internal to a firm; that is, the firm's average costs fall as its own output rises. Likely to be inconsistent with perfect competition. Contrasts with external economies of scale.

Front 1624

Internal equilibrium

Back 1624

Internal balance

Front 1625

Internal market

Back 1625

Term used for a target of European integration, which would remove all barriers between national markets so that they would become, in effect, a single European market.

Front 1626

Internal rate of return

Back 1626

A way of quantifying the stream over time of returns on an investment relative to its cost. Defined as the interest rate at which the present value of the returns equals the cost.

Front 1627

Internalization

Back 1627

One of the three pillars of the OLI paradigm for understanding FDI and the formation of multinational enterprises, this refers to the advantage that a firm derives from keeping multiple activities within the same organization.

Front 1628

Internalize

Back 1628

To cause, usually by a tax or subsidy, an external cost or benefit of someone's actions to be experienced by them directly, so that they will take it into account in their decisions.

Front 1629

International

Back 1629

Involving transactions or relations between nations. The term, according to Suganami (1978), was coined by Bentham (1789).

Front 1630

International Accounting Standards Board

Back 1630

An independent body, based in London, that sets accounting standards in the form of the International Financial Reporting Standards.

Front 1631

International adjustment process

Back 1631

1. Any mechanism for change in international markets.

Front 1632

International adjustment process

Back 1632

2. The mechanism by which payments imbalances diminish under pegged exchange rates and nonsterilization. Similar to the specie flow mechanism, exchange-market intervention causes money supplies of surplus countries to expand and vice versa, leading to price and interest rate changes that correct the current and capital account imbalances.

Front 1633

International Bank for Reconstruction & Development

Back 1633

The largest of the five institutions that comprise the World Bank Group, IBRD provides loans and development assistance to middle-income countries and creditworthy poorer countries.

Front 1634

International capital movement

Back 1634

The acquisition or sale of assets, financial or real, across international borders. Measured in the financial account of the balance of payments.

Front 1635

International cartel

Back 1635

See cartel.

Front 1636

International Centre for Settlement of Investment Disputes

Back 1636

One of the five institutions that comprise the World Bank Group, ICSID provides facilities for the settlement - by conciliation or arbitration - of investment disputes between foreign investors and their host countries.

Front 1637

International Chamber of Commerce

Back 1637

Calling itself the "voice of world business," the ICC promotes the cause of international business and open markets.

Front 1638

International Cocoa Organization

Back 1638

An intergovernmental organization set up in 1973 to administer the International Cocoa Agreement, the most recent version of which was negotiated in 2001. See international commodity agreement.

Front 1639

International Coffee Organization

Back 1639

An intergovernmental organization set up in 1963 that administers the International Coffee Agreement. See international commodity agreement.

Front 1640

International commodity agreement

Back 1640

An agreement among producing and consuming countries to improve the functioning of the global market for a commodity. May be administrative, providing information, or economic, influencing world price, usually using a buffer stock to stabilize it. ICAs are overseen by UNCTAD.

Front 1641

International Comparison Program

Back 1641

A program currently coordinated by the World Bank to gather extensive information about prices in many countries so as to ascertain the purchasing power of their currencies and thus permit international comparisons of real incomes.

Front 1642

International Competition Network

Back 1642

A network for cooperation among the antitrust agencies of a large number of both developed and developing countries.

Front 1643

International competitiveness

Back 1643

See competitiveness.

Front 1644

International Cotton Advisory Committee

Back 1644

An association of governments dealing with cotton. It grew out of an International Cotton Meeting in 1939. See international commodity agreement.

Front 1645

International Development Association

Back 1645

One of the five institutions that comprise the World Bank Group, IDA provides interest free loans and other services to the poorest countries.

Front 1646

International Fund for Agricultural Development

Back 1646

A United Nations specialized agency that finances projects primarily for food production in developing countries.

Front 1647

International economics

Back 1647

The study of economic interactions among countries -- including trade, investment, financial transactions, and movement of people -- and the policies and institutions that influence them.

Front 1648

International exhaustion

Back 1648

See exhaustion.

Front 1649

International externality

Back 1649

An externality that extends across national borders. A negative example is emission of greenhouse gases that contribute to global warming. A positive example is technological innovation that diffuses to other countries.

Front 1650

International factor movement

Back 1650

The international movement of any factor of production, including primarily labor and capital. Thus includes migration and foreign direct investment. Also may include the movement of financial capital in the form of international borrowing and lending.

Front 1651

International finance

Back 1651

The monetary side of international economics, in contrast to the real side, or real trade. Often called also international monetary economics or international macroeconomics, each term has a slightly different meaning, and none seems entirely right for the entire field. "International finance" is best for the study of international financial markets including exchange rates.

Front 1652

International Finance Corporation

Back 1652

One of the five institutions that comprise the World Bank Group, IFC promotes growth in the developing world by financing private sector investments and providing technical assistance and advice to governments and businesses.

Front 1653

International financial institution

Back 1653

Usually refers to intergovernmental organizations dealing with financial issues, most often the IMF and/or the World Bank.

Front 1654

International Financial Reporting Standards

Back 1654

A set of accounting standards set by the International Accounting Standards Board and required for use throughout Europe and parts of Asia, Africa and Latin America. Other countries have committed to adopt or converge toward these standards, and the United States permits non-US companies to report under them, although US companies use the Generally Accepted Accounting Priciples.

Front 1655

International Financial Statistics

Back 1655

Publication of the International Monetary Fund.

Front 1656

International Fisher Effect

Back 1656

The theory that exchange-rate changes will match, or be expected to match, international differences in nominal interest rates. It follows from the (domestic) Fisher Effect together with purchasing power parity.

Front 1657

International Grains Council

Back 1657

An intergovernmental organization, concerned with grains trade, that administers the Grains Trade Convention of 1995. See international commodity agreement.

Front 1658

International institution

Back 1658

An organization established by multiple national governments, usually to administer a program or pursue a purpose that the governments have agreed upon.

Front 1659

International indebtedness

Back 1659

The amount that a country's government and/or its private sector has borrowed from other countries and/or international financial institutions.

Front 1660

International investment

Back 1660

1. International capital movement

Front 1661

International investment

Back 1661

2. Foreign direct investment.

Front 1662

International Jute Organization

Back 1662

The organization set up in 1984 to implement the International Agreement on Jute and Jute Products, 1982, now called the International Jute Study Group. See international commodity agreement.

Front 1663

International Labor Organization

Back 1663

A United Nations specialized agency that establishes and monitors compliance with international standards for human and labor rights.

Front 1664

International Lead and Zinc Study Group

Back 1664

The international organization formed in 1959 to share information about lead and zinc. See international commodity agreement.

Front 1665

International liquidity

Back 1665

Refers to the adequacy of a country's, or the world's, international reserves. Under the Bretton Woods System, liquidity was a problem, since it depended on US dollars and thus a US deficit. The SDR was an attempt to fix this.

Front 1666

International macroeconomics

Back 1666

Same as international finance, but with more emphasis on the international determination of macroeconomic variables such as national income and the price level.

Front 1667

International monetary economics

Back 1667

Same as international finance, but with more emphasis on the role of money and less on other financial assets.

Front 1668

International Monetary Fund

Back 1668

An organization formed originally to help countries to stabilize exchange rates, but today pursuing a broader agenda of financial stability and assistance. As of June 2007, it had 185 member countries.

Front 1669

International Olive Oil Council

Back 1669

The intergovernmental organization in charge of administering the International Olive Oil Agreement, which originated in 1956. See international commodity agreement.

Front 1670

International Organization for Migration

Back 1670

International organization assisting migrants and the management of migration.

Front 1671

International parity conditions

Back 1671

Refers collectively to purchasing power parity and interest parity.

Front 1672

International political economy

Back 1672

A field of study within social science, especially political science, that addresses the interrelationships between international economics and political forces and institutions.

Front 1673

International price

Back 1673

World price

Front 1674

International relations

Back 1674

1. All aspects of interactions among nations.

Front 1675

International relations

Back 1675

2. The field within the discipline of political science that studies the mechanisms and institutions through which countries interact.

Front 1676

International reserves

Back 1676

The assets denominated in foreign currency, plus gold, held by a central bank, sometimes for the purpose of intervening in the exchange market to influence or peg the exchange rate. Usually includes foreign currencies themselves (especially US dollars), other assets denominated in foreign currencies, gold, and a small amount of SDRs.

Front 1677

International Rubber Study Group

Back 1677

An intergovernmental organization, founded in 1944, that provides a forum for the discussion of matters affecting the supply and demand for both synthetic and natural rubber. See international commodity agreement.

Front 1678

International sanction

Back 1678

See sanction definition #2.

Front 1679

International specialization

Back 1679

See specialization.

Front 1680

International Standard Industrial Classification

Back 1680

A classification system for industries, organized by the activity performed by the industry, and used for recording and reporting data on industrial activities, including output and employment.

Front 1681

International Sugar Organization

Back 1681

An intergovernmental body that administers the International Sugar Agreement of 1992. See international commodity agreement.

Front 1682

International tax

Back 1682

1. If it existed, this could mean a tax levied by an international body on the governments or private sector actors throughout the world. This does not exist, however, except among small groups of countries that have agreed to share resources, such as the European Union.

Front 1683

International tax

Back 1683

2. The field of study that deals with how separate national taxing authorities interact and how private sector actors respond to international differences in taxing regimes.

Front 1684

International trade

Back 1684

See trade.

Front 1685

International Trade Administration

Back 1685

A part of the United States Department of Commerce, the ITA acts on behalf of U.S. businesses in global competition. In trade policy, its Import Administration has the duty of determining whether imports are dumped or subsidized.

Front 1686

International Trade Centre

Back 1686

An international agency whose purpose is to help developing countries export. It is a "joint technical cooperation agency" of UNCTAD and the WTO.

Front 1687

International Trade Commission

Back 1687

The United States International Trade Commission

Front 1688

International Trade Organization

Back 1688

Conceived as a complement to the Bretton Woods institutions -- the IMF and World Bank -- the ITO was to provide international discipline in the uses of trade policies. The Havana Charter for the ITO was not approved by the United States Congress, however, and the initiative died, replaced by the continuing and growing importance of the GATT.

Front 1689

International Tropical Timber Organization

Back 1689

An organization created in 1983 for consultation among producers and consumers of tropical timber. An objective was that all timber traded by members should originate from sustainably managed forests.

Front 1690

Internationalization

Back 1690

Another term for fragmentation. Used by Grossman and Helpman (1999).

Front 1691

Intertemporal

Back 1691

Occurring across time, or across different periods of time.

Front 1692

Intertemporal trade

Back 1692

Trade across time, as when a country imports in one time period paying for the imports with exports in a different time period, earlier or later. An imbalance in the balance of trade is presumed to reflect intertemporal trade.

Front 1693

Intervention

Back 1693

See exchange market intervention.

Front 1694

Intervention currency

Back 1694

A currency that is commonly used by central banks for exchange market intervention. See reserve currency.

Front 1695

Intraindustry trade

Back 1695

Trade in which a country exports and imports in the same industry, in contrast to interindustry trade. Ubiquitous in the data, much IIT is due to aggregation. Can be horizontal or vertical. Grubel and Lloyd (1975) wrote the book on IIT.

Front 1696

Intra-mediate trade

Back 1696

Another term for fragmentation. Used by Antweiler and Trefler (2002).

Front 1697

Intra-product specialization

Back 1697

Another term for fragmentation. Used by Arndt (1997).

Front 1698

Inventories

Back 1698

Goods being kept on hand for future use in production or future sale.

Front 1699

Invertible

Back 1699

Said of a matrix if its inverse exists. That is, a matrix A is invertible if there exists another matrix B such that BA=I, where I is the identity matrix.

Front 1700

Investment

Back 1700

1. Addition to the stock of capital of a firm or country.

Front 1701

Investment

Back 1701

2. Purchase of an asset, real or financial.

Front 1702

Investment

Back 1702

3. The use of resources today for the purpose of increasing productivity or income in the future.

Front 1703

Invisible

Back 1703

In referring to international trade, used as a synonym for "service." "Invisibles trade" is trade in services. Contrasts with visible.

Front 1704

Invoice

Back 1704

The itemized bill for a transaction, stating the nature of the transaction and its cost. In international trade, the invoice price is often the preferred basis for levying an ad valorem tariff.

Front 1705

Inward FDI

Back 1705

Foreign direct investment by a foreign firm establishing a facility within the domestic country. Contrasts with outward FDI.

Front 1706

IOM

Back 1706

International Organization for Migration

Front 1707

IP

Back 1707

Intellectual property

Front 1708

IPE

Back 1708

International political economy

Front 1709

IPRs

Back 1709

Intellectual property rights

Front 1710

IRR

Back 1710

Internal rate of return

Front 1711

IRS

Back 1711

Increasing returns to scale = IRTS.

Front 1712

IRTS

Back 1712

Increasing returns to scale.

Front 1713

IS-Curve

Back 1713

In the IS-LM model, the curve representing the combinations of national income and interest rate at which aggregate demand equals supply for goods. It is normally downward sloping because a rise in income increases output by more than aggregate demand (through consumption), while a rise in the interest rate reduces aggregate demand through investment.

Front 1714

ISEW

Back 1714

Index of sustainable economic welfare

Front 1715

ISI

Back 1715

Import substituting industrialization

Front 1716

ISIC

Back 1716

International Standard Industrial Classification

Front 1717

IS-LM Model

Back 1717

A Keynesian macroeconomic model, popular especially in the 1960s, in which national income and the interest rate were determined by the intersection of two curves, the IS-curve and the LM-curve.

Front 1718

IS-LM-BP Diagram

Back 1718

See IS-LM-BP Model.

Front 1719

IS-LM-BP Model

Back 1719

A particular version of the Mundell-Fleming Model that extends the IS-LM model by including in the diagram a third curve, the BP-curve, representing the balance of payments and/or the exchange market.

Front 1720

Iso-price curve

Back 1720

A curve along which price is (or prices are) constant, most commonly in factor-price space where it shows the combinations of prices of factors consistent with zero profit in producing a good at a specified price of the good.

Front 1721

Isocost line

Back 1721

A line along which the cost of something -- usually a combination of two factors of production -- is constant. Since these are usually drawn for given prices, which are therefore constant along the line, an isocost line is usually a straight line, with slope equal to the ratio of the (factor) prices.

Front 1722

Isoquant

Back 1722

A curve representing the combinations of factor inputs that yield a given level of output in a production function.

Front 1723

Israel-US Free Trade Area

Back 1723

A free trade area between the United States and Israel that was initiated in 1985.

Front 1724

ITA

Back 1724

International Trade Administration

Front 1725

ITC

Back 1725

1. International Trade Centre

Front 1726

ITC

Back 1726

2. International Trade Commission (USITC)

Front 1727

ITO

Back 1727

International Trade Organization

Front 1728

IWE

Back 1728

Integrated World Economy

Front 1729

J-curve

Back 1729

The dynamic path followed by the balance of trade in response to a devaluation, which typically causes the trade balance to worsen before it improves, tracing a path that looks like a letter "J".

Front 1730

Jobless rate

Back 1730

Same as unemployment rate.

Front 1731

Jobless recovery

Back 1731

After a recession, an expansion of real GDP that is not accompanied by a significant expansion of employment. This is possible, for example, if labor productivity expands.

Front 1732

Jobs argument for protection

Back 1732

Employment argument for protection.

Front 1733

Joint venture

Back 1733

An undertaking by two parties for a specific purpose and duration, taking any of several legal forms. Two corporations, for example, perhaps from two different countries, may undertake to provide a product or service that is distinct, in kind or location, from what the companies do on their own.

Front 1734

Jones Act

Back 1734

A U.S. law that prohibits foreign ships from transporting goods or people between one U.S. location and another. Such a restriction on cabotage is an example of a barrier to trade in a service.

Front 1735

Jones' hat algebra

Back 1735

See hat algebra.

Front 1736

Jubilee 2000

Back 1736

A movement advocating the cancellation of debts that burden developing countries, intended to occur in the year 2000.

Front 1737

Juridical person

Back 1737

An entity other than a natural person, such as a partnership or a corporation, that is given some of the same rights as persons under the law.

Front 1738

JV

Back 1738

Joint venture

Front 1739

K

Back 1739

In economic models, K is commonly used to represent "capital." This is presumably due to the fact that German for capital is kapital, and also the fact the C is more commonly used to represent consumption.

Front 1740

Kaldor-Hicks Criterion

Back 1740

The criterion that, for a change in policy or policy regime to be viewed as beneficial, the gainers should be able to compensate the losers and still be better off. The criterion does not require that the compensation actually be paid, which, if it did, would make this the same as the Pareto criterion. Due to Kaldor (1939), Hicks (1940).

Front 1741

Kaldor-Hicks improvement

Back 1741

Potential Pareto improvement

Front 1742

Kaldor improvement

Back 1742

Potential Pareto improvement

Front 1743

Kaleidoscope comparative advantage

Back 1743

A variant of fragmentation due to Bhagwati and Dehejia (1994).

Front 1744

Keiretsu

Back 1744

A group, or network, of manufacturing and other companies in Japan, usually centered around a bank and including a trading company. Keiretsus are characterized by cross-ownership of shares, strategic coordination, and preference for transactions within the network.

Front 1745

Kemp-Wan Theorem

Back 1745

The proposition, due to Kemp and Wan (1976), that any group of countries can form a customs union that is Pareto-improving for the world, so long as nondistorting lump-sum transfers within the union are possible. This is accomplished by setting the vector of common external tariffs so as to leave world prices unchanged.

Front 1746

Kennedy Round

Back 1746

The sixth round of multilateral trade negotiations that was held under GATT auspices, commencing 1964 and completed 1967. It was the first to move beyond negotiating only tariff reductions into such trade rules as anti-dumping.

Front 1747

Keynesian

Back 1747

Referring to models of the aggregate economy based on ideas stemming from Keynes (1936). Keynesian models depart from neoclassical assumptions primarily by allowing for disequilibrium in labor markets, with aggregate employment and output being determined instead by aggregate demand.

Front 1748

Knowledge capital

Back 1748

The knowledge-based assets that a firm acquires -- through R&D or by licensing technology from others, for example -- that it is then able to use for its activities throughout the firm, including in multiple production facilities.

Front 1749

Knowledge capital model

Back 1749

A model of a multinational enterprise in which knowledge capital plays an essential role. Named and estimated by Carr et al. (2001), who attribute it to earlier work by Markusen and others.

Front 1750

Knowledge economy

Back 1750

This term refers loosely to modern advanced economies in which knowledge -- both human capital and advanced technology -- is thought to be more important than other factors, such as capital and natural resources, for economic success.

Front 1751

Kondratieff cycle

Back 1751

A cycle in economic activity hypothesized by Kondratieff (1926) to operate over a period of several decades and divided into four phases: spring (expansion), summer (recession), autumn (plateau), and winter (depression). Also called the Kondratieff wave or long wave.

Front 1752

Kuznets Curve

Back 1752

An inverse U-shaped relationship between per capita income and inequality, suggesting that inequality is low in very poor countries, rises as they develop, and then ultimately falls as income rises still further. Hypothesized by Kuznets (1955).

Front 1753

Labeling

Back 1753

A requirement to label imported goods with information about how they were produced. This is often suggested as an alternative to trade restrictions as a means to pursue particular trade-related objectives involving, for example, environment or labor standards.

Front 1754

Labor abundant

Back 1754

A country is labor abundant if its endowment of labor is large compared to other countries. Relative labor abundance can be defined by either the quantity definition or the price definition.

Front 1755

Labor augmenting

Back 1755

Said of a technological change or technological difference if one production function produces the same as if it were the other, but with a larger quantity of labor. Same as factor augmenting with labor the augmented factor. Also called Harrod neutral.

Front 1756

Labor force

Back 1756

The number of available workers in a country, defined as the sum of those who are employed and those who are classed as unemployed.

Front 1757

Labor intensive

Back 1757

Describing an industry or sector of the economy that relies relatively heavily on inputs of labor, usually relative to capital but sometimes to human capital or skilled labor, compared to other industries or sectors. See factor intensity.

Front 1758

Labor market

Back 1758

A market for labor. Can refer to anything from local interactions between workers and employers to country-wide (not usually world-wide) markets dominated by broadly based labor unions, industry associations, and sometimes governments.

Front 1759

Labor market restriction

Back 1759

A market restriction in the labor market, most often limits on wages and on the ability of firms to terminate workers.

Front 1760

Labor mobility

Back 1760

The ability of workers to move between industries and locations to obtain higher wages or more favorable working conditions. Most models of international trade assume that labor is perfectly mobile within a country between industries and locations but not mobile at all between countries.

Front 1761

Labor productivity

Back 1761

The value of output per unit of labor input. The reciprocal of the unit labor requirement.

Front 1762

Labor right

Back 1762

See labor standard.

Front 1763

Labor-saving

Back 1763

A technological change or technological difference that is biased in favor of using less labor, compared to some definition of neutrality.

Front 1764

Labor scarce

Back 1764

A country is labor scarce if its endowment of labor is small compared to other countries. Relative labor scarcity can be defined by either the quantity definition or the price definition.

Front 1765

Labor standard

Back 1765

Any of many conditions of workers in the workplace that are viewed as important for their well being, and minimum levels of which are advocated by labor rights activists and have been agreed to by many of the countries that are members of the ILO.

Front 1766

Labor standards argument for protection

Back 1766

The view that trade restrictions (trade sanctions) should be used as a tool to improve labor standards, limiting imports, for example, from countries that do not enforce such labor rights as freedom of association and collective bargaining.

Front 1767

Labor theory of value

Back 1767

The theory that the value of any produced good or service is equal to the amount of labor used, directly and indirectly, to produce it. Sometimes said to underlie the Ricardian Model of international trade.

Front 1768

Labor-using

Back 1768

A technological change or technological difference that is biased in favor of using more labor, compared to some definition of neutrality.

Front 1769

Lading

Back 1769

See bill of lading.

Front 1770

Lafay index

Back 1770

An index of specialization or revealed comparative advantage that takes account of both exports and imports and is therefore more suitable for a country with intraindustry trade. Due to Lafay (1992). This index for country i good j is LIij = 100[(Xij-Mij)/(Xij+Mij)-Sk(Xik-Mik)/Sk(Xik+Mik)] (Xij+Mij)/Sk(Xik+Mik) where X and M are exports and imports.

Front 1771

Laffer Curve

Back 1771

An inverse-U-shaped curve representing tax revenue as a function of the tax rate, attributed to Arthur Laffer. Although the idea that a rise in tax rate can reduce tax revenue is mostly based on induced reduction of work effort, for some types of taxes -- especially corporate -- movement of activity to another tax jurisdiction or country can have the same effect.

Front 1772

Latin American Debt Crisis

Back 1772

The default on government debt, and subsequent rescheduling, by more than two dozen less developed countries including many in Latin America, in the early 1980s starting with Mexico on August 12, 1982.

Front 1773

LAFTA

Back 1773

Latin American Free Trade Association

Front 1774

Lagging indicator

Back 1774

A measurable economic variable that varies over the business cycle, reaching peaks and troughs somewhat later than other macroeconomic variables such as GDP and unemployment. Contrasts with leading indicator.

Front 1775

Lagrangian

Back 1775

A function constructed in solving economic models that include maximization of a function (the "objective function") subject to constraints. It equals the objective function minus, for each constraint, a variable "Lagrange multiplier" times the amount by which the constraint is violated.

Front 1776

LAIA

Back 1776

Latin American Integration Association

Front 1777

Laissez faire

Back 1777

Free enterprise. The doctrine or system of government non-interference in the economy except as necessary to maintain economic freedom. Includes free trade.

Front 1778

Land reform

Back 1778

The process of changing the pattern of ownership of land in a country, usually by breaking up large holdings and distributing smaller parcels of land to a larger portion of the population. This can be done in various ways, including with or without compensation of the previous owners.

Front 1779

Landed duty paid

Back 1779

The landed value of a good plus any import duties.

Front 1780

Landed value

Back 1780

CIF value.

Front 1781

Large country

Back 1781

A country that is large enough for its international transactions to affect economic variables abroad, usually for its trade to matter for world prices. Contrasts with a small open economy.

Front 1782

Latin American Free Trade Association

Back 1782

A group of Latin American countries formed in 1960 with the aim of establishing a free trade area. This aim was never achieved, and LAFTA was replaced in 1980 with the Latin American Integration Association.

Front 1783

Latin American Integration Association

Back 1783

An organization of Latin American countries that replaced the failed LAFTA. LAIA has the more limited goal of encouraging free trade but with no timetable for achieving it.

Front 1784

Laurel-Langley Agreement

Back 1784

A trade agreement between the Philippines and the United States, signed in 1955 and expired in 1974, whereby Americans were given some of the same rights as Filipinos within the Philippines.

Front 1785

Laursen-Metzler Effect

Back 1785

See Harberger-Laursen-Metzler Effect.

Front 1786

Law of Comparative Advantage

Back 1786

The principle that, given the freedom to respond to market forces, countries will tend to export goods for which they have comparative advantage and import goods for which they have comparative disadvantage, and that they will experience gains from trade by doing so. Idea due to Ricardo (1815).

Front 1787

Law of Demand

Back 1787

The observation that when price rises, quantity demanded falls. This is not necessary in theory, but it is very rarely violated in practice, including in demands for imports and exports, as well as demand for foreign exchange (barring effects on expectations).

Front 1788

Law of Diminishing Returns

Back 1788

The principle that, in any production function, as the input of one factor rises holding other factors fixed, the marginal product of that factor must eventually decline.

Front 1789

Law of One Price

Back 1789

The principle that identical goods should sell for the same price throughout the world if trade were free and frictionless.

Front 1790

Law of supply and demand

Back 1790

This says, most simply, that prices depend on supply and demand. More precisely, price is determined so as to equate quantities supplied and demanded. Even more precisely, a price tends to rise when demand exceeds supply, and vice versa.

Front 1791

LDC

Back 1791

For many years, the acronym LDC has stood for less developed country, which was more or less the same as developing country. However, in recent years LDC has also been used for Least Developed Country, which has a narrower and more formal definition.

Front 1792

LDP

Back 1792

Landed duty paid

Front 1793

Lead time

Back 1793

The amount of time between when an action is initiated and when it is completed, and thus the amount of time before you want it to be done that you must initiate the action. In commerce, this often refers to how long before you want something to be delivered that you must order it, a time that is likely to be longer if it involves transport from abroad.

Front 1794

Leading indicator

Back 1794

A measurable economic variable that varies over the business cycle, reaching peaks and troughs somewhat earlier than other macroeconomic variables such as GDP and unemployment, and therefore useful for forecasting them. Contrasts with lagging indicator.

Front 1795

League of Arab States

Back 1795

An association of mainly Arabic-speaking countries founded in Cairo in 1945 to strengthen ties amoung the members, coordinate policies among them, and promote their common interests. As of June 2008, it has 22 members.

Front 1796

Leaning against the wind

Back 1796

Use of exchange market intervention to try to slow the movement of the exchange rate under a managed float, and/or to reduce the amplitude of its fluctuations.

Front 1797

Learning by doing

Back 1797

Refers to the improvement in technology that takes place in some industries, early in their history, as they learn by experience, so that average cost falls as accumulated output rises. See infant industry protection, dynamic economies of scale.

Front 1798

Learning curve

Back 1798

A relationship representing either average cost or average product as a function of the accumulated output produced. Usually reflecting learning by doing, the learning curve shows cost falling, or average product rising.

Front 1799

Least Developed Country

Back 1799

A country designated by the UN as least developed based on criteria of low per capita GDP, weak human resources (life expectancy, calorie intake, etc.), and a low level of economic diversification (share of manufacturing and other measures). As of 2007, 49 countries are designated as LDCs.

Front 1800

Lender of Last Resort

Back 1800

An institution that has the capacity and willingness to make loans when no one else can. Within a country, the central bank may play that role, since it can create money. Some have argued that the IMF or other institution should play that role internationally, to avert financial crises.

Front 1801

Leontief composite

Back 1801

A composite of two or more goods or factors that includes them in fixed proportions, analogous to the Leontief technology.

Front 1802

Leontief Paradox

Back 1802

The finding of Leontief (1954) that U.S. imports embodied a higher ratio of capital to labor than U.S. exports. This was surprising because it was thought that the U.S. was capital abundant, and the Heckscher-Ohlin Theorem would then predict that U.S. exports would be relatively capital intensive.

Front 1803

Leontief production function

Back 1803

See Leontief technology.

Front 1804

Leontief technology

Back 1804

A production function in which no substitution between inputs is possible: F(V) = mini(Vi/ai), where V is a vector of inputs Vi, and ai are the constant per unit input requirements. Isoquants are L-shaped.

Front 1805

Lerner Diagram

Back 1805

This diagram, drawn for given prices and technology, uses unit-value isoquants of two or more goods to deduce patterns of specialization and factor prices as they depend on goods prices and factor endowments. Due originally to Lerner (1952) and popularized by Findlay and Grubert (1959).

Front 1806

Lerner paradox

Back 1806

The possibility, identified by Lerner (1936), that a tariff might worsen a country's terms of trade. This can happen only if the country spends a disproportionately large fraction of the tariff revenue on the imported good, and it will not happen (from a stable equilibrium) if the tariff revenue is redistributed. See offer curve diagram.

Front 1807

Lerner-Pearce Diagram

Back 1807

This name is sometimes given (for years, by me at least) to the Lerner Diagram. In fact, Pearce's (1952) diagram uses unit isoquants rather than unit value isoquants and is much more cumbersome.

Front 1808

Lerner Symmetry Theorem

Back 1808

The proposition that a tax on all imports has the same effect as an equal tax on all exports, if the revenue is spent in the same way. The result depends critically on balanced trade, as in a real model, so that a change in imports leads to an equal change in the value of exports. Due to Lerner (1936).

Front 1809

Less developed country

Back 1809

Refers to any country whose per capita income is low by world standards. Same as developing country.

Front 1810

Letter of credit

Back 1810

A common means of payment in international trade, this is a written commitment by a bank to make payment to an exporter on behalf of an importer, under specified conditions.

Front 1811

Level playing field

Back 1811

The objective of those who advocate protection on the grounds the foreign firms have an unfair advantage. A level playing field would remove such advantages, although it is not usually clear what sorts of advantage (including comparative advantage) would be permitted to remain. See fairness argument for protection.

Front 1812

Levy

Back 1812

1. To impose and collect a tax or tariff.

Front 1813

Levy

Back 1813

2. A tax or tariff.

Front 1814

Liability

Back 1814

An amount that is owed, in contrast to an asset. A liability may result from borrowing, from obligation to pay for a product or service received, etc.

Front 1815

Liberal

Back 1815

Associated with freedom and/or generosity. Thus in England to be liberal (or to be a liberal) is to favor free markets, including free trade. But in the U.S. it tends to mean favoring a generous, active government pursuing social and redistributive policies, with no implication for views on free trade.

Front 1816

Liberal trade

Back 1816

Free trade, or something approximating that. Thus a trade regime in which tariffs are low or zero and in which nontariff barriers are largely absent.

Front 1817

Liberalism

Back 1817

The set of views associated with being liberal, in the sense of freedom.

Front 1818

Liberalization

Back 1818

1. The process of making policies less constraining of economic activity.

Front 1819

Liberalization

Back 1819

2. Reduction of tariffs and/or removal of nontariff barriers.

Front 1820

LIBOR

Back 1820

London interbank offered rate.

Front 1821

Licensing

Back 1821

1. The requirement that importers and/or exporters get government approval prior to importing or exporting. Licensing may be automatic, or it may be discretionary, based on a quota, a performance requirement, or some other criterion.

Front 1822

Licensing

Back 1822

2. Granting of permission, in return for a licensing fee, to use a technology. When done by firms in one country to firms in another, it is a form of technology transfer. See compulsory licensing.

Front 1823

Life cycle

Back 1823

See product cycle.

Front 1824

Life expectancy

Back 1824

The expected value of the number of years a person has yet to live at a given age or, if age is unspecified, at birth, based on the distribution of actual deaths in the population to which the person belongs. Life expectancy in a country is an important indicator of its level of development and well-being.

Front 1825

Lifetime employment

Back 1825

The practice, common in Japan since the early 20th century and covering about 20% of the labor force, of (male) workers remaining employed by the same large firm from graduation to retirement. This results from a non-contractual understanding that firms would not lay off workers and workers would not resign.

Front 1826

LIFFE

Back 1826

London International Financial Futures and Options Exchange

Front 1827

Light manufacturing

Back 1827

Sectors of the economy that produce manufactured goods without large amounts of physical capital, thus likely to be labor intensive.

Front 1828

Limit pricing

Back 1828

The act of setting a selling price just below the level at which other sellers would find it profitable to enter a market.

Front 1829

Limited liability

Back 1829

The maximum that an owner (or partial owner, such as a stockholder or partner) of a business can be required to lose in the event that the business fails or acquires financial obligations greater than its value. Some forms of business organization, such as a corporation or a limited partnership, set that maximum at the amount that the owner has contributed to the business.

Front 1830

Linder Hypothesis

Back 1830

The theory that a country's ability to export depends on domestic demand, so that countries that demand similar goods will trade more with each other than will countries with dissimilar demands. From Linder (1961).

Front 1831

Linear cut

Back 1831

A reduction in tariffs in which the size of the reduction is linearly related to the initial size of the tariff: %Dt = a + bt, where %Dt is the percent reduction in the tariff, t is the initial tariff, and a,b are constants. The simplest linear cut reduces all tariffs by the same percentage. Contrasts with the Swiss Formula.

Front 1832

Linear regression model

Back 1832

A linear relationship between a dependent variable and one or more independent variables plus a stochastic disturbance: Yi=b0+b1X1i+...+bnXni+ui.

Front 1833

Linearly homogeneous

Back 1833

Homogeneous of degree 1. Sometimes called linear homogeneous.

Front 1834

LINK

Back 1834

See Project LINK.

Front 1835

Linkage

Back 1835

See forward linkage and backward linkage.

Front 1836

Linking scheme

Back 1836

A requirement that, in order to get an import license, the importer must buy a certain amount of the same product from local producers.

Front 1837

Liquid

Back 1837

Possessing liquidity.

Front 1838

Liquid assets

Back 1838

The assets in a portfolio that possess liquidity, or the total value of those assets.

Front 1839

Liquidity

Back 1839

The capacity to turn assets into cash, or the amount of assets in a portfolio that have that capacity. Cash itself (i.e., money) is the most liquid asset.

Front 1840

Liquidity crisis

Back 1840

A financial crisis that occurs due to lack of liquidity. In international finance, it usually means that a government or central bank runs short of international reserves needed to peg its exchange rate and/or to service its foreign loans.

Front 1841

Liquidity trap

Back 1841

A situation in which expansionary monetary policy fails to stimulate the economy. As used by Keynes (1936), this meant interest rates so low that expectations of their increase made people unwilling to hold bonds. Today it usually means a nominal interest rate so near zero that lowering it further is impossible or ineffective.

Front 1842

Living wage

Back 1842

A real wage that is high enough for the worker and family to survive and remain healthy and comfortable, sometimes called meeting basic needs. Term is used in calling for higher wages in both developed and developing countries, where concepts of basic needs may be very different.

Front 1843

LM-Curve

Back 1843

In the IS-LM model, the curve representing combinations of income and interest rate at which demand for money equals the money supply in the domestic money market. It is normally upward sloping because an increase in income increases demand for money while an increase in the interest rate reduces demand for money.

Front 1844

Loan

Back 1844

An amount, usually of money, conveyed by one to another in the expectation that it will be returned, perhaps with specified interest, at a later date. When the lender and borrower are in different countries with separate monetary and legal systems, loans bear extra risk.

Front 1845

Lobby

Back 1845

To attempt to influence government policy by talking to lawmakers and bureaucrats, and perhaps by using other means such as monetary contributions or assistance. Lobbyists often play a role in influencing trade policies, including tariffs and administered protection.

Front 1846

Local content requirement

Back 1846

See domestic content requirement.

Front 1847

Local optimum

Back 1847

An allocation that by some criterion is better than all those in its neighborhood.

Front 1848

Locational advantage

Back 1848

Any reason for a firm to locate production, or a stage of production, in a particular place, such as availability of a natural resource, transport cost, or barriers to trade. May explain why a country's firms succeed in trade, or why a multinational firm locates there. (See OLI.)

Front 1849

Locomotive effect

Back 1849

The effect that economic expansion in one large country can have on other parts of the world economy, causing them to expand as well, as the large country demands more of their exports.

Front 1850

Logarithm

Back 1850

A particular mathematical transformation often used to express economic variables. Advantages: 1) If a variable grows at a constant percentage rate over time, the graph of its logarithm is a straight line. 2) A small change in the logarithm of a variable is approximately its percentage change.

Front 1851

Logrolling

Back 1851

The exchange of political favors, especially among legislators who agree to support each others' initiatives. Logrolling contributed importantly to the Smoot-Hawley Tariff.

Front 1852

Lomé Convention

Back 1852

An agreement originally signed in 1975 committing the EU to programs of assistance and preferential treatment for the ACP Countries. The Lomé Convention was replaced by the Cotonou Agreement in June 2000.

Front 1853

London interbank offered rate

Back 1853

The interest rate that the largest international banks charge each other for loans, usually of Eurodollars. In fact, LIBOR includes rates quoted each day for many currencies, excluding the euro, but it is the rate for dollar loans that is used as a benchmark for other transactions.

Front 1854

London International Financial Futures and Options Exchange

Back 1854

An organized market for a variety of financial instruments, including short term interest rate futures, bonds, swaps, equities, and commodities.

Front 1855

Long run

Back 1855

Referring to a long time horizon. This is not always well defined, but in trade models it usually means long enough for industries to vary the amounts of all factors they employ, and therefore for the factors to be mobile across industries. Contrasts with short run.

Front 1856

Long-term capital

Back 1856

In the capital account of the balance of payments, long-term capital movements include FDI and movements of financial capital with maturity of more than one year (including equities).

Front 1857

Lorenz Curve

Back 1857

The graph of the percent of income owned by the poorest x percent of the population, for all x. Provides a picture of the income distribution within the population, and is used to construct the Gini Coefficient.

Front 1858

Lost Decade

Back 1858

There is, sadly, no single meaning for this term, as it has been applied to many episodes of economies that stagnated for most of a decade. Examples: Argentina and other Latin America in the 1980s; Japan in the 1990s; and the least developed countries in the 1990s.

Front 1859

Louvre Accord

Back 1859

An agreement reached in 1987 among the central banks of France, Germany, Japan, US, and UK to stop the decline in the value of the US dollar that they had initiated at the Plaza Accord.

Front 1860

Love of variety

Back 1860

Preference for variety.

Front 1861

Ltd

Back 1861

The abbreviation used in the United Kingdom to represent a limited liability company, thus analogous to "Inc", for incorporated, in the United States.

Front 1862

Lucas critique

Back 1862

The observation that economic equations estimated under one policy regime are unlikely to be valid under another policy regime, since market participants will take the policy regime into account in forming their behavior. What is needed is to model rational expectations, which internalize all information, including the policy regime. Due to Lucas (1976).

Front 1863

Lump sum

Back 1863

Describes a tax or subsidy that does not distort behavior. By using a tax (or subsidy) in an amount (the lump sum) independent of any aspect of the payer's or recipient's behavior, it does not alter behavior. Nondistorting lump sum taxes and subsidies do not exist, but they are a convenient fiction for theoretical analysis, especially of gains from trade.

Front 1864

M

Back 1864

In economic models involving international trade, M is usually chosen to represent imports, and X to represent exports, perhaps because I and E have too many other uses.

Front 1865

M1

Back 1865

The smallest of several measures of the stock of money in an economy, this consisting primarily of currency held by the public and demand deposits. Also includes several other very liquid items: travelers checks and other accounts on which checks can be written.

Front 1866

M2

Back 1866

A measure of the stock of money in an economy that includes, in addition to all that is in M1, savings deposits and other relatively liquid assets such as small certificates of deposit and money market mutual funds.

Front 1867

M&A

Back 1867

Mergers and Acquisitions

Front 1868

Maastricht Treaty

Back 1868

The 1991 treaty among members of the EU to work toward a monetary union, or common currency. This ultimately resulted in adoption of the euro in 1999.

Front 1869

Macroeconometric model

Back 1869

An econometric model of macroeconomic relationships, usually intended to capture the overall functioning of a national economy.

Front 1870

Macroeconomic

Back 1870

Referring to the variables or performance of an economy as a whole, or its major components, as opposed to that of individual industries, firms, or households.

Front 1871

Macroeconomic closure

Back 1871

The assumptions made in an economic model, especially in a CGE model to assure that it has a solution for all variables. A neoclassical closure has all markets clear and all agents satisfy budget constraints. For short-run policy purposes, some assume that certain markets (labor, foreign exchange) do not clear, or that government budgets are not balanced.

Front 1872

Macroeconomic policy

Back 1872

Any policy intended to influence the behavior of important macroeconomic variables, especially unemployment and inflation. Macroeconomic policies include monetary and fiscal policies, but also such things as price controls and incentives for economic growth.

Front 1873

Macroeconomic stabilization

Back 1873

See stabilization policy.

Front 1874

Made-to-measure tariff

Back 1874

A tariff set so as to raise the price of an imported good to the level of the domestic price, so as to leave domestic producers unaffected. Also called a scientific tariff.

Front 1875

Magnification effect

Back 1875

The property of the Heckscher-Ohlin Model that changes in certain exogenous variables lead to larger changes in the corresponding endogenous variables: goods prices as they affect factor prices in the Stolper-Samuelson Theorem; factor endowments as they affect outputs in the Rybczynski Theorem. Due to Jones (1965).

Front 1876

MAI

Back 1876

Multilateral Agreement on Investment

Front 1877

Main refinancing operations

Back 1877

The mechanism by which the European Central Bank provides the bulk of liquidity to the banking system.

Front 1878

Majority-owned foreign affiliate

Back 1878

A company in another country more than 50% of which is owned by a domestic person or company; thus one form of foreign direct investment.

Front 1879

Managed float

Back 1879

An exchange rate regime in which the rate is allowed to be determined in the exchange market without an announced par value as the goal of intervention, but the authorities do nonetheless intervene at their discretion to influence the rate.

Front 1880

Managed trade

Back 1880

The use of trade policies to manipulate trade for political purposes.

Front 1881

Mandated countertrade

Back 1881

A requirement by government that importing firms engage in countertrade, as a means of increasing exports.

Front 1882

Manipulation

Back 1882

Currency manipulation.

Front 1883

Manufactured good

Back 1883

A good that is produced by manufacturing.

Front 1884

Manufacturing

Back 1884

Production of goods primarily by the application of labor and capital to raw materials and other intermediate inputs, in contrast to agriculture, mining, forestry, fishing, and services.

Front 1885

Manufacturing value added

Back 1885

Value added in the manufacturing sector of an economy; thus the income generated there for labor and other primary factors. Those who believe that manufacturing is somehow more important than other sectors of the economy regard a decline in this as cause for concern.

Front 1886

Maquiladora

Back 1886

A program for the temporary importation of goods into Mexico without duty, under the condition that they contribute -- through further processing, transformation, or repair -- to exports. The program was established in 1965, and expanded in 1989.

Front 1887

Margin

Back 1887

1. The edge. In economics it usually refers to the last (in terms of quantity, not of time) unit consumed or produced by a consumer or firm.

Front 1888

Margin

Back 1888

2. A gap between one number and another, such as a dumping margin or injury margin.

Front 1889

Margin of preference

Back 1889

1. The extent to which one person or group is given more favorable treatment than others.

Front 1890

Margin of preference

Back 1890

2. The percentage by which particular imports from one country are subject to lower tariffs than the MFN rate, as in a preferential trading arrangement.

Front 1891

Marginal analysis

Back 1891

The determination of optimal behavior by comparing benefits and costs at the margin, that is, benefits and costs that result from small (i.e., marginal) changes. Optimality requires that marginal benefit equal marginal cost, since otherwise a rise or fall could increase benefit more than cost.

Front 1892

Marginal benefit

Back 1892

The increase in well being caused by an additional unit of some activity, such as the consumption of a good. Exactly whose well being this refers to depends on the context.

Front 1893

Marginal change

Back 1893

A small change in some quantity.

Front 1894

Marginal cost

Back 1894

The increase in cost that accompanies a unit increase in output; the partial derivative of the cost function with respect to output.

Front 1895

Marginal cost pricing

Back 1895

The outcome of perfectly competitive markets in which the price of each good is equal to its marginal cost.

Front 1896

Marginal intraindustry trade

Back 1896

The portion of a change in trade, usually from one year to the next, that is intraindustry trade. The term was introduced by Hamilton and Kniest (1991), who provided a measure of it. Other measures have appeared since.

Front 1897

Marginal product

Back 1897

In a production function, the marginal product of a factor is the increase in output due to a unit increase in the input of the factor; that is, the partial derivative of the production function with respect to the factor. In a competitive equilibrium, the equilibrium price of any factor is its marginal value product in every sector where it is employed.

Front 1898

Marginal profit

Back 1898

The amount by which a firm's profit rises or falls when output increases by one unit; thus marginal revenue minus marginal cost.

Front 1899

Marginal propensity

Back 1899

The fraction of a change in income devoted to an activity, such as consumption, importing, or saving. See propensity.

Front 1900

Marginal propensity to consume

Back 1900

The fraction of a change in income (or perhaps disposable income) spent on consumption. Contrasts with average propensity to consume.

Front 1901

Marginal propensity to import

Back 1901

The fraction of a change in income (or perhaps disposable income) spent on imports. Contrasts with average propensity to import.

Front 1902

Marginal propensity to save

Back 1902

The fraction of a change in income (or perhaps disposable income) that is saved.

Front 1903

Marginal rate of substitution

Back 1903

In a production function or a utility function, the ratio at which one argument (input) substitutes for another along an isoquant or indifference curve.

Front 1904

Marginal rate of technical substitution

Back 1904

More complete name for the marginal rate of substitution between factors in a production function, sometimes used to distinguish it from the analogous concept in a utility function.

Front 1905

Marginal rate of transformation

Back 1905

The increase in output of one good made possible by a one-unit decrease in the output of another, given the technology and factor endowments of a country; thus the absolute value of the slope of the transformation curve.

Front 1906

Marginal returns

Back 1906

1. Loosely, the extra that you get in return for doing more of something.

Front 1907

Marginal returns

Back 1907

2. Marginal product

Front 1908

Marginal revenue

Back 1908

The amount by which a firm's revenue increases when it expands output by one unit, taking into account that to sell one more unit it may need to reduce price on all units.

Front 1909

Marginal revenue product

Back 1909

The additional revenue generated by the extra output from employing one more unit of a factor of production. In a competitive industry this equals the marginal value product, but with imperfect competition it is smaller, due to the implied price reduction. Determines factor prices in competitive factor markets.

Front 1910

Marginal social benefit

Back 1910

The marginal benefit of an activity, such as consumption an additional unit of a good, where benefit here includes all positive effects on society as a whole, such as positive externalities, not just the benefit accruing to the consumer of the good. Negative externalities should also be deducted.

Front 1911

Marginal social cost

Back 1911

The marginal cost of an activity, such as producing an additional unit of a good, where cost here includes all negative effects on society as a whole, such as negative externalities, not just the cost borne by the producer of the good. Positive externalities should also be deducted.

Front 1912

Marginal tax rate

Back 1912

The amount that a taxpayer's total tax bill rises due to a one unit increase in the activity being taxed. Referring to an income tax, it is the tax on an additional dollar of income.

Front 1913

Marginal utility

Back 1913

In a utility function, the increase in utility associated with a one-unit increase in consumption of one good; or the partial derivative of the utility function.

Front 1914

Marginal value product

Back 1914

The value of the marginal product of a factor in an industry; that is, the price of the good produced times the marginal product. Determines factor prices when all markets are competitive.

Front 1915

Marginalism

Back 1915

1. The belief that marginal analysis provides a useful theory of economic behavior.

Front 1916

Marginalism

Back 1916

2. The belief that economic value reflects marginal utility.

Front 1917

Marine Mammal Protection Act

Back 1917

The 1972 U.S. law prohibiting the "taking" (harassing, hunting, capturing, or killing) of marine mammals, and also prohibiting the import of any marine mammal product or any fish that has been associated with the taking of marine mammals. See tuna-dolphin case.

Front 1918

Market

Back 1918

1. The interaction between supply and demand to determine the market price and corresponding quantity bought and sold.

Front 1919

Market

Back 1919

2. The determination of economic allocations by decentralized, voluntary interactions among those who wish to buy and sell, responding to freely determined market prices.

Front 1920

Market access

Back 1920

The ability of firms from one country to sell in another.

Front 1921

Market adjustment

Back 1921

The process by which the economy moves to a new market equilibrium when conditions change.

Front 1922

Market balance

Back 1922

Market equilibrium

Front 1923

Market capitalization

Back 1923

The stock-market value of a company, as measured by the number of publicly traded shares outstanding times their market price.

Front 1924

Market clearing

Back 1924

Equality of quantity supplied and quantity demanded. A market-clearing condition is an equation (or other representation) stating that supply equals demand. A market-clearing price is a price that causes quantities supplied and demanded to be equal.

Front 1925

Market dynamics

Back 1925

The process by which market adjustment takes place. Common examples include Walrasian and Marshallian.

Front 1926

Market economy

Back 1926

A country in which most economic decisions are left up to individual consumers and firms interacting through markets. Contrasts with central planning and non-market economy.

Front 1927

Market equilibrium

Back 1927

Equality of quantity supplied and quantity demanded. See equilibrium.

Front 1928

Market failure

Back 1928

Any market imperfection, but especially the complete absence of a market due to incomplete or asymmetric information.

Front 1929

Market forces

Back 1929

The forces of demand and supply that cause prices to rise and to fall, as opposed, for example, to the actions of particular market participants or government which might otherwise be blamed for such changes.

Front 1930

Market imperfection

Back 1930

Any departure from the ideal benchmark of perfect competition, due to externalities, taxes, market power, etc. Same as distortion.

Front 1931

Market integration

Back 1931

Removal of barriers between two markets for the same product, so that prices on the two markets become more closely linked. Trade liberalization contributes to international market integration.

Front 1932

Market mechanism

Back 1932

The process by which a market solves a problem allocating resources, especially that of deciding how much of a good or service should be produced, but other such problems as well. The market mechanism is an alternative, for example, to having such decisions made by government.

Front 1933

Market potential

Back 1933

The capacity of a location, such as a country, to become or to grow as a demander of goods and services that outside suppliers might provide. Various measures of market potential are provided especially for emerging econommies, intended as guides to exports and foreign direct investment.

Front 1934

Market power

Back 1934

1. Ability of a firm or other market participant to influence price by varying the amount that it chooses to buy or sell.

Front 1935

Market power

Back 1935

2. Ability of a country to influence world prices by altering its trade policies.

Front 1936

Market price

Back 1936

1. The price at which a market clears.

Front 1937

Market price

Back 1937

2. Alternative to factor cost.

Front 1938

Market rate

Back 1938

The interest rate or exchange rate at which a market clears.

Front 1939

Market restriction

Back 1939

Any government-imposed or legal requirement that impedes the ability of suppliers and demanders to interact freely, such as limits on quantity or price. Restrictions are most common in labor markets and on foreign owned service providers.

Front 1940

Market segmentation

Back 1940

Segmented markets.

Front 1941

Market structure

Back 1941

The way that suppliers and demanders in an industry interact to determine price and quantity. There are four main idealized market structures that have been used in trade theory: perfect competition, monopoly, oligopoly, and monopolistic competition.

Front 1942

Market value

Back 1942

See factor cost.

Front 1943

Marketing

Back 1943

The activities in which a firm engages intended to induce buyers to select its product. Models of perfect competition omit this activity, assuming that each firm can sell all it wishes at the prevailing price. Models of imperfect competition are more likely to include this, though in practice models of international trade seldom do.

Front 1944

Marketing board

Back 1944

A form of state trading enterprise, a marketing board typically buys up the domestic supply of a good and sells it on the international market.

Front 1945

Markup

Back 1945

1. The amount (percentage) by which price exceeds marginal cost. A profit-maximizing seller facing a price elasticity of demand h will set a markup equal to (p-c)/p=1/h. One effect of international trade that increases competition is to reduce markups.

Front 1946

Markup

Back 1946

2. In WTO terminology, sometimes used for the extent to which an applied tariff exceeds the bound rate.

Front 1947

Marrakesh Ministerial

Back 1947

The final ministerial meeting of the GATT, in Marrakesh, Morroco, April 1994, at which the Uruguay Round was concluded and the World Trade Organization created, replacing the GATT.

Front 1948

Marrakesh Protocol

Back 1948

The agreement entered into by all signatories of the GATT at the April 1994 ministerial in Marrakesh, Morroco. This agreement adopted the Final Act of the Uruguay Round which, among other things, created the World Trade Organization.

Front 1949

Marshall-Lerner condition

Back 1949

The condition that the sum of the elasticities of demand for exports and imports exceed one (in absolute value); that is, hX + hM > 1, where hX, hM are the demand elasticities for a country's exports and imports respectively, both defined to be positive for downward sloping demands. Under certain assumptions, this is the condition for a depreciation to improve the trade balance, for the exchange market to be stable, and for international barter exchange to be stable.

Front 1950

Marshall Plan

Back 1950

A U.S. program to assist the economic recovery of certain European countries after World War II. Also called the European Recovery Program, it was initiated in 1947 and it dispersed over $12 billion before it was completed in 1952.

Front 1951

Marshallian adjustment

Back 1951

A market adjustment mechanism in which quantity rises when demand price exceeds supply price and falls when supply price exceeds demand price.

Front 1952

Marxist

Back 1952

Referring to the writings of Karl Marx and to a body of economic thought based, more or less loosely, on those writings.

Front 1953

Material injury

Back 1953

The injury requirement of the AD and CVD statutes, understood to be less stringent than serious injury but otherwise apparently not precisely defined.

Front 1954

Maturity

Back 1954

The date at which a bond matures, that is, the date at which the issuer of the bond makes the final payment.

Front 1955

Maximum price system

Back 1955

Similar to a minimum price system, except that the price specified is the highest, rather than the lowest, permitted for an imported good.

Front 1956

Maximum revenue tariff

Back 1956

A tariff set to collect the largest possible revenue for the government.

Front 1957

Meade Geometry

Back 1957

The geometric technique introduced by Meade (1952) of deriving a country's offer curve from its transformation curve and community indifference curves by first constructing a set of trade indifference curves.

Front 1958

Mean

Back 1958

The arithmetic average of the values of an economic or statistical variable. For a variable x with values xi, i=1,…,n, the mean is mean(x) = Si=1…n(xi/n).

Front 1959

Measure of economic welfare

Back 1959

An aggregate figure that adjusts GDP in an attempt to measure a country's economic well-being rather than its production, with adjustments for leisure, environmental degradation, etc.

Front 1960

Median

Back 1960

1. In a sample of data, a value above which half the values lie and below which half the values lie.

Front 1961

Median

Back 1961

2. In a probability distribution, a value above which there is 50% probability and below which there is 50% probability.

Front 1962

Medium of exchange

Back 1962

Anything that is used, like money, to make payments for goods, services, and assets. For payments between countries with different currencies, if the national currencies are not trusted, another country's currency or gold may be used.

Front 1963

Medium-Term Expenditure Framework

Back 1963

An integrated approach to policy, planning, and budgeting by developing countries that estimates expenditures out three years from the present. It has been advocated by the World Bank and applied in a number of developing countries.

Front 1964

Melitz model

Back 1964

A heterogeneous firm model in which firms employ labor as their only input, firm productivity is chosen randomly, and firms die with some constant probability. With trade, only firms with productivity above some cutoff level are able to export. Due to Melitz (2003).

Front 1965

MENA

Back 1965

Middle East and North Africa. The acronym is used frequently by international organizations, but without a uniform definition of which countries are included.

Front 1966

Mercantilism

Back 1966

An economic philosophy of the 16th and 17th centuries that international commerce should primarily serve to increase a country's financial wealth, especially of gold and foreign currency. To that end, exports are viewed as desirable and imports as undesirable unless they lead to even greater exports.

Front 1967

Merchandise trade

Back 1967

Exports and imports of goods. Contrasts with trade in services.

Front 1968

Merchanting

Back 1968

The act by a resident of one country of buying a good in another country and reselling it in that or a third country, without the good ever entering the merchant's country of residence.

Front 1969

MERCOSUR

Back 1969

A common market among Argentina, Brazil, Paraguay and Uruguay, known as the "Common Market of the South" ("Mercado Común del Sur"). It was created by the Treaty of Asunción on March 26, 1991, and added Chile and Bolivia as associate members in 1996 and 1997.

Front 1970

Mergers and Acquisitions

Back 1970

The combination of what were previously two separate firms into one, either by their joining (merging) together as more or less equals or by one acquiring the other. These occur increasingly across national borders, thus constituting an important form of foreign direct investment.

Front 1971

METI

Back 1971

Ministry of Economy, Trade and Industry.

Front 1972

Metzler diagram

Back 1972

A diagram showing the joint determination of savings, investment, and the interest rate in two countries. Invented by Metzler (1960).

Front 1973

Metzler paradox

Back 1973

The possibility, identified by Metzler (1949), that a tariff may lower the domestic relative price of the imported good. This will happen if it drives the world price down by even more than the size of the tariff, as it may do if the foreign demand for the importing country's export good is inelastic.

Front 1974

MEW

Back 1974

Measure of economic welfare.

Front 1975

MFA

Back 1975

Multifiber Arrangement.

Front 1976

MFN

Back 1976

Most Favored Nation.

Front 1977

MFN rate

Back 1977

MFN tariff.

Front 1978

MFN status

Back 1978

The status given by the U.S. to some non-members of the GATT/WTO whereby they are charged MFN tariffs even though they are eligible for higher tariffs. See PNTR.

Front 1979

MFN tariff

Back 1979

The tariff level that a member of the GATT/WTO charges on a good to other members.

Front 1980

Microeconomic

Back 1980

Referring to the behavior of and interactions among individual economic agents, especially firms and consumers, and especially in markets. Contrasts with macroeconomic.

Front 1981

Microfinance

Back 1981

Refers to institutions that specialize in making very small loans to very poor persons in developing countries. Instead of using collateral to assure repayment, these lenders harness social pressure within the borrower's community. Originally done on a nonprofit basis, it is now being done increasingly by for-profit companies.

Front 1982

Middle product

Back 1982

A good that has undergone some processing and that requires further processing before going to final consumers; an intermediate good. Sanyal and Jones (1982) introduced the term, observing that almost all international trade is of middle products, and they provided a model based on that assumption.

Front 1983

MIGA

Back 1983

Multilateral Investment Guarantee Agency

Front 1984

Migration

Back 1984

The permanent relocation of people from one country to another. See emigration, immigration.

Front 1985

MIIT

Back 1985

Marginal intraindustry trade

Front 1986

Millennium Round

Back 1986

The name suggested by the European Union for the trade round that they and others hoped would be initiated at the Seattle Ministerial in 1999. That ministerial ended without agreement to start a new round.

Front 1987

Mill's test

Back 1987

One of two conditions needed for infant industry protection to be welfare-improving, this requires that the protected industry become, over time, able to compete internationally without protection. See also Bastable's test.

Front 1988

Minimum efficient scale

Back 1988

The smallest output of a firm consistent with minimum average cost. In small countries, in some industries the level of demand in autarky is not sufficient to support minimum efficient scale.

Front 1989

Minimum import price

Back 1989

See minimum price system.

Front 1990

Minimum price system

Back 1990

Specification of the lowest price permitted for an import. Prices below the minimum may trigger a tariff, hence a variable levy, or quota. See maximum price system. These have several names: basic import price, minimum import price, reference price, and trigger price.

Front 1991

Minister of International Trade

Back 1991

Title, in many but not all countries, of the trade minister.

Front 1992

Ministerial

Back 1992

A meeting of ministers. In the context of the GATT and WTO, it is a meeting of the trade ministers from the member countries (including, from the U.S., USTR).

Front 1993

Ministry of Economy, Trade and Industry

Back 1993

The Japanese government ministry that deals with economic issues, including the vitality of the private sector, external economic relations, energy policy, and industrial development.

Front 1994

Ministry of International Trade and Industry

Back 1994

The Japanese government ministry that deals with trade and industrial policies. Established in 1949 as the Ministry of Commerce and Industry, MITI was renamed METI as of January 6, 2000.

Front 1995

Misalignment

Back 1995

Currency misalignment.

Front 1996

Missing trade

Back 1996

See mystery of the missing trade.

Front 1997

MITI

Back 1997

Ministry of International Trade and Industry

Front 1998

Mixed economy

Back 1998

An economy in which some production is done by the private sector and some by the state, in state-owned enterprises.

Front 1999

Mixed tariff

Back 1999

Compound tariff

Front 2000

Mixing regulation

Back 2000

1. Specification of the proportion of domestically produced content in products sold on the domestic market.

Front 2001

Mixing regulation

Back 2001

2. Specification of an amount of domestically produced product that must be bought by an importer for given quantities of imports, under a linking scheme.

Front 2002

Mixing requirement

Back 2002

Mixing regulation

Front 2003

MNC

Back 2003

Multinational Corporation

Front 2004

MNE

Back 2004

Multinational Enterprise

Front 2005

Mobility

Back 2005

See labor mobility.

Front 2006

Modality

Back 2006

Method or procedure. WTO documents speak of modalities of negotiations, i.e., how the negotiations are to be conducted.

Front 2007

Mode of supply

Back 2007

The method by which suppliers of internationally traded services deliver their service to buyers. The four modes usually identified are: cross-border supply, consumer movement, producer presence, and movement of natural persons.

Front 2008

Model

Back 2008

A stylized simplification of reality in which behavior is represented by variables and by assumptions about how they are determined and interact. Models enable one to think consistently and logically about complex issues, to work out how changes in an economic system matter, and (sometimes) to make predictions about economic performance.

Front 2009

MOFA

Back 2009

Majority-owned foreign affiliate

Front 2010

Monetary approach

Back 2010

A framework for analyzing exchange rates and the balance of payments that focuses on supply and demand for money in different countries. A floating exchange rate is assumed to equate supply and demand and thus to reflect relative growth rates of money supplies and determinants of demand. Under a pegged exchange rate, the balance of payments surplus or deficit equals the excess demand or supply, respectively, for a country's money.

Front 2011

Monetary base

Back 2011

Usually, the currency and central bank deposits that together provide the base for the money supply under fractional reserve banking. Also defined as the central bank assets the acquisition of which creates this monetary base by injecting domestic money into the economy. The latter definition usually includes international reserves and domestic credit. By either definition, the monetary base changes as a result of open market operations and exchange market intervention.

Front 2012

Monetary easing

Back 2012

Expansionary monetary policy

Front 2013

Monetary independence

Back 2013

The ability of a country to determine its own monetary policy, as opposed to allowing the money supply to be determined by the exchange market intervention required to maintain a fixed exchange rate.

Front 2014

Monetary integration

Back 2014

The adoption of a common currency by two or more countries.

Front 2015

Monetary neutrality

Back 2015

The principle that the quantity of money should not affect real variables in the long run.

Front 2016

Monetary overhang

Back 2016

Money overhang

Front 2017

Monetary policy

Back 2017

The use of the money supply and/or the interest rate to influence the level of macroeconomic activity and other policy objectives including the balance of payments or the exchange rate.

Front 2018

Monetary tightening

Back 2018

Contractionary monetary policy

Front 2019

Monetary transmission mechanism

Back 2019

1. Any of several channels by which a change in the money supply of a country can cause changes in real variables. Most operate primarily within a country, but some, as through the exchange rate, operate through international transactions.

Front 2020

Monetary transmission mechanism

Back 2020

2. Any of several ways that real and monetary shocks in one economy can be transmitted to another through monetary channels involving interest rates, exchange rates, and international capital flows.

Front 2021

Monetary union

Back 2021

Two or more countries sharing a common currency.

Front 2022

Monetize

Back 2022

1. To turn anything into money.

Front 2023

Monetize

Back 2023

2. To convert government debt into currency.

Front 2024

Money

Back 2024

1. Anything that serves the three basic purposes of money: medium of exchange; store of value; unit of account.

Front 2025

Money

Back 2025

2. In modern economies, a currency issued by an agency of government.

Front 2026

Money

Back 2026

3. As an adjective, "money" refers to the value of something denominated in the prevailing currency and not corrected for inflation; contrasts with real.

Front 2027

Money GDP

Back 2027

Nominal GDP; contrasts with real GDP.

Front 2028

Money income

Back 2028

Nominal income; contrasts with real income.

Front 2029

Money laundering

Back 2029

The conversion of large amounts of money the source of which one wants to hide (e.g., from drug trafficking) into a form that appears to be legitimate. The process often involves multiple international transactions across currencies and financial institutions in order to obscure the source.

Front 2030

Money market

Back 2030

The money market, in macroeconomics and international finance, refers to the equilibration of demand for a country's domestic money to its money supply. Both refer to the quantity of money that people in the country hold (a stock), not to the quantity that people both in and out of the country choose to acquire during a period in the exchange market, mostly for the purpose of then using it to buy something else.

Front 2031

Money multiplier

Back 2031

When a central bank engages in open market operations to change the monetary base, the money multiplier is the ratio of the resulting change in the money supply to the change in the base. If banks and others keep the base at a fraction, ?, of the money supply (e.g., if only banks hold currency, with a fixed reserve ratio, ?), then the money multiplier is 1/?.

Front 2032

Money neutrality

Back 2032

Monetary neutrality

Front 2033

Money overhang

Back 2033

A money supply that is larger than people want to hold at prevailing prices, perhaps because of shortages or rationing of goods in the past. This was said to be a major cause of inflation in Russia after the fall of the Soviet Union, which left an excess of money in circulation.

Front 2034

Money price

Back 2034

The nominal price; thus the price as it would actually be observed, in current dollars. Contrasts with the real price, which is adjusted for inflation.

Front 2035

Money supply

Back 2035

There are several formal definitions, but all include the quantity of currency in circulation plus the amount of demand deposits. The money supply, together with the amount of real economic activity in a country, is an important determinant of its price level and its exchange rate.

Front 2036

Monopolistic

Back 2036

Having some power to set price.

Front 2037

Monopolistic competition

Back 2037

A market structure in which there are many sellers each producing a differentiated product. Each can set its own price and quantity, but is too small for that to matter for prices and quantities of other producers in the industry.

Front 2038

Monopoly

Back 2038

A market structure in which there is a single seller.

Front 2039

Monopoly argument

Back 2039

The monopoly argument for a tariff is the same as the optimal tariff argument. It gets its name from the fact that a country using a tariff to improve the terms of trade is acting much like a monopoly firm, restricting its sales to get a better price.

Front 2040

Monopsony

Back 2040

A market structure in which there is a single buyer. Term introduced in Robinson (1932).

Front 2041

Monotonic

Back 2041

Changing in one direction only; thus either strictly rising or strictly falling, but not reversing direction.

Front 2042

Moral hazard

Back 2042

The tendency of individuals, firms, and governments, once insured against some contingency, to behave so as to make that contingency more likely. A pervasive problem in the insurance industry, it also arises internationally when international financial institutions assist countries in financial trouble.

Front 2043

Most Favored Nation

Back 2043

The principle, fundamental to the GATT, of treating imports from a country on the same basis as that given to the most favored other nation. That is, and with some exceptions, every country gets the lowest tariff that any country gets, and reductions in tariffs to one country are provided also to others.

Front 2044

Mothballing

Back 2044

The preservation of a production facility without using it to produce, but keeping the machinery in working order and supplies available. This may be preferable -- if the facility's operating costs are high and the aim is to have it available in time of war -- to having it produce in peacetime under a subsidy or import protection. See national defense argument.

Front 2045

Movement of natural persons

Back 2045

One of four modes of supply under the GATS, this involving the temporary movement across national borders of natural persons employed by or associated with a firm in order to participate in the firm's business. Also called temporary producer movement.

Front 2046

MPC

Back 2046

Marginal propensity to consume.

Front 2047

MRO

Back 2047

Main refinancing operations.

Front 2048

MRS

Back 2048

Marginal rate of substitution.

Front 2049

MRT

Back 2049

Marginal rate of transformation.

Front 2050

MRTS

Back 2050

Marginal rate of technical substitution.

Front 2051

MTEF

Back 2051

Medium-Term Expenditure Framework.

Front 2052

Multi-cone equilibrium

Back 2052

A free-trade equilibrium in the Heckscher-Ohlin Model in which prices are such that all goods cannot be produced within a single country, and instead there are multiple diversification cones. This, or a two cone equilibrium, will arise if countries' factor endowments are sufficiently dissimilar compared to factor intensities of industries. Contrasts with one cone equilibrium.

Front 2053

Multi-level governance

Back 2053

A theoretical perspective on the organization of modern states that acknowledges flexible structures of overlapping jurisdictions, both above and below the national government as well as in a lateral relationship to it.

Front 2054

Multifactor model

Back 2054

A model with more than two factors. In the context of trade theory this is likely to mean a Heckscher-Ohlin Model with more than two factors.

Front 2055

Multifiber Arrangement

Back 2055

An agreement (OMA) among developed country importers and developing country exporters of textiles and apparel to regulate and restrict the quantities traded. It was negotiated in 1973 under GATT auspices as a temporary exception to the rules that would otherwise apply, and was superseded in 1995 by the ATC.

Front 2056

Multifunctionality

Back 2056

Refers to the purposes that an industry may serve in addition to producing its output. Most often applied to agriculture by countries that wish to subsidize it, arguing that subsidies are needed to serve these other purposes, such as rural viability, land conservation, cultural heritage, etc.

Front 2057

Multigood model

Back 2057

A model with more than two goods.

Front 2058

Multilateral

Back 2058

Among a large number of countries. Contrasts with bilateral and plurilateral.

Front 2059

Multilateral agreement

Back 2059

An agreement among a large number of countries.

Front 2060

Multilateral Agreement on Investment

Back 2060

An agreement to liberalize rules on international direct investment that was negotiated in the OECD but never completed or adopted because of adverse public reaction to it. Preliminary text of the agreement was leaked to the Internet in April 1997, where many groups opposed it. Negotiations were discontinued in November 1998.

Front 2061

Multilateral aid

Back 2061

Aid provided by a group of countries, or an institution representing a group of countries such as the World Bank, to one or more recipient countries.

Front 2062

Multilateral Investment Guarantee Agency

Back 2062

One of the five institutions that comprise the World Bank Group, MIGA helps encourage foreign investment in developing countries.

Front 2063

Multilateral trade liberalization

Back 2063

Reduction of tariffs and/or nontariff barriers by one or (usually) more countries on imports from all countries (or all members of the WTO). This is most likely to happen as a result of multilateral trade negotiations, such as the various GATT and WTO Rounds.

Front 2064

Multinational corporation

Back 2064

A corporation that operates in two or more countries. Since it is headquartered in only one country but has production or marketing facilities in others, it is the result of previous FDI.

Front 2065

Multinational enterprise

Back 2065

A firm, usually a corporation, that operates in two or more countries. In practice the term is used interchangeably with multinational corporation.

Front 2066

Multiple equilibria

Back 2066

Refers to a system in which there is more than one equilibrium, most commonly a market in which a backward bending supply curve crosses a demand curve more than once, at prices each of which is a market clearing price.

Front 2067

Multiple exchange rates

Back 2067

The existence of more than one exchange rate for a given pair of currencies. Rare today, this used to be common in countries with extensive capital controls, which also set different exchange rates for different purposes.

Front 2068

Multiplier

Back 2068

In Keynesian macroeconomic models, the ratio of the change in an endogenous variable to the change in an exogenous variable. Usually means the multiplier for government spending on income. In the simplest Keynesian model of a closed economy, this is 1/s, where s is the marginal propensity to save. See open economy multiplier.

Front 2069

Multistage production

Back 2069

Another term for fragmentation. Used by Dixit and Grossman (1982).

Front 2070

Mundell-Fleming Model

Back 2070

An open-economy version of the IS-LM model that allows for international trade and international capital flows. Due to Mundell (1962,63) and Fleming (1962).

Front 2071

Mutatis mutandis

Back 2071

Latin phrase meaning, approximately, "allowing other things to change accordingly." Used as a shorthand for indicating the effect of one economic variable on another, within a system in which other variables that matter will also change as a result. Contrasts with ceteris paribus.

Front 2072

Mutual recognition

Back 2072

The acceptance by one country of another country's certification that a satisfactory standard has been met for ability, performance, safety, etc.

Front 2073

Mystery of the missing trade

Back 2073

The empirical observation, by Trefler (1995), that the amount of trade is far less than predicted by the HOV version of the Heckscher-Ohlin Model. More precisely, the factor content of trade is far less than the differences between countries in their factor endowments.

Front 2074

Nabucco Pipeline

Back 2074

A pipeline planned to carry natural gas from the Georgian/Turkish and/or Iranian/Turkish border across Turkey, Bulgaria, Romania, and Hungary to Austria. Construction is scheduled to begin 2011 and be completed 2015.

Front 2075

NAFTA

Back 2075

North American Free Trade Agreement

Front 2076

NAFTA TAA

Back 2076

See trade adjustment assistance.

Front 2077

NAIRU

Back 2077

The level of the unemployment rate at which prices rise at the same rate that they are expected to rise, and thus at which (since expectations needn't change) the rate of inflation does not then rise or fall. Stands for Non-Accelerating Inflation Rate of Unemployment.

Front 2078

NAMA

Back 2078

Non-Agricultural Market Access

Front 2079

Narrow money

Back 2079

M1

Front 2080

Nash

Back 2080

Used as an adjective applied to a strategy in a game, this means that it is part of a Nash equilibrium.

Front 2081

Nash equilibrium

Back 2081

An equilibrium in game theory in which each player's action or strategy is optimal given the actions or strategies of the other players. E.g., in a tariff-and-retaliation game, with each country able to improve its terms of trade with a tariff, zero tariffs are not Nash, since each can do better by raising its tariff. A Nash equilibrium, with positive tariffs, is likely to be inferior to free trade for both.

Front 2082

Nation

Back 2082

As used in international economics, a nation is almost invariably a country, or occasionally a similar entity (e.g., Hong Kong) with a single, usually independent government.

Front 2083

National

Back 2083

1. (adj.) Of, relating to, or belonging to a nation.

Front 2084

National

Back 2084

2. (n.) A person who is a citizen or long-term resident of a nation.

Front 2085

National Bureau of Economic Research

Back 2085

A nonprofit, nonpartisan organization based in Cambridge, MA, that assembles economic data and sponsors economic research. Its Business Cycle Dating Committee also is traditionally responsible for identifying the beginnings and ends of recessions.

Front 2086

National debt

Back 2086

Although this term looks like it should mean the amount that a country owes to foreigners, in practice it is used instead to refer to the amount that a nation's government owes to anybody, including its own citizens. Thus it is the total of a national government's outstanding government bonds.

Front 2087

National defense argument for protection

Back 2087

The argument that imports should be restricted in order to sustain a domestic industry so that it will be available in case of trade disruption due to war. This is a second best argument, since there are a variety of ways of providing for defense at lower economic cost, including production subsidies, mothballing, and stockpiling.

Front 2088

National exhaustion

Back 2088

See exhaustion.

Front 2089

National income

Back 2089

The income generated by a country's production, and therefore the total income of its factors of production. Except for some adjustments that don't usually enter theoretical models, NI is the same as GDP.

Front 2090

National Income and Product Accounts

Back 2090

The statistics collected by the Bureau of Economic Analysis on aggregate economic activity in the United States.

Front 2091

National sovereignty

Back 2091

See sovereignty.

Front 2092

National treatment

Back 2092

The principle of providing foreign producers and sellers the same treatment provided to domestic firms.

Front 2093

Nationalize

Back 2093

To transfer ownership of a private company or a privately owned asset to the national government. Nationalization is sometimes done on entire industries, and often includes firms that were owned by foreigners. Owners may or may not be compensated; if not, this is expropriation.

Front 2094

Natural enemy

Back 2094

In the Heckscher-Ohlin Model, an industry is a natural enemy to a particular factor if a rise in the price of that industry alone causes a fall in the price of that factor, so that the real return to that factor is decreased. Used by Jones and Scheinkman (1977) to characterize the Ethier's (1974) generalization of the Stolper Samuelson Theorem.

Front 2095

Natural friend

Back 2095

In the Heckscher-Ohlin Model, an industry is a natural friend to a particular factor if a rise in the price of that industry alone causes an even larger proportional increase in the price of that factor, so that the real return to that factor is increased. Used by Jones and Scheinkman (1977) to characterize the Ethier's (1974) generalization of the Stolper Samuelson Theorem.

Front 2096

Natural person

Back 2096

This term appears in the GATS where it deals with the international movement of employees of firms that are providing services in another country. Persons are called "natural" to distinguish them from "juridical persons," such as partnerships or corporations, which are given certain rights of persons under the law.

Front 2097

Natural resource

Back 2097

Anything that is provided by nature, such as deposits of minerals, quality of land, old-growth forests, fish populations, etc. The availability of particular natural resources is an important determinant of comparative advantage and trade in products that depend on them. Natural resources are primary factors of production.

Front 2098

Natural trade

Back 2098

Trade that is either free or restricted, but that is not artificially encouraged by subsidies or other stimulants.

Front 2099

Natural trading bloc

Back 2099

A trading bloc consisting of natural trading partners.

Front 2100

Natural trading partner

Back 2100

A country with whom another country's trade is likely to be large, because of low transport or other trade costs between them. Term introduced by Wonnacott and Lutz (1989) and used extensively by Frankel (1997).

Front 2101

Natural wastage

Back 2101

Attrition.

Front 2102

NAV

Back 2102

Net asset value.

Front 2103

NBER

Back 2103

National Bureau of Economic Research

Front 2104

NDP

Back 2104

Net domestic product

Front 2105

Near money

Back 2105

A financial asset with many of the properties of money, but not all. Savings deposits and foreign currency deposits, for example, are very liquid but cannot be used directly for transactions.

Front 2106

Necessity test

Back 2106

A procedure to determine whether a trade restriction intended to serve some purpose is necessary for that purpose.

Front 2107

Negative externality

Back 2107

A harmful externality; that is, a harmful effect of one economic agent's actions on another. Considered a distortion because the first agent has inadequate incentive to curtail the action. Examples are pollution from factories (a production externality) and smoke from cigarettes (a consumption externality).

Front 2108

Negative growth

Back 2108

A decline in size over time, said of an economy's GDP in recession or of the size of a declining firm or industry. Seems like a euphemism, except that no obvious alternative term suggests itself. Shrinkage?

Front 2109

Negative list

Back 2109

In an international agreement, a list of those items, entities, products, etc. to which the agreement will not apply, the commitment being to apply the agreement to everything else. Contrasts with positive list.

Front 2110

Negative returns

Back 2110

An extreme form of diminishing returns, in which increasing one input holding other inputs constant causes output to fall. This may plausibly happen due to congestion.

Front 2111

Negative returns to scale

Back 2111

An extreme form of decreasing returns to scale, in which increasing all inputs in proportion actually causes output to fall. Sometimes said to arise due to congestion, although it is doubtful in that case that all inputs are being increased.

Front 2112

Negotiation

Back 2112

See trade negotiation.

Front 2113

Neighborhood

Back 2113

In mathematical Euclidean space, a small set of points surrounding and including a particular point. Thus, for an economic variable, such as an allocation, the neighborhood of a particular allocation includes all those allocations that are sufficiently similar to it.

Front 2114

Neighborhood production structure

Back 2114

A structure of technology for a general equilibrium model due to Jones and Kierzkowski (1986). With an arbitrary but equal number of goods and factors, each factor produces two (different) goods, each good uses two (different) factors, in a way that yields more unambiguous results than one normally finds in high-dimension trade models without specific factors.

Front 2115

Neoclassical

Back 2115

A collection of assumptions customarily made by mainstream economists starting in the late 19th century, including profit maximization by firms, utility maximization by consumers, and market equilibrium, with corresponding implications for determination of factor prices and the distribution of income. Contrasts with classical, Keynesian, and Marxist.

Front 2116

Neoclassical ambiguity

Back 2116

In the specific factors model, the fact that the effect of a change in relative prices on the real wage of the mobile factor cannot be known a priori, since the wage rises relative to one price and falls relative to the other.

Front 2117

Neoclassical economics

Back 2117

Most of modern, mainstream economics based on neoclassical assumptions. Tends to ascribe inevitability, if not necessarily desirability, to market outcomes.

Front 2118

Neoclassical growth model

Back 2118

A model of economic growth in which income arises from neoclassical production functions in one or more sectors, displaying diminishing returns to saving and capital accumulation. Due to Solow (1956) and Swan (1956).

Front 2119

Neoclassical paradigm

Back 2119

The framework used by most modern economists for analysis of economic activity and policy, based on neoclassical assumptions.

Front 2120

Neoclassical production function

Back 2120

A production function with the properties of constant returns to scale and smoothly diminishing returns to individual factors.

Front 2121

Neoliberalism

Back 2121

A view of the world that favors social justice while also emphasizing economic growth, efficiency, and the benefits of free markets.

Front 2122

NES

Back 2122

Not Elsewhere Specified. This abbreviation, "nes," appears frequently in classifications, of goods and of industries for example, to encompass all other items in a category that have not been included explicitly.

Front 2123

Net

Back 2123

After deduction. Contrasts with gross. Exactly what is deducted to get from gross to net depends on the context.

Front 2124

Net asset value

Back 2124

Value of assets minus liabilities.

Front 2125

Net capital inflow

Back 2125

Net acquisition of domestic assets by foreigners, minus net acquisition of foreign assets by domestic residents. If negative, it is a net capital outflow.

Front 2126

Net domestic product

Back 2126

Gross domestic product minus capital consumption allowance. This is the most complete measure of productive activity within the borders of a country, though its accuracy suffers from the difficulty of measuring depreciation.

Front 2127

Net economic welfare

Back 2127

Same as MEW

Front 2128

Net exports

Back 2128

Exports minus imports; same as the balance of trade.

Front 2129

Net financial inflow

Back 2129

Same as net capital inflow.

Front 2130

Net foreign asset position

Back 2130

The value of the assets that a country owns abroad, minus the value of the domestic assets owned by foreigners. Equals balance of indebtedness.

Front 2131

Net foreign factor income

Back 2131

The income of a country's factors earned abroad minus the income paid to foreign-owned factors domestically.

Front 2132

Net income

Back 2132

1. Of a firm, total revenue minus total cost.

Front 2133

Net income

Back 2133

2. Of a country, national income minus capital consumption allowance.

Front 2134

Net international reserves

Back 2134

International reserves minus reserves that have been borrowed from the IMF and other governments.

Front 2135

Net national product

Back 2135

Gross national product minus depreciation. This is the most complete measure of productive activity by a country's nationals, though its accuracy suffers from the difficulty of measuring depreciation.

Front 2136

Net output

Back 2136

The output of a product that is available for final users, after deducting amounts of it used up as an intermediate input in producing itself and other products. Contrasts with gross output.

Front 2137

Net present value

Back 2137

Same as present value, being sure to include (negative) payments as well as (positive) receipts.

Front 2138

Net resource transfer

Back 2138

The amount of purchasing power that foreigners are providing a country in a period of time. It is measured by the country's current account deficit minus its net payments to foreigners of interest.

Front 2139

Net taxes

Back 2139

Taxes minus transfers. That is, in an economy the net taxes are the total taxes paid by persons and business to government, minus the total transfer payments paid by government to persons and business.

Front 2140

Network

Back 2140

A set of connections among a multiplicity of separate entities sharing a common characteristic. Networks of firms or individuals in different countries are thought to facilitate trade.

Front 2141

Neutral

Back 2141

1. Said of a technological change or technological difference if it is not biased in favor of using more or less of one factor than another. This can be defined in several different ways that are not normally equivalent: Hicks-neutral, Harrod-neutral, and Solow-neutral.

Front 2142

Neutral

Back 2142

2. Said of economic growth if it expands actual or potential output of all goods at the same rate, not being biased in favor of one over another. In the Heckscher-Ohlin Model neutral growth will occur if all factor endowments grow at the same rate or if there is Hicks Neutral technological progress at the same rate in all industries.

Front 2143

Neutral

Back 2143

3. Said of a trade regime if the structure of protection favors neither exportables nor importables. See bias.

Front 2144

NEW

Back 2144

Net economic welfare

Front 2145

New bancor

Back 2145

A proposed non-national world currency to be used for payment and reserve purposes, to be issued by the IMF and intended to maintain a fixed purchasing power in the dollar and euro countries.

Front 2146

New Economic Geography

Back 2146

The study of the location of economic activity across space, particularly a strand of literature begun by Krugman (1991a) using agglomeration economies to help explain why industries cluster within particular countries and regions.

Front 2147

New Economy

Back 2147

This term was used in the late 1990's to suggest that globalization and/or innovations in information technology had changed the way that the world economy works. Conjectures included changes in productivity, the inflation-unemployment tradeoff, the business cycle, and the valuation of enterprises.

Front 2148

New good

Back 2148

A good that has been newly invented. Plays a special role in the theory of the product cycle.

Front 2149

New International Economic Order

Back 2149

A set of proposals put forward during the 1970s by developing countries through UNCTAD to promote their interests by improving their terms of trade, increasing development assistance, developed-country tariff reductions, and other means.

Front 2150

New product

Back 2150

See product cycle.

Front 2151

New protectionism

Back 2151

The most recent wave of protectionism.

Front 2152

New Trade Theory

Back 2152

Models of trade that, especially in the 1980s, incorporated aspects of imperfect competition, increasing returns, and product differentiation into both general equilibrium and partial equilibrium models of trade and trade policy. Many contributed to this literature, but the most prominent was Krugman, starting with Krugman (1979).

Front 2153

New New Trade Theory

Back 2153

This unfortunate name has been given to theoretical models of trade that incorporate heterogeneous firms and typically build on the monopolistic competition models of the New Trade Theory.

Front 2154

Newly Industrializing Country

Back 2154

Refers to a group of countries previously regarded as developing that then achieved high rates and levels of economic growth.

Front 2155

Newly Industrializing Economy

Back 2155

Newly Industrializing Country

Front 2156

News

Back 2156

Unexpected information. In an efficient market, as the exchange market is supposed to be, price reflects all available information. It can change, therefore, only in response to news.

Front 2157

NGO

Back 2157

Non-governmental organization

Front 2158

NIC

Back 2158

Newly Industrializing Country

Front 2159

NIE

Back 2159

Newly Industrializing Economy

Front 2160

NIEO

Back 2160

New International Economic Order

Front 2161

NIPA

Back 2161

National Income and Product Accounts

Front 2162

NME

Back 2162

Non-market Economy

Front 2163

NNP

Back 2163

Net national product

Front 2164

Nomenclature

Back 2164

See Brussels Tariff Nomenclature

Front 2165

Nominal

Back 2165

1. In the form most directly observed or named, in contrast to a form that has been adjusted or modified in some fashion.

Front 2166

Nominal

Back 2166

2. As measured in terms of money, usually in contrast to real.

Front 2167

Nominal anchor

Back 2167

The technique of fixing a nominal variable in an economy as a means of reducing inflation. For example, by firmly pegging the nominal exchange rate, a central bank or government reduces its own ability to expand the money supply.

Front 2168

Nominal exchange rate

Back 2168

The actual exchange rate at which currencies are exchanged on an exchange market. Contrasts with real exchange rate.

Front 2169

Nominal GDP

Back 2169

GDP as actually measured, thus in current dollars. Contrasts with real GDP.

Front 2170

Nominal interest rate

Back 2170

The interest rate actually observed in the market, in contrast to the real interest rate.

Front 2171

Nominal price

Back 2171

The the price as it would actually be observed, in current dollars. Contrasts with the real price, which is adjusted for inflation.

Front 2172

Nominal rate of protection

Back 2172

The protection afforded an industry directly by the tariff and/or NTB on its output, ignoring effects of other trade barriers on the industry's inputs. Contrasts with the ERP.

Front 2173

Nominal return

Back 2173

The earnings on an asset or other investment, comparable to a nominal interest rate, thus not adjusted for inflation.

Front 2174

Nominal tariff

Back 2174

The nominal protection provided by a tariff; that is, the tariff itself. Contrasts with effective tariff.

Front 2175

Nominal wage

Back 2175

The wage of labor in units of currency, not adjusted for inflation, and thus not in terms of the goods that it will buy. Contrasts with real wage.

Front 2176

Non-actionable subsidy

Back 2176

A subsidy that is not subject to countervailing duties under the rules of the WTO. These include non-specific subsidies, subsidies for industrial research, regional aids, and some environmental subsidies.

Front 2177

Non-Agricultural Market Access

Back 2177

Reduction of tariffs and NTBs in industries other than agriculture. Because of the particular difficulties of negotiations in agriculture, they were separated from others, and the NAMA Negotiations in the Doha Round encompassed all other trade liberalization in goods: manufactures, fuels, mining, fish, and forestry products.

Front 2178

Non-automatic licensing

Back 2178

Import licensing that is discretionary, based on an import quota, or performance related.

Front 2179

Non-governmental organization

Back 2179

A not-for-profit organization that pursues an issue or issues of interest to its members by lobbying, persuasion, and/or direct action. In the arena of international economics, NGOs play an increasing role defending human rights and the environment, and fighting poverty.

Front 2180

Non-market-clearing

Back 2180

A situation or economic model in which a market or markets do not clear, perhaps because something prevents prices from adjusting to discrepancies between supply and demand.

Front 2181

Non-market economy

Back 2181

A country in which most major economic decisions are imposed by government and by central planning rather than by free use of markets. Contrasts with a market economy.

Front 2182

Non-performing loan

Back 2182

A loan on which the borrower has ceased to make payments.

Front 2183

Non-price competition

Back 2183

Competition among sellers based on something other than price, such as quality or other product characteristics.

Front 2184

Non-specific subsidy

Back 2184

A subsidy that is available to more than a single specific industry and is therefore non-actionable under WTO rules.

Front 2185

Nonbinding

Back 2185

Refers to a restriction that currently has no effect because the behavior that it would prevent would not happen even without the restriction. For example, if a quota limits imports to no more than 1,000, but actual imports are only 900, then the quota is nonbinding.

Front 2186

Nonconvexity

Back 2186

The property of an economic model or system that the sets representing technology, preferences, or constraints are not mathematically convex. Because convexity is needed for proof that competitive equilibrium is efficient and well-behaved, nonconvexities may imply market failures.

Front 2187

Nondistorted

Back 2187

Without distortions. Many propositions in trade theory are strictly valid, often only implicitly, only in nondistorted economies.

Front 2188

Nondistorting lump sum

Back 2188

Redundant appellation for a lump sum tax or subsidy.

Front 2189

Nondistorting transfer

Back 2189

A transfer payment that does not introduce inefficiencies. This means mainly that it does not provide an incentive to change production or consumption choices.

Front 2190

Noneconomic objectives argument for protection

Back 2190

The view that a restriction on imports may serve a purpose outside of conventional economic models. Unless that purpose is itself the restriction of trade, then this is a second-best argument, since changes in output, consumption, etc. can be achieved at lower economic cost in other ways.

Front 2191

Nonhomothetic

Back 2191

Any function that is not homothetic, but usually applied to consumer preferences that include goods whose shares of expenditure rise (and others that fall) with income.

Front 2192

Nonproduction worker

Back 2192

A worker not directly engaged in production. In empirical studies of skilled and unskilled labor, data on nonproduction workers are often taken to represent skilled labor.

Front 2193

Nonprohibitive tariff

Back 2193

A tariff that is not prohibitive.

Front 2194

Nonsterilization

Back 2194

Refers to exchange market intervention that is done without sterilizing its effects on the domestic money supply.

Front 2195

Nontariff barrier

Back 2195

Any policy that interferes with exports or imports other than a simple tariff, prominently including quotas and VERs.

Front 2196

Nontariff measure

Back 2196

Any policy or official practice that alters the conditions of international trade, including ones that act to increase trade as well as those that restrict it. The term is therefore broader than nontariff barrier, although the two are usually used interchangeably.

Front 2197

Nontradable

Back 2197

1. Not capable of being traded among countries.

Front 2198

Nontradable

Back 2198

2. A good or service that is nontradable, with nontradables referring to an aggregate of such goods and services.

Front 2199

Nontradable good

Back 2199

A good that, by its nature, is nontradable.

Front 2200

Nontraded good

Back 2200

A good that is not traded, either because it cannot be or because trade barriers are too high. Except when services are being distinguished from goods, they are often mentioned as examples of nontraded goods, or at least they were until it became common to speak of trade in services.

Front 2201

Nonviolation

Back 2201

In WTO terminology, this is shorthand for a complaint that a country's action, though not a violation of WTO rules, has nullified or impaired a member's expected benefits from the agreement.

Front 2202

Normal good

Back 2202

A good the demand for which rises with income if relative prices do not change. Contrasts with inferior good.

Front 2203

Normal value

Back 2203

Price charged for a product on the domestic market of the producer. Used to compare with export price in determining dumping.

Front 2204

Normative

Back 2204

Refers to value judgments as to "what ought to be," in contrast to positive which is about "what is."

Front 2205

North American Free Trade Agreement

Back 2205

The agreement to form a free trade area among the United States, Canada, and Mexico that went into effect January 1, 1994.

Front 2206

North-South model

Back 2206

An economic model in which two countries, North and South, represent developed and less developed countries respectively.

Front 2207

NRP

Back 2207

Nominal rate of protection

Front 2208

NTB

Back 2208

Nontariff barrier

Front 2209

NTM

Back 2209

Nontariff measure

Front 2210

Nullification

Back 2210

See nonviolation

Front 2211

Numeraire

Back 2211

The unit in which prices are measured. This may be a currency, but in real models, such as most trade models, the numeraire is usually one of the goods, whose price is then set at one. The numeraire can also be defined implicitly by, for example, the requirement that prices sum to some constant.

Front 2212

OAS

Back 2212

Organization of American States

Front 2213

OBM

Back 2213

Obsolescing Bargain Model

Front 2214

Obsolescing Bargain Model

Back 2214

A model of interaction between a multinational enterprise and a host country government, which initially reach a bargain that favors the MNE but where, over time as the MNE's fixed assets in the country increase, the bargaining power shifts to the government. Due to Vernon (1971).

Front 2215

OEA

Back 2215

Organización de Estados Americanos (Spanish for Organization of American States)

Front 2216

OECD

Back 2216

Organisation for Economic Co-operation and Development

Front 2217

OEEC

Back 2217

Organisation for European Economic Co-operation

Front 2218

Offer curve

Back 2218

A curve showing, for a two-good model, the quantity of one good that a country will export (or "offer") for each quantity of the other that it imports. Also called the reciprocal demand curve, it is convenient for representing both exports and imports in the same curve and can be used for analyzing tariffs and other changes.

Front 2219

Offer curve Diagram

Back 2219

A diagram that combines the offer curves of two countries (or one country and the rest of world) to determine equilibrium relative prices.

Front 2220

Office of Textiles and Apparel

Back 2220

The part of the United States Commerce Department's International Trade Administration that deals with trade in textiles and apparel.

Front 2221

Official rate

Back 2221

The par value of a pegged exchange rates.

Front 2222

Official reserve transactions

Back 2222

Transactions by a central bank that cause changes in its official reserves. These are usually purchases or sales of its own currency in the exchange market in exchange for foreign currencies or other foreign-currency-denominated assets. In the balance of payments a purchase of its own currency is a credit (+) and a sale is a debit (-).

Front 2223

Official reserves

Back 2223

The reserves of foreign-currency-denominated assets (and also gold and SDRs) that a central bank holds, sometimes as backing for its own currency, but usually only for the purpose of possible future exchange market intervention.

Front 2224

Offset requirement

Back 2224

As a condition for importing into a country, a requirement that foreign exporters purchase domestic products and/or invest in the importing country.

Front 2225

Offshoring

Back 2225

Movement to a location in another country of some part of a firm's activity, usually a part of its production process or, frequently, various back office functions.

Front 2226

Ohlin definition

Back 2226

The price definition of factor abundance. In contrast to the quantity definition, the price definition incorporates differences in demands as well as supplies. Due to Ohlin (1933).

Front 2227

OIM

Back 2227

French acronym of International Organization for Migration

Front 2228

OIT

Back 2228

Organización Internacional del Trabajo (Spanish for International Labor Organization)

Front 2229

Okun's Law

Back 2229

An approximate linear relationship between unemployment and real GDP, proposed by Arthur Okun: that for every percentage point drop in the unemployment rate, real GDP rises 3%.

Front 2230

OLI Paradigm

Back 2230

A framework for analyzing the decision to engage in FDI, based on three kinds of advantage that FDI may provide in comparison to exports: Ownership, Location, and Internalization. Due to Dunning (1979).

Front 2231

Oligopoly

Back 2231

A market structure in which there are a small number of sellers, at least some of whose individual decisions about price or quantity matter to the others.

Front 2232

Oligopsony

Back 2232

A market structure in which there are a small number of buyers.

Front 2233

OLS

Back 2233

Ordinary least squares

Front 2234

OMA

Back 2234

Orderly Marketing Arrangement

Front 2235

OMC

Back 2235

Organización Mundial de Comercio (Spanish for World Trade Organization)

Front 2236

OMO

Back 2236

Open market operation.

Front 2237

One cone equilibrium

Back 2237

A free-trade equilibrium in the Heckscher-Ohlin Model in which prices are such that all goods can be produced within a single country, and there is only one diversification cone. This will arise if countries' factor endowments are sufficiently similar compared to factor intensities of industries. Contrasts with multi-cone equilibrium.

Front 2238

One-dollar-one-vote yardstick

Back 2238

A characterization of the Kaldor-Hicks welfare criterion normally used in evaluating trade policies and more generally in cost-benefit analysis, based on a sum of monetary values including consumer and producer surplus.

Front 2239

One-way arbitrage

Back 2239

The use, by a potential supplier or demander in a market, of a different market or markets to accomplish the same purpose, taking advantage of a discrepancy among their prices. With transaction costs, this enforces smaller price discrepancies than would be permitted by conventional arbitrage. Due to Deardorff (1979).

Front 2240

One-way option

Back 2240

Refers to the situation of a speculator on an exchange market with a pegged exchange rate. If there is doubt about the viability of the peg, the speculator can sell the currency short knowing that there is only one direction (one way) that the currency is likely to move. Therefore there is little risk associated with such speculation.

Front 2241

ONU

Back 2241

Organización de Naciones Unidas (Spanish for United Nations)

Front 2242

OPEC

Back 2242

Organization of Petroleum Exporting Countries

Front 2243

Open currency position

Back 2243

An open position.

Front 2244

Open economy

Back 2244

An economy that permits transactions with the outside world, at least including trade of some goods. Contrasts with closed economy.

Front 2245

Open-economy multiplier

Back 2245

The simple Keynesian multiplier for a small open economy. Equals 1/(s+m), where s is the marginal propensity to save and m is the marginal propensity to import.

Front 2246

Open market operation

Back 2246

The sale or purchase of government bonds by a central bank, in exchange for domestic currency or central-bank deposits. This changes the monetary base and therefore the domestic money supply, contracting it with a bond sale and expanding it with a bond purchase.

Front 2247

Open markets

Back 2247

Markets that are free of restrictions on who can buy and sell.

Front 2248

Open position

Back 2248

An obligation to take or make delivery of an asset or currency in the future without cover, that is, without a matching obligation in the other direction that protects from effects of change in the price of the asset or currency. Aside from simple ownership and debt, an open position can be acquired or avoided using the forward market.

Front 2249

Open regionalism

Back 2249

Regional economic integration that is not discriminatory against outside countries; typically, a group of countries that agrees to reduce trade barriers on an MFN basis. Adopted as a fundamental principle, but not defined, by APEC in 1989. Bergsten (1997) offers five definitions, ranging from open membership to global liberalization and trade facilitation.

Front 2250

Openness

Back 2250

The extent to which an economy is open to trade, and sometimes also to inflows and outflows of international investment.

Front 2251

Openness coefficient

Back 2251

The coefficient on any variable measuring openness in a regression, often a regression explaining economic growth. Thus an estimate of the importance of openness for growth.

Front 2252

Openness index

Back 2252

1. Any measure of openness.

Front 2253

Openness index

Back 2253

2. The ratio of a country's trade (exports plus imports) to its GDP.

Front 2254

Opportunity cost

Back 2254

The cost of something in terms of opportunity foregone. The opportunity cost to a country of producing a unit more of a good, such as for export or to replace an import, is the quantity of some other good that could have been produced instead.

Front 2255

Optimal

Back 2255

Best, by whatever criterion decisions are being made; thus yielding the highest level of utility, profit, economic welfare, or whatever objective is being pursued.

Front 2256

Optimal currency area

Back 2256

The optimal grouping of regions or countries within which exchange rates should be held fixed. First defined (as "optimum currency areas") by Mundell (1961).

Front 2257

Optimal output

Back 2257

1. For a firm this usually means the output of the good that it produces that, when sold, maximizes profit.

Front 2258

Optimal output

Back 2258

2. For a country, this usually means the combination of different goods (and services) that it can produce that is worth the most at world prices, perhaps adjusted for any externalities.

Front 2259

Optimal tariff

Back 2259

The level of a tariff that maximizes a country's welfare. In a nondistorted small open economy, the optimal tariff is zero. In a large country it is positive, due to its effect on the terms of trade.

Front 2260

Optimal tariff argument

Back 2260

An argument in favor of levying a tariff in order to improve the terms of trade. The argument is valid only in a large country, and then only if other countries do not retaliate by raising tariffs themselves. Even then, this is a beggar thy neighbor policy, since it lowers welfare abroad. See Johnson (1954).

Front 2261

Optimal tax

Back 2261

1. Given a constraint of a minimum amount of revenue that a taxation must raise, a system of optimal taxes will minimize the distortion that they cause.

Front 2262

Optimal tax

Back 2262

2. In the presence of an externality, the optimal tax (or subsidy) is that which will internalize its effects so that optimal decisions will be made.

Front 2263

Optimum

Back 2263

1. The best. Usually refers to a most preferred choice by consumers subject to a budget constraint, a profit maximizing choice by firms or industry subject to a technological constraint, or in general equilibrium, a complete allocation of factors and goods that in some sense maximizes welfare.

Front 2264

Optimum

Back 2264

2. As an adjective, same as optimal.

Front 2265

Optimum optimorum

Back 2265

The best of the best, or the global optimum. This term is used, when there are several allocations each of which is locally optimal, to refer to the best among these.

Front 2266

Optimum tariff

Back 2266

Optimal tariff

Front 2267

Option

Back 2267

A contract that permits one party to buy from (or sell to) the other party something at a prespecified price during a prespecified period of time, leaving the choice of whether to do this or not (whether to "exercise" the option) up to the first party, which buys the option. Options exist for many assets, including foreign exchange.

Front 2268

Orange box

Back 2268

See amber box.

Front 2269

Orderly Marketing Arrangement

Back 2269

An agreement among a group of exporting and importing countries to restrict the quantities traded of a good or group of goods. Since the impetus normally comes from the importers protecting their domestic industry, an OMA is effectively a multi-country VER.

Front 2270

Ordinary least squares

Back 2270

The simplest and most common method of fitting a straight line to a sample of data: by minimizing the sum of the squares of the deviations of the data from the line.

Front 2271

Organisation for Economic Co-operation and Development

Back 2271

An international organization of developed countries that "provides governments a setting in which to discuss, develop and perfect economic and social policy." As of June 2007, it had 30 member countries.

Front 2272

Organisation for European Economic Co-operation

Back 2272

An international organization established in 1948 as the recipient institution of aid through the Marshall Plan. In 1961 it was replaced by the OECD.

Front 2273

Organization of American States

Back 2273

An international organization of the countries of the Western Hemisphere, fostering cooperation among them and advancing their common interests. It has 35 member states, although the government of one of them, Cuba, is excluded from participating.

Front 2274

Organization of Petroleum Exporting Countries

Back 2274

A group of countries that includes many, but not all, of the largest exporters of oil. Its major purpose is to regulate the supply of petroleum and thereby to stabilize (often raise) its price. The international oil cartel. As of June 2007, it had 12 member countries.

Front 2275

Origin principle

Back 2275

The principle in international taxation that value added taxes be kept only by the country where production takes place. Under the origin principle, value added taxes are not collected on imports and not rebated on exports. Contrasts with the destination principle.

Front 2276

Origin rule

Back 2276

See rules of origin.

Front 2277

Original sin

Back 2277

In the context of the financial problems experienced by developing countries and emerging economies, this refers to the difficulty they face in borrowing abroad in their own currencies. Since this difficulty is experienced even by countries that have behaved well, it is dubbed "original sin" as being beyond their control.

Front 2278

OTEXA

Back 2278

Office of Textiles and Apparel

Front 2279

Outflow

Back 2279

See capital outflow.

Front 2280

Output

Back 2280

The quantity of goods or services produced, in a given time period, by a firm, industry, or country.

Front 2281

Output augmenting

Back 2281

Said of a technological change or technological difference if one production function produces a scalar multiple of the other. Also called Hicks neutral.

Front 2282

Output gap

Back 2282

The amount by which a country's output, or GDP, falls short of what it could be given its available resources. A positive output gap is considered to exist when a country's unemployment rate is greater than the NAIRU.

Front 2283

Outsourcing

Back 2283

1. Performance outside a firm or plant of a production activity that was previously done inside.

Front 2284

Outsourcing

Back 2284

2. Manufacture of inputs to a production process, or a part of a process, in another location, especially in another country.

Front 2285

Outsourcing

Back 2285

3. Another term for fragmentation.

Front 2286

Outward FDI

Back 2286

Foreign direct investment by a domestic firm establishing a facility abroad. Contrasts with inward FDI.

Front 2287

Outward oriented strategy

Back 2287

Export promotion.

Front 2288

Over-invoicing

Back 2288

The provision of an invoice that reports the price as higher than is actually being paid.

Front 2289

Over-valued currency

Back 2289

The situation of a currency whose value on the exchange market is higher than is believed to be sustainable. This may be due to a pegged or managed rate that is above the market-clearing rate, or, under a floating rate, it may be due to speculative capital inflows. Contrasts with under-valued currency.

Front 2290

Overdraft facility

Back 2290

In the IMF, an arrangement permitting countries to draw more foreign currency from it than they have deposited. The right to do so is a Special Drawing Right and, when used, is transferred to the country whose currency is withdrawn.

Front 2291

Overhang

Back 2291

See debt overhang and money overhang.

Front 2292

Overshooting

Back 2292

See exchange rate overshooting.

Front 2293

P4

Back 2293

Trans-Pacific Strategic Economic Partnership Agreement.

Front 2294

Pacific Rim

Back 2294

A collective term for the countries that border on the Pacific Ocean.

Front 2295

Panel

Back 2295

A three-person committee assembled by the WTO to hear evidence in disputes between members, as part of the WTO dispute settlement mechanism. Panels are also used to settle disputes under NAFTA.

Front 2296

Panel data

Back 2296

Data on an economic variable that include both multiple economic units and multiple time periods, thus displaying both cross sectional variation and time series variation.

Front 2297

Par

Back 2297

1. Equality. See at par.

Front 2298

Par

Back 2298

2. Official value. See par value.

Front 2299

Par value

Back 2299

The central value of a pegged exchange rate, around which the actual rate is permitted to fluctuate within set bounds.

Front 2300

Para-tariff

Back 2300

A charge on an imported good instead of, or in addition to, a tariff.

Front 2301

Paradox

Back 2301

As used in economics, it seems to mean something unexpected, rather than the more extreme normal meaning of something seemingly impossible. Some paradoxes are just theoretical results that go against what one thinks of as normal. Others, like the Leontief paradox, are empirical findings that seem to contradict theoretical predictions.

Front 2302

Paradox of plenty

Back 2302

Resource curse

Front 2303

Parallel economy

Back 2303

Black market

Front 2304

Parallel import

Back 2304

Trade that is made possible when the owner of intellectual property causes the same product to be sold in different countries for different prices. If someone else imports the low-price good into the high-price country, that is a parallel import. Thus, one example of gray market trade.

Front 2305

Parameter

Back 2305

A constant that helps to determine the shape and position of a functional relationship, such as an exponent in a Cobb-Douglas function or the marginal propensity to import in a linear import function.

Front 2306

Parent

Back 2306

In a firm that has one or more subsidiaries, especially a multinational corporation, the portion of the firm that owns and ultimately controls the others.

Front 2307

Pareto criterion

Back 2307

The criterion that for change in an economy to be viewed as socially beneficial it should be Pareto-improving.

Front 2308

Pareto efficient

Back 2308

Same as Pareto optimal.

Front 2309

Pareto-improving

Back 2309

Making no one worse off and making at least one person better off.

Front 2310

Pareto-optimal

Back 2310

Having the property that no Pareto-improving change is possible.

Front 2311

Paris Club

Back 2311

A group of creditor countries that meets regularly but informally in Paris to seek ways of helping debtor countries to manage their debts through coordinated rescheduling and other means.

Front 2312

Parity

Back 2312

1. Equality. Same as par. See also interest parity and purchasing power parity.

Front 2313

Parity

Back 2313

2. Official value, or par value.

Front 2314

Parsimonious

Back 2314

Stingy. Although in normal language, this has a negative connotation, when applied to a model or an explanation in economics it tends to be positive, meaning that it relies on as simple a structure as possible.

Front 2315

Partial

Back 2315

Favoring one person or side over another; not impartial.

Front 2316

Partial equilibrium

Back 2316

Equality of supply and demand in only a subset of an economy's markets -- usually just one -- taking variables from other markets as given. Partial equilibrium models are appropriate for products that constitute only a negligibly small part of the economy. They are used routinely (not always appropriately) for analysis of trade policies in single industries. Contrasts with general equilibrium.

Front 2317

Participation rate

Back 2317

The fraction of a country's working-age population that is employed or seeking employment.

Front 2318

Pass-through

Back 2318

The extent to which an exchange rate change is reflected in the prices of imported goods. With full pass-through, a currency depreciation, which increases the price of foreign currency, would increase the prices of imported goods by the same amount, and vice versa. With no pass-through, prices of imports remain constant. See pricing to market.

Front 2319

Patent

Back 2319

The legal right to the proceeds from, and control over the use of, an invented product or process, granted for a fixed period of time, usually 20 years. Patent is one form of intellectual property that is subject of the TRIPS agreement.

Front 2320

Path dependent

Back 2320

The property that where you get to depends on how you got there. That is, if the equilibrium that will ultimately be reached by a system depends on the values of variables that occur away from equilibrium, then the equilibrium is path dependent.

Front 2321

Patriotism argument for protection

Back 2321

The view that one is helping one's country by buying domestically produced goods instead of imports. In a nondistorted economy, this is not correct, since the country can do better producing where it has a comparative advantage rather than using scarce resources where it does not.

Front 2322

Pattern of specialization

Back 2322

Which goods a country produces and which it does not produce.

Front 2323

Pattern of trade

Back 2323

See trade pattern.

Front 2324

Pauper labor argument

Back 2324

The view that a country loses by importing from another country that has low wages, presumably by lowering wages at home. This view ignores the fact that low wages are due to low productivity, and that the high-wage home country, with high productivity, will have comparative advantage in some products and will gain from trade.

Front 2325

Payment at sight

Back 2325

Written as one of the terms of payment in a letter of credit, this means that the payment will be made immediately when the completion of the trade is documented, as opposed to after some specified delay.

Front 2326

Payments deficit

Back 2326

Balance of payments deficit.

Front 2327

Payments imbalance

Back 2327

Imbalance in the balance of payments, normally including both current and capital accounts.

Front 2328

Peak

Back 2328

The point in the business cycle when an economic expansion reaches its highest point before turning down. Contrasts with trough.

Front 2329

Peg

Back 2329

1. To maintain a pegged exchange rate; thus to set a currency's value within a narrow range.

Front 2330

Peg

Back 2330

2. The par value of a pegged exchange rate.

Front 2331

Peg

Back 2331

3. The regime of a pegged exchange rate.

Front 2332

Pegged exchange rate

Back 2332

A regime in which the government or central bank announces an official (par value) of its currency and then maintains the actual market rate within a narrow band above and below that by means of exchange market intervention.

Front 2333

Per capita

Back 2333

Per person.

Front 2334

Per capita income

Back 2334

Income per person, usually measured as GDP divided by population.

Front 2335

Per capita output

Back 2335

The value of an economy's output per person, GDP divided by population and thus the same as per capita income.

Front 2336

Perfect capital mobility

Back 2336

1. The absence of any barriers to international capital movements.

Front 2337

Perfect capital mobility

Back 2337

2. The requirement that, in equilibrium, rates of return on capital (interest rates) must be the same in different countries.

Front 2338

Perfect competition

Back 2338

An idealized market structure in which there are large numbers of both buyers and sellers, all of them small, so that they act as price takers. Perfect competition also assumes homogeneous products, free entry and exit, and complete information. Most international trade theory prior to the New Trade Theory assumed perfect competition.

Front 2339

Perfect foresight

Back 2339

Exact knowledge of the future. Under perfect foresight, for example, the forward rate would exactly equal the spot rate that later prevails when the forward contract matures.

Front 2340

Perfect substitute

Back 2340

A good that is regarded by its demanders as identical to another good, so that the elasticity of substitution between them is infinite.

Front 2341

Perfectly competitive

Back 2341

Refers to an economic agent (firm or consumer), group of agents (industry), model, or analysis that is characterized by perfect competition. Contrasts with imperfectly competitive.

Front 2342

Perfectly elastic

Back 2342

Refers to a supply or demand curve with a price elasticity of infinity, implying that the supply or demand curve as usually drawn is horizontal. A small open economy faces perfectly elastic demand for its exports and supply of its imports, and a foreign offer curve that is a straight line from the origin.

Front 2343

Perfectly inelastic

Back 2343

Having zero elasticity with respect to some variable, often income, price, or both. Thus completely insensitive to changes in this variable.

Front 2344

Perfectly mobile capital

Back 2344

Perfect capital mobility.

Front 2345

Performance requirement

Back 2345

A requirement that an importer or exporter achieve some level of performance, in terms of exporting, domestic content, etc., in order to obtain an import or export license.

Front 2346

Performance target

Back 2346

In the international economic context, this is likely to refer to one of several targets specified by the IMF as a condition for a loan to a developing country.

Front 2347

Peril point

Back 2347

The point beyond which tariff reduction in an industry would cause it serious injury. The U.S. Tariff Commission was required to determine peril points for U.S. industries as a constraint on negotiations in early GATT Rounds.

Front 2348

Periphery

Back 2348

This is something that is on the edge. It therefore is used to refer to countries that are located far from the center of the world's economic activity.

Front 2349

Permanent normal trading relations

Back 2349

The granting of permanent MFN status to a country that is not a member of the WTO. It is "normal" in the sense that most countries are WTO members and therefore have MFN status (or better) automatically.

Front 2350

Permit

Back 2350

A license issued by government granting permission to engage in some activity, such as to export, import, or invest.

Front 2351

Peso Crisis

Back 2351

The massive devaluation of the Mexican currency, the peso, at the end of 1994, and the associated strains and hardships in the Mexican economy. Tequila Crisis.

Front 2352

Petrodollar

Back 2352

Refers to the profits made by oil exporting countries when the price rose during the 1970s, and their preference for holding these profits in U.S. dollar-denominated assets, either in the U.S. or in Europe as Eurodollars. A portion of these were in turn lent by banks to oil-importing developing countries that used them to buy oil.

Front 2353

Phantom GDP

Back 2353

The portion of real GDP, or of an increase real GDP, that occurs when domestic producers switch to lower cost imported inputs. Although it represents a valid gain from trade, it does not represent real output produced within the domestic economy, but may be treated as such in statistics.

Front 2354

Phare Programme

Back 2354

A program of the European Union providing financial assistance to countries of Central and Eastern Europe prior to their accession to the EU.

Front 2355

Phillips Curve

Back 2355

An inverse relationship between inflation and unemployment observed by Phillips (1958) and thought to describe an achievable tradeoff between the two macroeconomic ills. It was later found that the true relationship also depends on expectations of inflation in a way that prevents the unemployment rate from differing permanently from the NAIRU.

Front 2356

Physical capital

Back 2356

The same as "capital," without any adjective, in the sense of plant and equipment. The word "physical" is used only for clarity, to distinguish it from human capital and financial capital.

Front 2357

Physiocrat

Back 2357

One of a school of French thinkers who developed a system of economics prior to Adam Smith and the foundation of modern economics. Founded by François Quesnay, they believed that all wealth derived from the land and that commerce and industry were sterile. They advocated both free trade and taxing only the land.

Front 2358

Phytosanitary

Back 2358

Pertaining to the health of plants. See sanitary and phytosanitary regulations.

Front 2359

Piecemeal tariff reform

Back 2359

The reduction of only one tariff (or a subset of tariffs) by a country that has additional tariffs on other products.

Front 2360

PIGS

Back 2360

Acronym for the four poorest -- and, as it happens, Mediterranean -- countries of the EU 15: Portugal, Italy, Greece, and Spain.

Front 2361

Platform

Back 2361

See export platform.

Front 2362

Plaza Accord

Back 2362

An agreement reached in 1985 among the central banks of France, Germany, Japan, US, and UK to bring down the value of the U.S. dollar, which had appreciated substantially since 1980. By the time of the Louvre Accord, two years later, the dollar had fallen 30%.

Front 2363

Plurilateral

Back 2363

Among several countries -- more than two, which would be bilateral, but not a great many, which would be multilateral.

Front 2364

Plurilateral agreement

Back 2364

The plurilateral agreements of the WTO contrast with the larger multilateral agreements in that the former are signed by only those member countries that choose to do so, while all members are party to the multilateral agreements.

Front 2365

PNTR

Back 2365

Permanent normal trading relations

Front 2366

PNUD

Back 2366

Programa de Naciones Unidas para el Desarrollo (Spanish for United Nations Development Programme)

Front 2367

Point elasticity

Back 2367

See elasticity

Front 2368

Policy

Back 2368

A deliberate act of government that in some way alters or influences the society or economy outside the government. Includes, but is not limited to, taxation, regulation, expenditures, and legal requirements and prohibitions, including in each case those which affect international transactions.

Front 2369

Policy instrument

Back 2369

A particular type of policy that can be used in varying degrees or intensities. The context is usually one of trying to achieve several objectives with two or more policy instruments.

Front 2370

Policy tool

Back 2370

Policy instrument

Front 2371

Political economy

Back 2371

1. Early name for the discipline of economics.

Front 2372

Political economy

Back 2372

2. A field within economics encompassing several alternatives to neoclassical economics, including Marxist economics. Also called radical political economy.

Front 2373

Political economy

Back 2373

3. A field within economics that concerns the interactions between political processes and economic variables, especially economic policies.

Front 2374

Political economy of protection

Back 2374

The study of reasons, especially political ones, that countries choose to use protection. Includes models of voting, lobbying, and campaign contributions as these lead policy makers to erect tariffs.

Front 2375

Pollution haven

Back 2375

A country that, because of its weak or poorly enforced environmental regulations, attracts industries that pollute the environment.

Front 2376

Pooled equilibrium

Back 2376

An equilibrium in which two or more different types of agents behave in the same way and therefore cannot be distinguished.

Front 2377

Port

Back 2377

The facility at which ships dock and transfer cargo and passengers to and from land.

Front 2378

Porter's Diamond

Back 2378

The four determinants of competitive advantage of nations, as identified by Porter (1990): factor conditions; demand conditions; related and supporting industries; and firm strategy, structure, and rivalry.

Front 2379

Portfolio

Back 2379

The entirety of the financial assets (and usually also liabilities) that an economic agent or group of agents owns.

Front 2380

Portfolio approach

Back 2380

An approach to explaining exchange rates that stresses their role in changing the proportions of different currency-denominated assets in portfolios. The exchange rate adjusts to equate these proportions to desired levels.

Front 2381

Portfolio capital

Back 2381

Financial assets, including stocks, bonds, deposits, and currencies.

Front 2382

Portfolio decision

Back 2382

An economic agent's choice as to how much of various assets (or sometimes liabilities) to hold. The choice to hold a higher proportion of assets denominated in foreign currency, for example, is a portfolio decision.

Front 2383

Portfolio flow

Back 2383

The sale or purchase of financial assets across countries.

Front 2384

Portfolio investment

Back 2384

The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.

Front 2385

Positive

Back 2385

Refers to "what is," in contrast to normative which involves value judgments as to "what ought to be." The word is not, in this use, the opposite of either "negative" or "harmful."

Front 2386

Positive externality

Back 2386

A beneficial externality; that is, a beneficial effect of one economic agent's actions on another. Considered a distortion because the first agent has inadequate incentive to act. Examples are the attractiveness of well-kept farms for the tourism industry (a production externality) and reduced contagion of disease due to vaccines (a consumption externality).

Front 2387

Positive list

Back 2387

In an international agreement, a list of those items, entities, products, etc. to which the agreement will apply, with no commitment to apply the agreement to anything else. Contrasts with negative list.

Front 2388

Positive sum game

Back 2388

A game in which the payoffs to the players may add up to more than zero, so that it may be possible for all players to gain. Contrasts with zero sum game. Due to the gains from trade, trade and trade policy may be thought of as positive sum games.

Front 2389

Post

Back 2389

See ex post.

Front 2390

Potential Pareto improvement

Back 2390

A change that could become Pareto-improving if it were accompanied by suitable redistribution. A move to free trade, although it is likely to hurt some people if done alone, is beneficial under the Kaldor-Hicks criterion because it is a potential Pareto improvement. Also called a Kaldor improvement, a Kaldor-Hicks improvement, or a Hicks-Kaldor improvement.

Front 2391

Poverty datum line

Back 2391

Same as poverty line.

Front 2392

Poverty line

Back 2392

The level of annual income below which a household is defined to be living in poverty. This is defined differently by different governments and institutions and, in spite of the great importance of its intent, is not in fact as meaningful as one might wish.

Front 2393

Poverty Reduction and Growth Facility

Back 2393

The IMF's low-interest lending facility for poor countries, established in 1999 and intended to be more favorable to reducing poverty and promoting growth than previous policies.

Front 2394

PPF

Back 2394

Production possibility frontier

Front 2395

PPP

Back 2395

Purchasing power parity

Front 2396

PPP exchange rate

Back 2396

Purchasing power parity exchange rate

Front 2397

Prebisch-Singer Hypothesis

Back 2397

The idea that the relative prices of primary products would decline over the long term, and therefore that developing countries that were led by comparative advantage to specialize in them would find their prospects for development diminished. Due to Prebisch (1950) and Singer (1950).

Front 2398

Precautionary principle

Back 2398

The view that when science has not yet determined whether a new product or process is safe or unsafe, policy should prohibit or restrict its use until it is known to be safe. Applied to trade, this has been used as the basis for prohibiting imports of GMOs, for example.

Front 2399

Predation

Back 2399

The use of aggressive (i.e., low) pricing to put a competitor out of business, with the intent, once they are gone, of raising prices to gain monopoly profits.

Front 2400

Predatory dumping

Back 2400

Dumping for the purpose of driving competitors out of business and then raising price. This is the one motivation for dumping that most economists agree would be undesirable, like predatory pricing (predation) in other contexts.

Front 2401

Predatory pricing

Back 2401

Predation.

Front 2402

Preference for variety

Back 2402

The increased utility that people experience when they have access to a larger number of differentiated product varieties. In reality this may reflect their ability to find products more closely suited to their own particular needs, but as modeled in the Dixit-Stiglitz utility function, they are better off consuming small quantities of each of a larger number of products.

Front 2403

Preference set

Back 2403

The set of vectors of goods or other economic magnitudes that are prefered by an economic decision maker (e.g., consumer) to a given one.

Front 2404

Preference margin

Back 2404

Margin of preference

Front 2405

Preferences

Back 2405

1. In trade policy, this refers to special advantages, such as lower-than-MFN tariffs, accorded to another country's exports, usually in order to promote that country's development. See GSP.

Front 2406

Preferences

Back 2406

2. In trade theory, this refers to the attitudes of consumers toward different goods, as represented by a utility function. Some propositions in trade theory use the assumption of identical and/or homothetic preferences.

Front 2407

Preferential duty

Back 2407

A tariff lower than the MFN tariff, levied against imports from a country that is being given favored treatment, as in a preferential trading arrangement or under the GSP.

Front 2408

Preferential Trading Arrangement

Back 2408

1. A group of countries that levy lower (or zero) tariffs against imports from members than outsiders. Includes FTAs, customs unions, and common markets. Encouragement to use this term instead of the more misleading FTA has come from Jagdish Bhagwati, as in Bhagwati and Panagariya (1996).

Front 2409

Preferential Trading Arrangement

Back 2409

2. Frankel (1997) uses PTA for an arrangement where internal tariffs are reduced but not zero, reserving FTA for a trading bloc with zero internal tariffs.

Front 2410

Premium

Back 2410

1. The excess of one price over another.

Front 2411

Premium

Back 2411

2. Forward premium

Front 2412

Present value

Back 2412

The value today of a stream of payments and/or receipts over time in the future and/or the past, converted to the present using an interest rate. If Xt is the amount in period t and r the interest rate, then present value at time t=0 is V = St (Xt)/(1+r)t.

Front 2413

Preshipment inspection

Back 2413

Certification of the value, quality, and/or identity of traded goods done in the exporting country by specialized agencies or firms on behalf of the importing country. Traditionally used as a means to prevent over- or under-invoicing, it is now being used also as a security measure.

Front 2414

Presidential trade authority

Back 2414

Informal name for trade promotion authority or fast track.

Front 2415

Preston Curve

Back 2415

The relationship between a country's life expectancy and its real per capita income. Named after Preston (1975).

Front 2416

PRGF

Back 2416

Poverty Reduction and Growth Facility

Front 2417

Price ceiling

Back 2417

A government-imposed upper limit on the price that may be charged for a product. If that limit is binding, it implies a situation of excess demand and shortage.

Front 2418

Price competition

Back 2418

Competition among firms by reducing price, as opposed to by changing characteristics of the product.

Front 2419

Price control

Back 2419

Intervention by a government to set the price in a market or limit its movement, thus attempting to override the market mechanism.

Front 2420

Price-cost margin

Back 2420

The amount by which the price of a product exceeds its cost.

Front 2421

Price definition

Back 2421

A method of defining relative factor abundance based on ratios of factor prices in autarky: Compared to country B, country A is abundant in factor X relative to factor Y iff wXA/wYA < wXB/wYB, where wIJ is the autarky price of factor I in country J, I=X,Y, J=A,B. This is also known as the "Ohlin definition," since it is the one used by Ohlin (1933).

Front 2422

Price discrimination

Back 2422

The sale by a firm to buyers at two different prices. When this occurs internationally and the lower price is charged for export, it is regarded as dumping.

Front 2423

Price elastic

Back 2423

Having a price elasticity greater than one (in absolute value).

Front 2424

Price elasticity

Back 2424

The elasticity of supply or demand with respect to price.

Front 2425

Price floor

Back 2425

A government-imposed lower limit on the price that may be charged for a product. If that limit is binding, it implies a situation of excess supply, which the government may need to purchase itself to keep price from falling.

Front 2426

Price index

Back 2426

A measure of the average prices of a group of goods relative to a base year. A typical price index for a vector of quantities q and prices pb, pg in the base and given years respectively would be I = 100Spgq / Spbq.

Front 2427

Price inelastic

Back 2427

Having a price elasticity of less than one (in absolute value).

Front 2428

Price level

Back 2428

The overall level of prices in a country, as usually measured empirically by a price index, but often captured in theoretical models by a single variable.

Front 2429

Price line

Back 2429

A straight line representing the combinations of variables, usually two goods, that cost the same at some given prices. The slope of a price line measures relative prices, and changes in prices can therefore be represented by changing the slope of, or rotating, a price line. A steeper line means a higher relative price of the good measured on the horizontal axis.

Front 2430

Price mechanism

Back 2430

Same as market mechanism.

Front 2431

Price rigidity

Back 2431

Failure of a price to move to clear the market. Reasons include costs of changing prices, contracts, and regulations.

Front 2432

Price specie flow mechanism

Back 2432

Same as specie flow mechanism.

Front 2433

Price stabilization

Back 2433

1. Intervention in a market in order to reduce fluctuations in price. This has sometimes been attempted by means of a buffer stock in markets for primary products.

Front 2434

Price stabilization

Back 2434

2. The use of macroeconomic policies to reduce inflation.

Front 2435

Price support

Back 2435

Government action to increase the price of a product, usually by buying it. May be associated with a price floor.

Front 2436

Price system

Back 2436

Same as market mechanism.

Front 2437

Price taker

Back 2437

An economic entity that is too small relative to a market to affect its price, and that therefore must take that price as given in making its own decisions. Applies to all buyers in sellers in markets that are perfectly competitive. Applies also to a country if it is a small open economy.

Front 2438

Price undertaking

Back 2438

A commitment by an exporting firm to raise its price in an importing-country market, as a means of settling an anti-dumping suit and preventing an anti-dumping duty.

Front 2439

Pricing to market

Back 2439

The practice of an exporting firm holding fixed (or not fully adjusting) the price it charges in the export market when its costs or exchange rate change. See pass-through. Seminal treatment was Krugman (1987).

Front 2440

Primary budget surplus

Back 2440

The primary budget surplus (or deficit) of a government is the surplus excluding interest payments on its outstanding debt.

Front 2441

Primary commodity

Back 2441

Primary product

Front 2442

Primary factor

Back 2442

An input that exists as a stock providing services that contribute to production. The stock is not used up in production, although it may deteriorate with use, providing a smaller flow of services later. The major primary factors are labor, capital, human capital (or skilled labor), land, and sometimes natural resources.

Front 2443

Primary input

Back 2443

Same as primary factor.

Front 2444

Primary product

Back 2444

A good that has not been processed and is therefore in its natural state, specifically products of agriculture, forestry, fishing, and mining.

Front 2445

Primary sector

Back 2445

The portion of an economy producing primary products, in contrast to the secondary sector and the tertiary sector.

Front 2446

Primary surplus

Back 2446

The government budget surplus, not including net interest payments on the government debt.

Front 2447

Prime rate

Back 2447

The interest rate that a country's largest banks announce for loans to their best customers. In practice, their most creditworthy customers get a rate lower than this.

Front 2448

Priming the pump

Back 2448

An expansionary monetary or fiscal policy that is intended to get people spending again so that the economy will then expand on its own.

Front 2449

Principal

Back 2449

1. The initial amount of a loan, thus not including interest.

Front 2450

Principal

Back 2450

2. The person or other entity on whose behalf an agent acts, in the Principal Agent Theory.

Front 2451

Principal-Agent Theory

Back 2451

The theory of interaction between an agent and the principal for whom they act, the point being to structure incentives so that the agent will act to benefit the principal. Can be used, for example, to analyze government as agent for society, or international institutions as agents for governments.

Front 2452

Principal supplier

Back 2452

The country that has the largest share of imports of a good into a particular importing country, among those exporters subject to MFN tariffs. It is customary in tariff negotiations, and to some extent mandated by WTO rules, that countries negotiate with their principal suppliers.

Front 2453

Prisoners' dilemma

Back 2453

A strategic interaction in which two players both gain individually by not cooperating, but leading to a Nash equilibrium in which both are worse off than if they cooperated. Important especially for explaining why countries may choose protection even though all lose as a result. See tariff-and-retaliation game.

Front 2454

Private benefit

Back 2454

The benefit to an individual economic agent, such as a consumer or firm, from an event, action, or policy change. Contrasts with social benefit.

Front 2455

Private cost

Back 2455

The cost to an individual economic agent, such as a consumer or firm, from an event, action, or policy change. Contrasts with social cost.

Front 2456

Privatization

Back 2456

The conversion of a government-owned enterprise to private ownership.

Front 2457

Pro-competitive effect

Back 2457

One source of gains from trade: the fact that it forces domestic producers, which may be limited in number and therefore imperfectly competitive, into competition with foreign firms. The resulting increase in competition improves efficiency and therefore welfare.

Front 2458

Probability density

Back 2458

For a continuous random variable, a function whose integral over any set is the probability of the variable being in that set.

Front 2459

Probability distribution

Back 2459

A specification of the probabilities for each possible value of a random variable.

Front 2460

Procedural protectionism

Back 2460

The use of cumbersome legal procedures to restrain trade, as when imports that will ultimately be permitted must first go through costly or time-consuming certification processes.

Front 2461

Processed good

Back 2461

A good that has been transformed in some way by a production activity, in contrast to a raw material.

Front 2462

Procurement

Back 2462

See government procurement.

Front 2463

Procurement officer

Back 2463

A government official responsible for purchasing goods and services and for deciding among alternative suppliers.

Front 2464

Producer presence

Back 2464

A mode of supply of a traded service in which the producer establishes a presence in the buyer's country by FDI and/or permanent relocation of workers.

Front 2465

Producer subsidy equivalent

Back 2465

1. Producer support estimate.

Front 2466

Producer subsidy equivalent

Back 2466

2. This ought logically to measure the extent to which existing policies serve to subsidize producers, defined as the ad valorem subsidy that, if paid directly to producers per unit of production, would lead to the same level of output as existing policies.

Front 2467

Producer support estimate

Back 2467

Introduced by the OECD to quantify support in agriculture, it measures "transfers from consumers and taxpayers to agricultural producers as a result of measures [of] support," expressed as percentage of gross farm receipts. Also called producer subsidy equivalent. See also CSE.

Front 2468

Producer surplus

Back 2468

The difference between the revenue of producers and production cost, measured as the area above the supply (or marginal cost) curve and below price, out to the quantity supplied, and net of fixed cost and losses at low output. If input prices are constant, this is profit; if not, it includes gains to input suppliers, such as labor. Normally useful only as the change in producer surplus.

Front 2469

Product

Back 2469

A good or service that is produced.

Front 2470

Product cycle

Back 2470

The life cycle of a new product, which first can be produced only in the country where it was developed, then as it becomes standardized and more familiar, can be produced in other countries and exported back to where it started. Due to Vernon (1966).

Front 2471

Product differentiation

Back 2471

See differentiated product.

Front 2472

Product exhaustion

Back 2472

The payment of all of the value of what a firm produces to the factors of production that produced it. If factors are paid the value of their marginal products and if production functions are linearly homogeneous, then Euler's theorem implies product exhaustion.

Front 2473

Product life cycle

Back 2473

See product cycle.

Front 2474

Product market

Back 2474

The market for a good or a produced service. As distinct from factor market.

Front 2475

Product price equalization

Back 2475

The equalization of the price of a homogeneous good (or perhaps service, though that is less likely) across countries as a result of free trade. Full product price equalization can be expected, other than by accident, only if all trade costs are zero.

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Production externality

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An externality arising from production.

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Production factor

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Factor of production.

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Production frontier

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Production possibility frontier.

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Production function

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A function that specifies the output in an industry for all combinations of inputs.

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Production possibilities schedule

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A table reporting various combinations of outputs that are possible for an economy, given its technology and factor endowments. Thus the data on which the production possibility frontier is based.

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Production possibility curve

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See production possibility frontier.

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Production possibility frontier

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A diagram showing the maximum output possible of one good for various outputs of another (or several others), given technology and factor endowments. Also called a transformation curve or production possibility curve.

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Production possibility set

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The set of all technically feasible combinations of inputs and outputs, representing the technology of a firm, industry, or country.

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Production worker

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A worker directly engaged in production. In empirical studies of skilled and unskilled labor, data on production workers are often taken to represent unskilled labor.

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Productive efficiency

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The production of maximum output from a given set of inputs, thus reaching the production possibility frontier. Just one aspect of achieving economic efficiency.

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Productivity

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Output per unit input, usually measured either by labor productivity or by total factor productivity.

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Productivity of labor

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See labor productivity.

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Profit

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1. The net gain from an activity.

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Profit

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2. For a firm: revenue minus cost.

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Profit maximizing

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The level of a variable or behavior that maximizes the profit of a firm.

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Profit remittance

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In a multinational corporation, the return of part of the profit earned by a subsidiary in one country to the parent in another.

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Profit shifting

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1. The manipulation of costs and revenues within a MNC across taxing jurisdictions (countries) so as to record profits where they will be taxed at the lowest rate. See transfer pricing.

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Profit shifting

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2. The use of government policies to alter the outcome of international oligopolistic competition so as to increase the profits of domestic firms at the expense of foreign firms. This is a key element of strategic trade policy.

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Prohibited subsidy

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A subsidy that is forbidden under the rules of the WTO. These include subsidies that are specifically designed to distort international trade, such as export subsidies or subsidies that require use of domestic rather than imported inputs.

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Prohibition

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Denial of the right to import or export, applying to particular products and/or particular countries. Includes embargo.

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Prohibitive tariff

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A tariff that reduces imports to zero.

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Project LINK

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A research consortium established in 1968 to link together several national econometric models to produce a macroeconometric model of the world economy. Today the project includes models of 78 countries.

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Propensity

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The extent to which an economic agent is inclined to use income for a particular purpose, such as the (marginal or average) propensity to import, or propensity to consume, measured as the fraction of income (or of a change in income, if marginal) devoted to the activity.

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Property rights

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The legally defined and enforced rules of ownership, specifying who has the right to buy, sell, and use anything, especially a piece of land and whatever may be situated on, above, and below it. Well established property rights are essential to a successful economic system.

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Property tax

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A tax on owned land and housing.