International Business

111 flashcards by MentisLibrary

Trade theory and policy, the WTO and regional blocs, foreign market entry modes, cross-cultural management, exchange rate exposure and hedging, global strategy, export operations, and political and bribery risk, for business students and managers going global.

What is mercantilism, and why do economists reject it?
The doctrine that a country grows rich by running trade surpluses and hoarding bullion, treating trade as zero sum. Economists reject it because voluntary trade raises output for both sides.
What is absolute advantage?
A country has absolute advantage in a good when it can produce more of it per unit of input than another country. Adam Smith argued each country should specialize where it is most efficient.
What is comparative advantage?
David Ricardo's principle that a country should specialize in goods it produces at lower opportunity cost, even if it is less efficient at everything. Trade then raises total output.
What are the terms of trade?
The ratio at which a country's exports exchange for its imports, usually an export price index divided by an import price index. Trade benefits both sides when the ratio falls between the two countries' internal opportunity costs.
What does the Heckscher-Ohlin theorem predict?
That a country exports goods that use its abundant factors of production intensively and imports goods that use its scarce factors.
What is the Leontief paradox?
Wassily Leontief's finding that United States exports in the postwar period were more labor intensive than its imports, the opposite of what Heckscher-Ohlin predicted for a capital abundant country.
What is Vernon's product life cycle theory of trade?
Raymond Vernon argued that a new product is first produced and sold in the innovating advanced economy, then exported, then produced abroad as the technology matures, and finally imported back as production moves to low cost locations.
What is new trade theory?
The argument that economies of scale and network effects let a small number of firms dominate an industry globally, so first mover advantage and historical accident, not endowments, can determine who exports.
What are the four points of Porter's diamond?
Factor conditions, demand conditions, related and supporting industries, and firm strategy, structure and rivalry. Porter adds government and chance as outside influences.
What is intra-industry trade?
Two way trade in similar goods within the same industry, such as two countries both exporting and importing cars.
What does the gravity model of trade say?
That trade between two countries rises with their economic size and falls with the distance between them, in analogy with Newton's law of gravitation.
Who loses from free trade within a country, and why?
Owners of factors used intensively in import competing industries lose, because the price of what they supply falls. Consumers and export sector factors gain.
What is the difference between a specific tariff and an ad valorem tariff?
A specific tariff is a fixed charge per physical unit; an ad valorem tariff is a percentage of the declared value.
How does an import quota differ from a tariff?
A quota caps the quantity that may be imported; a tariff taxes imports but leaves quantity to the market. A quota transfers the price premium to whoever holds the import license rather than to the treasury.
What is a voluntary export restraint?
A quota administered by the exporting country, usually agreed under the threat of harsher import restrictions by the importer.
How does an export subsidy distort trade?
It pays domestic producers to sell abroad, letting them undercut foreign rivals at a price below their true cost, and it shifts the cost to taxpayers.
What is a local content requirement?
A rule that a set fraction of a product's value or components must be sourced domestically to qualify for sale, for a tariff preference, or for government contracts.
What is dumping?
Selling an export below its normal value, meaning below the price in the home market or below the cost of production. Trade law treats it as an unfair practice when it injures the importing industry.
What is a countervailing duty?
A tariff imposed to offset a foreign subsidy, set at roughly the amount of the subsidy, after an investigation finds injury to the domestic industry.
What is the infant industry argument?
The claim that a new domestic industry needs temporary protection until it reaches the scale and experience to compete, after which protection ends.
What is a non-tariff barrier?
Any restriction on trade other than a tariff: quotas, licensing, standards, testing and certification rules, customs delays, subsidies and public procurement preferences.
What is tariff escalation?
The practice of setting low tariffs on raw materials and higher tariffs on processed goods, so effective protection rises with the stage of processing.
Who actually bears the cost of an import tariff?
Mostly buyers in the importing country through higher prices, plus domestic exporters hurt by retaliation and by a stronger currency. Foreign producers bear some of it only when they cut prices to keep market share.
What is the difference between an export control and a sanction?
An export control restricts what goods and technology may leave a country and to whom, usually for security reasons. A sanction restricts dealings with a named country, entity or person, and can cover imports, finance and services as well.
How does the WTO differ from GATT?
GATT, in force from 1948, was a provisional agreement on goods with weak enforcement. The WTO, created in 1995, is a permanent organization covering goods, services and intellectual property, with binding dispute settlement.
What is most favored nation treatment?
The WTO rule that a member must extend any trade advantage it gives one member to all members, so nobody is discriminated against at the border.
What is national treatment in trade law?
The rule that once a good, service or piece of intellectual property has entered a market, it must be treated no less favorably than the domestic equivalent.
How does WTO dispute settlement work?
A complaining member requests consultations, then a panel; the panel report can be appealed to the Appellate Body; adopted rulings require compliance, and if none follows, the complainant may be authorized to retaliate with tariffs.
What does the International Monetary Fund do?
It monitors the international monetary system, provides policy surveillance, and lends to member countries facing balance of payments crises, usually with policy conditions attached.
What does the World Bank do?
It lends for development: infrastructure, health, education and institutional reform, at below market rates or on concessional terms for the poorest countries, alongside technical advice.