Encyclopedia Economics by Jonas Lindblom

Encyclopedia Economics (2658 Terms) Management Topic

Keyword

Definition

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Economics

2x2x2 Model

The Heckscher-Ohlin Model with 2 factors, 2 goods, and 2 countries.

Economics

Abnormal profit

Abnormal profit is any profit in excess of normal profit - also known as supernormal profit.

Economics

Above the line

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.

Economics

Absolute advantage

Absolute advantage occurs when a country or region can create more of a product with the same factor inputs.

Economics

Absolute advantage trade policy

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.

Economics

Absolute poverty

Absolute poverty measures the number of people living below a certain income threshold or the number of households unable to afford certain basic goods and services.

A to Z

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Encyclopedia Economics (2658 Terms)

Economics

Absorption

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.

Economics

Absorption approach

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

Economics

Abundant

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

Economics

Abundant factor

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.

Economics

Academic Consortium on International Trade

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.

Economics

Accelerator effect

Planned capital investment by private sector businesses is linked to the growth of demand for goods and services. When consumer or export demand is rising strongly, businesses may increase investment to expand their production capacity and meet the extra demand. This process is known as the accelerator effect. But the accelerator effect can work in the other direction! A slowdown in consumer demand can create excess capacity and may lead to a fall in planned investment demand.

Economics

Accession

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

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Encyclopedia Economics (2658 Terms)

Economics

Accession country

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

Economics

Accommodating transaction

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.

Economics

Accumulation

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

Economics

ACIT

Academic Consortium on International Trade

Economics

ACP Countries

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

Economics

Actionable subsidy

A subsidy that is not prohibited by the WTO but that member countries are permitted to levy countervailing duties against.

Economics

Actual protection rate Implicit tariff.

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Encyclopedia Economics (2658 Terms)

Economics

Anti-dumping

Economics

Ad valorem

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

Economics

Ad valorem equivalent

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

Economics

Ad valorem tax

An indirect tax based on a percentage of the sales price of a good or service. The best known example in the UK is Value Added Tax.

Economics

Adam Smith

One of the founding fathers of modern economics. His most famous work was the Wealth of Nations (1776) - a study of the progress of nations where people act according to their own self-interest - which improves the public good. Smith's discussion of the advantages of division of labour remains a potent idea in the economic literature.

Economics

ADB

African Development Bank Group

Economics

Adjustable peg

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.

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Encyclopedia Economics (2658 Terms)

Corrected for price changes to yield an equivalent in terms of goods and services. The adjustment divides nominal amounts for

Economics

Adjusted for inflation 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.

Economics

Adjustment assistance

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.

Economics

Adjustment mechanism

The theoretical process by which a market changes in disequilibrium, moving toward equilibrium if the process is stable.

Economics

Administered price

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.

Economics

Administered protection

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.

Economics

Administrative agency

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.

Economics

Advance deposit requirement

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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Encyclopedia Economics (2658 Terms)

Economics

Advanced country

Developed country.

Economics

Advantage

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.

Economics

Adverse selection

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.

Economics

Adverse terms of trade

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.

Economics

Advertising

Developing consumer loyalty by establishing branded products can make successful entry into the market by new firms much more expensive. Advertising can cause an outward shift of the demand curve and also make demand less sensitive to changes in price.

Economics

AEC

African Economic Community

Economics

African Development A multinational development bank for Africa. Bank Group

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Encyclopedia Economics (2658 Terms)

Economics

African Economic Community

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.

Economics

African Growth and Opportunity Act

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

Economics

AFTA

ASEAN Free Trade Area

Economics

Ageing population

An increase in the average age of the population arising from an increase in life expectancy and a fall in the birth rate. In the long run, an ageing population has important implications for both the level and pattern of demand in the economy. There are also widespread consequences for government welfare spending (egg on state pensions) and the demand for health and other need services.

Economics

Agenda 21

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

Economics

Agent

One who acts on behalf of someone else.

Economics

Agglomeration

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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Encyclopedia Economics (2658 Terms)

Economics

Agglomeration economy

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.

Economics

Aggregate

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.

Economics

Aggregate demand

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

Economics

Aggregate demand curve

The aggregate-demand curve shows the quantity of goods and services that households, firms, and the government want to buy at each price level.

Economics

Aggregate measure of support

Variation of aggregate measurement of support.

Economics

Aggregate measurement of support

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.

Economics

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

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Encyclopedia Economics (2658 Terms)

Aggregate supply (AS) measures the volume of goods and services produced within the economy at a given price level. In simple terms, aggregate supply represents the ability of an economy to produce goods and services either in the short-term or in the long-term. It tells us the quantity of real GDP that will be supplied at various price levels. The nature of this relationship will differ between the long run and the short run.

Economics

Aggregate supply

Economics

Aggregate Aggregate production possibility frontier transformation curve

Economics

Aggregation

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.

Economics

AGOA

African Growth and Opportunity Act

Economics

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

Economics

Agricultural good

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

Economics

Agriculture

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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Encyclopedia Economics (2658 Terms)

Economics

Agriculture Agreement

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.

Economics

Aid

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.

Economics

ALADI

Asociaci贸n Latinoamericana de Integraci贸n (Spanish for Latin-American Integration Association)

Economics

ALCA

Acuerdo de Libre Comercio de las Am茅ricas (Spanish for Free Trade Area of the Americas )

Economics

ALCAN

Acuerdo de Libre Comercio de Am茅rica del Norte (Spanish for North American Free Trade Agreement)

Economics

Allocation

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.

Economics

Allocative efficiency

Allocative efficiency occurs when the value that consumers place on a good or service (reflected in the price they are willing and able to pay) equals the cost of the resources used up in production. The technical condition required for allocative efficiency is that price = marginal cost. When this happens, total economic welfare is maximised.

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Encyclopedia Economics (2658 Terms)

Economics

Alternative Trade Adjustment Assistance

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

Economics

Amber box

The category of subsidies in the WTO Agriculture Agreement the total value of which is to be reduced. It includes most domestic support measures that distort production and trade.

Economics

Amicus brief

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.

Economics

Amortization

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

Economics

Amplitude

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.

Economics

AMS

Aggregate measure of support.

Economics

ANCERTA

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

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Encyclopedia Economics (2658 Terms)

Economics

Andean Community

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.

Economics

Andean Pact

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

Economics

Andean Trade Promotion and Drug Eradication Act

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.

Economics

Animal spirits

Animal spirits refers to the expectations of businesses, entrepreneurs and consumers. When business confidence is high, we expect to see a rise in planned capital investment at each rate of interest. If there is a downturn in business confidence, for example during a recession, then planned investment may fall and some capital investment projects may be scrapped even when interest rates are fairly low.

Economics

Anti competitive behaviour

Anti-competitive practices are business strategies designed deliberately to limit the degree of competition inside a market.

Economics

Anticipated inflation

Anticipated inflation is expectations about future price rises which households & firms use when planning economic decisions.

Economics

Anti-dumping duty

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.

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Encyclopedia Economics (2658 Terms)

Economics

Anti-dumping suit

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.

Economics

Anti-trust policy

U.S. term for competition policy.

Economics

AOA

Agreement on Agriculture

Economics

APC

Average propensity to consume

Economics

APEC

Asia-Pacific Economic Cooperation

Economics

apparel

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.

Economics

Apparent consumption

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.

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Encyclopedia Economics (2658 Terms)

Economics

Appellate Body

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

Economics

Applied tariff rate

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

Economics

Appreciation

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."

Economics

Arbitrage

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.

Economics

Argument for protection

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

Economics

Armington assumption

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.

Economics

Armington elasticity

The elasticity of substitution between products of different countries.

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Encyclopedia Economics (2658 Terms)

Economics

Article XIX

The Safeguards Clause of the GATT.

Economics

Article XXIV

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

Economics

AS-AD

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

Economics

ASEAN

Association of Southeast Asian Nations

Economics

ASEAN Free Trade Area

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

Economics

Asian Crisis

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

Economics

Asian Development Bank

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

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Encyclopedia Economics (2658 Terms)

Economics

Asian Tigers

The Four Tigers.

Economics

Asia-Pacific Economic Cooperation

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.

Economics

Asset

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.

Economics

Asset approach

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.

Economics

Asset position

See net foreign asset position.

Economics

Assignment problem fiscal policies available under fixed exchange rates, which instrument should be "assigned" to which goal? Mundell (1962)

How to use macroeconomic policies to achieve both internal balance and external balance; specifically, with only monetary and showed that monetary policy should be assigned to external balance.

Economics

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

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Encyclopedia Economics (2658 Terms)

Economics

Association Agreement

Economics

Association of Natural An inter-governmental organization, formed by natural rubber producing countries to promote the overall interests of the Rubber Producing commodity. Countries

Economics

Association of Southeast Asian Nations

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.

Economics

Asymmetric information

Information relating to a transaction in a market where there is imbalance in the information available to either the buyer or the seller. Asymmetric information can distort the working of the market mechanism and lead to market failure.

Economics

Asymmetric shock

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.

Economics

At par

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.

Economics

ATAA

Alternative Trade Adjustment Assistance

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

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Economics

ATC

Agreement on Textiles and Clothing

Economics

ATPDEA

Andean Trade Promotion and Drug Eradication Act

Economics

Australia-New Zealand Closer Economic Relations Trade Agreement

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.

Economics

Autarkic

Associated with the situation of autarky.

Economics

Autarky

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.)

Economics

Autarky price

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.

Economics

Automatic licensing

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.

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Economics

Automatic stabilizer

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.

Economics

Autonomous

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

Economics

Autonomous consumption

That portion of consumption that is autonomous. For example, if the consumption function has the form C=C 0+cY , where C 0 and c are parameters and Y is income, then C 0 may be called autonomous consumption. An increase in autonomous consumption then represents an upward shift in the consumption function.

Economics

Autonomous transaction

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.

Economics

Availability theory

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.

Economics

Average cost

Total cost divided by output.

Economics

Average earnings

Earnings are the total factor reward to labour. Average earnings comprise basic pay + wage drift (I.e. extra income from productivity related pay, overtime and other bonuses).

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Encyclopedia Economics (2658 Terms)

Economics

Average product

Total output divided by the total units of labour employed.

Economics

Average propensity

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

Economics

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

Economics

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

Economics

Average rate of tax

The proportion of gross income paid in tax. With a progressive income tax system, the average rate of tax rises as income rises. This is because the marginal rate of tax goes up at certain income levels.

Economics

Average tariff

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.

Economics

Back office

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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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.

Economics

Backward bending

Economics

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

Economics

Backward integration Acquisition by a firm of its suppliers.

Economics

Backward linkage

Economics

BAFFLING PIGS and France, Luxembourg, Ireland, Netherlands, Germany, Portugal, Italy, Greece, and Spain. DUKS = Denmark, United Kingdom, DUKS and Sweden.

Economics

Balance of merchandise trade

Economics

Balance of payments tell us about how much is being spent by British consumers and firms on imported goods and services, and how successful UK

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

Acronyms for the 12 original members and non-members of the Euro Zone. BAFFLING PIGS = Belgium, Austria, Finland,

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

The balance of payments (BOP) records all financial transactions between the UK and the Rest of the World. The BOP figures firms have been in exporting to other countries and markets.

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Economics

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

Economics

Balance of payments 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 argument for distorting the economy and therefore at smaller economic cost. protection

Economics

Balance of payments A negative balance of payments surplus. deficit

Economics

Balance of payments a traditional definition of the capital account. A surplus or deficit implied changing official reserves, so that something might equilibrium ultimately have to change.

Economics

Balance of payments the balance on financial account, but excluding official reserve transactions, or omitting also other volatile short-term financialsurplus account transactions. It indicates the stress on a regime of pegged exchange rates.

Economics

Balance of trade

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.

Economics

Balance on capital account

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

Meaningful only under a pegged exchange rate, this referred to equality of credits and debits in the balance of payments using

A number summarizing the state of a country's international transactions, usually equal to the balance on current account plus

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Encyclopedia Economics (2658 Terms)

Economics

Balance on current account

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

Economics

Balanced budget

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

Economics

Balanced growth

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

Economics

Balanced trade

A balance of trade equal to zero.

Economics

Balassa-Samuelson Effect

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).

Economics

Baldwin envelope

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).

Economics

Banana war

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.

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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.

Economics

Bancor

Economics

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

Economics

Bank of England

The Bank of England (www.bankofengland.co.uk) is charged with the task of 'maintaining the integrity and value of the currency'. The Bank pursues this objective through the use of monetary policy. Above all, this involves maintaining price stability, as defined by the inflation target set by the Government, as a precondition for achieving a wider goal of sustainable economic growth and high employment.

Economics

Bank of England independence

Since 1997, the BoE has had operational independence in the setting of interest rates. The Bank aims to meet the Government's inflation target - currently 2.0 per cent for the consumer price index- by setting short-term interest rates. Interest rate decisions are taken by the Monetary Policy Committee (MPC) at their monthly meetings.

Economics

Bank rate

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

Economics

Barcelona Process

The Euro-Mediterranean Partnership.

Economics

Barrier

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

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Economics

Barriers to entry

Barriers to entry are designed to block potential entrants from entering a market profitably.

Economics

Barter

The exchange of goods for goods, without using money.

Economics

Barter economy

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.

Economics

Base money

Monetary base.

Economics

Base year

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.

Economics

Basel Capital Accord commercial banks and set minimum standards for bank capital in order to reduce the likelihood of international repercussions

Also known at Basel I, this was an agreement in 1988 by the Basel Committee of central bankers to measure the credit risk of due to bank failures.

Economics

Basel I

The Basel Capital Accord

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Economics

Basel II

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

Economics

Basic balance

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.

Economics

Basis point

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

Economics

Bastable's test

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.

Economics

BEA

Bureau of Economic Analysis

Economics

Beachhead effect

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).

Economics

Beef hormone case

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.

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Economics

Beggar thy neighbor

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.

Economics

Behavioural economics

A branch of economics which focuses on understanding the nature of human decision making and which explores how decisions are taken when economic agents do not have access to full and free information and when their behaviour is not automatically assumed to be rational.

Economics

Benefit-cost analysis Same as cost-benefit analysis.

Economics

Benign neglect

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.

Economics

Bergsonian social welfare function

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.

Economics

Bertrand competition themselves change behavior. Contrasts with Cournot competition. Both are used in models of international oligopoly, but

The assumption, sometimes assumed to be made by firms in an oligopoly, that other firms hold their prices constant as they Cournot competition is used more often.

Economics

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.

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Encyclopedia Economics (2658 Terms) B

Economics

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.

Economics

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.

Economics

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 Bickerdike-Robinson(demand) elasticity of I=X ,M exports and imports respectively. If supply elasticities are infinite, it reduces to the MarshallLerner Condition. Due to Bickerdike (1920), Robinson (1947), and Metzler (1948).

Economics

Bicycle Theory

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 Bhagwati (1988).

Economics

BID

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

Economics

Bid/ask spread

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.

Economics

Big Mac Index

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.

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Economics

Bilateral

Between two countries, in contrast to plurilateral and multilateral.

Economics

Bilateral agreement

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

Economics

Bilateral aid

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

Economics

Bilateral exchange rate

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

Economics

Bilateral monopoly

A market in which a single seller faces a single buyer. The final determination of price and output is such a situation is uncertain - much depends on the relative bargaining strength between the two parties concerned.

Economics

Bilateral quota

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.

Economics

Bilateral trade

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.

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Encyclopedia Economics (2658 Terms) B

Economics

Bilateral transfer

A transfer payment from one country to another.

Economics

Bill of exchange

Any document demanding payment.

Economics

Bill of lading

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.

Economics

Binding

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

Economics

BIS

Bank for International Settlements

Economics

Black market

A black market (or shadow market) is an illegal market in which the normal market price is higher than a legally imposed price ceiling (or maximum price). Black markets develop where there is excess demand (or a shortage) for a commodity. Some consumers are prepared to pay higher prices in black markets in order to get the goods or services they want. When there is a shortage, higher prices act as a rationing device. Good examples of black markets include tickets for major sporting events, rock concerts and black markets for children's toys and designer products that are in scarce supply.

Economics

Blue box

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.

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Economics

Banco Mundial (Spanish for World Bank)

Economics

Bond

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.

Economics

Bond market

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.

Economics

Bonds

The issue of debt is done by the central bank and involves selling debt to the bond and bill markets.

Economics

Boom-bust cycle

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.

Economics

BOP

Balance of payments.

Economics

Border effect

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.

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Economics

Border price

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

Economics

Border protection

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.

Economics

Border tax adjustment

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.

Economics

Borderless world

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

Economics

Borrowing

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.

Economics

BOT

Balance of trade.

Economics

Bound rate

See tariff binding.

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Economics

Bound tariff

See tariff binding.

Economics

Bowed

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.

Economics

Box

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

Economics

Box diagram

The Edgeworth Box.

Economics

Boycott

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.

Economics

BP-Curve

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.

Economics

BPO

Business process outsourcing

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Economics

Brain drain

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.

Economics

Branch plant economy

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

Economics

Brand

A distinctive product offering which is created by the use of a logo, symbol, name, design, packaging or combination thereof. The key in designing and building a brand is to differentiate it from competitors.

Economics

Brand loyalty

Brand loyalty exists when consumers regard one particular brand of a product differently from competing products. Persuasive advertising seeks to reinforce and strengthen brand loyalty and thereby make the demand for the product more inelastic. Brand loyalty can be seen as a potential entry barrier in a market. It makes it more difficult and costly for a new product to break into the market when there are established suppliers enjoying a substantial degree of brand loyalty.

Economics

Break even

The break even output is the volume of goods or services that have to be sold in order for the business to make neither a loss nor a profit. The break even price is when price = average total cost.

Economics

Break even output

The break-even output occurs when AR=ATC (at this output, normal profit only is made).

Economics

Bretton Woods

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.

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Economics

Bribe

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

Economics

Broker's fee

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

Economics

Brown field investment

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

Economics

Brussels Tariff Nomenclature

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

Economics

BTN

Brussels Tariff Nomenclature

Economics

Bubble

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.

Economics

Bubble economy

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.

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Economics

Budget constraint

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).

Economics

Budget deficit

When the government is running a budget deficit, it means that in a given year, total government expenditure exceeds total tax revenue. As a result, the government has to borrow through the issue of debt such as Treasury Bills and long-term government.

Economics

Budget deficit

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

Economics

Budget surplus

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).

Economics

Buffer stock

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.

Economics

Buffer stock schemes buffer stocks. Buffer stock schemes seek to stabilize the market price of agricultural products by buying up supplies of the

One way to smooth out the fluctuations in prices is for the government to operate price support schemes through the use of product when harvests are plentiful and selling stocks of the product onto the market when supplies are low.

Economics

Building block

See stumbling block.

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Economics

Built-in Agenda

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.

Economics

Built-in stabilizer

Automatic stabilizer.

Economics

Bureau of Economic Analysis

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.

Economics

Business confidence

The state of business confidence can be vital in determining whether to go ahead with an investment project. When confidence is strong then planned investment will rise.

Economics

Business cycle

The business, trade or economic cycle is when actual GDP tends to move up and down in a regular pattern causing booms and slumps (depressions), with recession and recovery as intermediate stages.

Economics

Business Cycle Dating Committee

See National Bureau of Economic Research.

Economics

Business ethics

Business ethics is concerned with the social responsibility of management towards the firm‘s major stakeholders, the environment and society in general.

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Economics

Business process outsourcing

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

Economics

Buy American Act

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.

Economics

Byrd Amendment

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.

Economics

Cabotage

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.

Economics

CACM

Central American Common Market.

Economics

CAFTA

U.S.-Central American Free Trade Agreement.

Economics

Cairnes-Haberler Model

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

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Economics

Cairns Group

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.

Economics

Calibration

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.

Economics

CAN

Comunidad Andina (Spanish for Andean Community)

Economics

Canada-US Auto Pact

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.

Economics

Canada-US Free Trade Agreement

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

Economics

CancĂşn Ministerial

The 5th ministerial meeting of the WTO held in Canc?exico, September 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.

Economics

Canonical model of currency crises

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.

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Economics

CAP

Common Agricultural Policy

Economics

Capacity building

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.

Economics

Capital

The term capital means investment in goods that are used to produce other goods in the future. Fixed capital includes machinery, plant and equipment, new technology, factories and buildings - all of which are capital goods designed to increase the productive potential of the economy in future years.

Economics

Capital abundant

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.

Economics

Capital account

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.

Economics

Capital account balance

Balance on capital account

Economics

Capital account deficit

Debits minus credits on capital account. See deficit.

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Economics

Capital account surplus

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

Economics

Capital accumulation

The process by which the stock of capital inputs is increased. For the capital stock to grow, gross investment needs to be higher than that required simply to replace worn out or obsolete machinery and technology. Net investment must be positive.

Economics

Capital adequacy ratio

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.

Economics

Capital augmenting

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.

Economics

Capital consumption allowance

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

Economics

Capital control

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

Economics

Capital depreciation

See depreciation.

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Economics

Capital flight

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

Economics

Capital flow

International capital movement.

Economics

Capital gain

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.

Economics

Capital goods

Producer or capital goods such as plant (factories) and machinery are useful not in themselves but for the goods and services they can help produce in the future.

Economics

Capital inflow

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.

Economics

Capital infusion

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

Economics

Capital intensity

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.

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Economics

Capital intensive

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.

Economics

Capital investment

This is investment spending by companies on fixed capital goods such as new plant and equipment and buildings. Investment also includes spending on working capital such as stocks of finished goods and work in progress.

Economics

Capital loss

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.

Economics

Capital market imperfection

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.

Economics

Capital mobility

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.

Economics

Capital movement

Capital inflow and/or outflow.

Economics

Capital outflow

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.

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Economics

Capital output ratio

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

Economics

Capital scarce

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.

Economics

Capital stock

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

Economics

Capitalism

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

Economics

Capitalist

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

Economics

Capitalist economy

An economic system organised along capitalist lines uses market-determined prices to guide our choices about the production and distribution of goods; these economies generally have productive resources which are privately owned and managed. State intervention is kept to a minimum. One key role for the state is to maintain the rule of law and protect private property.

Economics

Capital-labor ratio

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.

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Economics

Capital-saving

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

Economics

Capital-using

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

Economics

Caribbean Basin Initiative

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.

Economics

Caribbean Community

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.

Economics

CARICOM

Caribbean Community and Common Market.

Economics

Carriage of Goods by U.S. legislation governing ocean transport of cargo. Sea Act

Economics

Carrier

A firm that provides transportation of persons or goods.

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Economics

Carry trade

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.

Economics

Cartagena Agreement

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

Economics

Cartel

A producer cartel seeks to maximise joint profits in a market by engaging in price fixing. This can be achieved by controlling market output.

Economics

Cascading tariffs

Same as tariff escalation.

Economics

CBI

Caribbean Basin Initiative

Economics

CCCN

Customs Cooperation Council Nomenclature

Economics

Cecchini Report

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.

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Economics

CEEC

Central and Eastern European countries.

Economics

CEFTA

Central European Free Trade Agreement.

Economics

Ceiling

See price ceiling.

Economics

Central American Common Market

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.

Economics

Central and Eastern European countries

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

Economics

Central bank

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.

Economics

Central bank intervention

See exchange market intervention.

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Encyclopedia Economics (2658 Terms) Central bank reserves

International reserves.

Economics

Central banks

Central banks occupy pivotal positions in the financial systems of their respective countries. In the UK for example, the Bank of England controls the supply of cash into the economic system and has the responsibility for setting official short term interest rates. Most leading central banks are now independent from government and have control over domestic monetary policy. Interest rates inside the Euro Area are now set by the European Central Bank.

Economics

Central European Free Trade Agreement

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.

Economics

Central Intelligence Agency

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

Economics

Central parity

Par value.

Economics

Central planning

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.

Economics

CEPAL

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

Economics

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Encyclopedia Economics (2658 Terms) C

Economics

CER

Australia-New Zealand Closer Economic Relations Trade Agreement.

Economics

Certainty

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.

Economics

CES Function

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 = (X 1,...,X n ), the function is F (X ) = A [Si a i X i r]1/r, where a i , A are positive constants and s = 1/(1-r) is the elasticity of substitution. Due to Arrow et al. (1961).

Economics

CET function

Constant elasticity of transformation function.

Economics

Ceteris paribus

Ceteris paribus means all other things being equal. Economists recognise that many factors affect an economic variable. Egg demand is influenced by the price of the good, income, taste, etc. To simplify and enable analysis, economists isolate the relationship between two variables by assuming ceteris paribus - i.e. that all other influencing factors are held constant.

Economics

CGE

Computable general equilibrium.

Economics

Chaebol

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.

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A ranking of goods or countries in order of comparative advantage. With two countries and many goods, goods can be ranked

Economics

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

Economics

Change in consumer 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. surplus

Economics

Change in producer surplus

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.

Economics

Chapter 11

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.

Economics

CHF

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

Economics

Chicken War

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.

Economics

Child labor

Employment of children under a specified minimum age.

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Economics

Chinese Economic Area

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

Economics

Choices

Because of scarcity, choices have to be made on a daily basis by individual consumers, firms and governments. Making a choice made normally involves a trade-off - in simple terms, choosing more of one thing means giving up something else in exchange. Because wants are unlimited but resources are finite, choice is an unavoidable issue in economics.

Economics

CIA

Central Intelligence Agency

Economics

CIF

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.

Economics

Circular flow

The circular flow of income is a diagrammatic representation of economic activity in a given time period. It identifies the main sectors in the economy (households, firms the government and overseas) and linkages between sectors e.g. wages government spending & interest payments.

Economics

CIS

Commonwealth of Independent States

Economics

CITES

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.

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Economics

Civil society

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.

Economics

Civil society organization

Non-governmental organization

Economics

Classical

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

Economics

Clear

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.

Economics

Clearing system

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

Economics

Closed currency position

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.

Economics

Closed economy

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

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Economics

Closer Economic Relations

See Australia-New Zealand Closer Economic Relations Trade Agreement.

Economics

CMEA

Council for Mutual Economic Assistance

Economics

Coase Theorem

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).

Economics

Cobb-Douglas function

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.

Economics

Codex Alimentarius

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.

Economics

Coefficient

A number or symbol multiplied by a variable.

Economics

COGSA

Carriage of Goods by Sea Act.

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Economics

Collective action problem

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

Economics

Collective bargaining

Unions might seek to exercise their collective bargaining power with employers to achieve a mark-up on wages compared to those on offer to non-union members.

Economics

Collusion

Collusion is any explicit or implicit agreement between suppliers in a market to avoid competition. Producers may decide to control market supply by entering into a collusive agreement and opt to fix prices rather than engage in competition. The main aim of this is to reduce market uncertainty and achieve a level of joint profits similar to that which might be achieved by a pure monopolist.

Economics

Collusive oligopoly

When several large firms in an industry act to restrict price or output.

Economics

COMECON

Council for Mutual Economic Assistance

Economics

COMESA

Common Market of Eastern and Southern Africa

Economics

Command economy

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

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Economics

Commercial bank

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.

Economics

Commercial paper

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

Economics

Commercial policy

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

Economics

Commodity

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).

Economics

Commodity agreement

See international commodity agreement.

Economics

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

Economics

Commodity prices

Usually means the prices of raw materials and primary products.

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The Common Agricultural Policy has been in place now for over forty five years and is one of the most controversial aspects of

Economics

Common Agricultural the European Union. To many economists, the CAP is a grossly inefficient form of farm support and is in need of fundamental reform. To others, the CAP has done much to increase the efficiency of the European farm system and has met many of its Policy (CAP) original objectives.

Economics

Common currency

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

Economics

Common external tariff

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

Economics

Common market

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.

Economics

Common Market of A trade agreement involving 21 nations of Eastern and Southern Africa. It went into effect in 1994, replacing a Preferential Eastern and Southern 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. Africa

Economics

Common tangent

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

Economics

Commonwealth of Independent States

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

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Economics

Communism

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

Economics

Community indifference curve

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).

Economics

Community preferences

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.

Economics

Comparative advantage

Comparative advantage exists when a country has lower opportunity cost in the production of a good or service.

Economics

Comparative static

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.

Economics

Compensated demand curve

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.

Economics

Compensating variation

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.

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Economics

Compensating wage Wage differentials in part act as a compensation for people who have to work unsocial hours or who are exposed to different degrees of risk at work, both in the short term and long run. differentials

Economics

Compensation

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.

Economics

Compensation principle

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.

Economics

Compensation trade

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

Economics

Competition

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.

Economics

Competition Commission

The Competition Commission carries out inquiries into matters referred to it by the other UK competition authorities concerning monopolies, mergers and the economic regulation of utility companies. The Appeal Tribunals hear appeals against decisions of the Director General of Fair Trading and the regulators of utilities in respect of infringements concerning anti-competitive agreements and abuse of a dominant position.

Economics

Competition policy

Government policy which seeks to promote competition and efficiency in different markets and industries.

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Economics

Competition policy

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.

Economics

Competitive

Used alone, this usually means perfectly competitive. Contrasts with imperfectly competitive.

Economics

Competitive advantage

Competitiveness. Contrasts with comparative advantage.

Economics

Competitive market

A competitive market is one where no one firm has a dominant position and where the consumer has plenty of choice when buying goods or services. Firms in a competitive market each have a small market share. There are few barriers to the entry of new firms which allows new businesses to enter the market if they believe they can make sufficient profits.

Economics

Competitive supply

Goods in competitive supply are alternative products a firm could make with its resources. Egg a farmer can plant potatoes or carrots. An electronics factory can produce VCRs or DVDs.

Economics

Competitiveness

Usually refers to characteristics that permit a firm to compete effectively with other firms due to low cost or superior technology, perhaps internationally. When applied to nations, instead of firms, the word has a mercantilist connotation.

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Economics

Complementary goods

Two complements are said to be in joint demand. Examples include: fish and chips, DVD players and DVDs, iron ore and steel, success and hard work. A rise in the price of a complement to Good X should cause a fall in demand for X. For example an increase in the cost of flights from London Heathrow to New York would cause a decrease in the demand for hotel rooms in New York and also a fall in the demand for taxi services both in London and New York. A fall in the price of a complement to Good Y should cause an increase in demand for Good Y. For example a reduction in the market price of computers should lead to an increase in the demand for computer peripherals such as printers, scanners and software applications.

Economics

Complete information

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.

Economics

Complete specialization

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

Economics

Complex monopoly

A complex monopoly exists if at least one quarter (25%) of the market is in the hands of one or a group of suppliers who, deliberately or not, act in a way designed to reduce competitive pressures within a market.

Economics

Composite currency

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.

Composite Demand

Composite demand exists where goods or services have more than one use so that an increase in the demand for one product leads to a fall in supply of the other. The most commonly quoted example is that of milk which can be used for cheese, yoghurts, cream, butter and other products. If more milk is used for manufacturing cheese, ceteris paribus there is less available for butter.

Economics

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Economics

Compound tariff

Economics

Compulsory licensing sometimes require foreign patent holders to license domestic firms so as to improve access to the patented product at lower

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

A legal requirement for the owner of a patent to let other firms produce its product, under specified terms. Countries cost. This is permitted by the TRIPs Agreement for certain purposes, such as protecting public health.

Economics

Computable general equilibrium

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.

Economics

Comvariance

An analogue to covariance for three variables. For three variables x , y , and z with values x i , y i , z i , i= 1,â&#x20AC;Ś,n , the comvariance is com(x ,y ,z ) = Si =1â&#x20AC;Śn (x i -m(x ))(y i -m(y ))(z i -m(z )), where m(Âˇ) is the mean of the values in its argument. Due to Deardorff (1982).

Economics

Concave

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.

Economics

Concentration

See industrial concentration.

Economics

Concentration ratio

Measure the proportion of an industry's output or employment accounted for by, say, the three, five or seven largest firms.

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Economics

Concertina tariff reduction

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.

Economics

Concession

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.

Economics

Concessional financing

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

Economics

Conditionality

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.

Economics

Cone of diversification

See diversification cone.

Economics

Conservative Social Welfare Function

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).

Economics

Consignment

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.

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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.

Economics

Constant dollars

Economics

Constant elasticity of See CES function substitution function

Economics

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

Economics

Constant prices

See constant dollars.

Economics

Constant returns to scale

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.

Economics

Constrained revenue Shareholders of a business may introduce a constraint on the price and output decisions of managers – this is known as constrained sales revenue maximisation. maximisation

Economics

Consumer confidence financial circumstances, and also the general health of the economy. Consumer confidence is quite volatile from month to

The willingness of people to make major spending commitments depends on how confident they are about both their own month. Some of the fluctuations are seasonal – but the underlying trend is what really matters.

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Economics

Consumer movement

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.

Economics

Consumer price index

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.

Economics

Consumer spending

Consumers' expenditure on goods and services: This includes demand for consumer durables (e.g. washing machines, audiovisual equipment and motor vehicles & non-durable goods such as food and drinks which are ―consumed‖ and must be repurchased).

Economics

Consumer support estimate

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.

Economics

Consumer surplus

Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually pay (the market price).

Economics

Consumption

Consumption is the use of a good or a service by consumers (households) to satisfy a want or a need.

Economics

Consumption externality

An externality arising from consumption.

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Economics

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

Economics

Consumption possibility frontier

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.

Economics

Contagion

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

Economics

Content protection

See domestic content protection.

Economics

Content requirement See domestic content requirement.

Economics

Contestable market

Economics

Contingent protection Administered protection.

Baumol defined contestable markets as existing where ―an entrant has access to all production techniques available to the incumbents, is not prohibited from wooing the incumbent‘s customers, and entry decisions can be reversed without cost.‖

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Economics

Continuous time

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

Economics

Continuum model

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.

Economics

Continuum-of-goods 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). model

Economics

Contract curve

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.

Economics

Contracting party

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

Economics

Contraction

Economic contraction

Economics

Contractionary

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.

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Economics

Convergence

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.

Economics

Convertible currency

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.

Economics

Convex

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.

Economics

Coordination

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

Economics

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.

Economics

Core inflation

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

Economics

Core propositions

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

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Economics

Corn Laws

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.

Economics

Corporate income tax

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.

Economics

Corporate Social Responsibility

There is growing interest in the concept of ethical businesses and corporate social responsibility where the traditional assumption of businesses driven solely by the profit motive is challenged and where businesses are encouraged to take account of their economic, social and environmental impacts.

Economics

Corporation tax

Corporation tax is paid on profits. If the government reduces the rate of corporation tax (or increases investment taxallowances) there is a greater incentive to invest. Britain has relatively low rates of company taxation compared to other countries inside the EU. This is a factor that helps to explain why Britain has been a favoured venue for inward investment from overseas during the last decade.

Economics

Correlation

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.

Economics

Correlation result

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.

Economics

Corruption

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.

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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.

Economics

Cost advantage

Economics

Governments face choices: do we build new hospitals or new or new schools, etc. Given limited resources how can government decide which projects to prioritise and build and which to reject? Cost Benefit Analysis (CBA) offers a systematic Cost benefit analysis framework for measuring and evaluating the likely impact of public sector project, takes into account both private and external costs and benefits over the entire life of the project.

Economics

Cost function

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

Economics

Cost push inflation

Cost push inflation is caused by increases in costs of production e.g. wage increases, increased import price (imported inflation) or higher indirect taxation. Firms put up prices to maintain profit margins. Cost-push inflation can be illustrated by an inward shift of the short run aggregate supply curve. The fall in SRAS causes a contraction of real national output together with a rise in the general level of prices.

Economics

Cost reducing innovation

Cost reducing innovations have the effect of causing an outward shift in market supply and they also provide the scope for businesses to enjoy higher profit margins with a given level of demand.

Economics

Cost, insurance, freight

See CIF.

Economics

Cost-benefit analysis

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.

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Economics

Costs

Costs are those expenses faced by a business when producing a good or service for a market. Every business faces costs these must be recouped if a business is to make a profit from its activities. In the short run a firm will have fixed and variable costs of production.

Economics

Cotonou Agreement

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

Economics

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

Economics

Countertrade

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

Economics

Countervailing duty

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

Economics

Country of origin

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

Economics

Country risk

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.

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Economics

Country size

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

Economics

Coupon

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.

Economics

Cournot competition

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.

Economics

Cournot's law

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).

Economics

Court of International See U.S. Court of International Trade. Trade

Economics

Covariance

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.

Economics

Cover

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.

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Economics

Covered interest arbitrage

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.

Economics

Covered interest parity

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.

Economics

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

Economics

CPI

Consumer price index.

Economics

Crawling peg

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.

Economics

Creation

See trade creation.

Economics

Credit

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.

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Economics

Credit crunch

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.

Economics

Creditor nation

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

Economics

Creeping inflation

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.

Economics

Crony capitalism

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.

Economics

Cross price elasticity related good). With cross price elasticity we make an important distinction between substitute products and complementary of demand goods and services.

Economics

Cross rate

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

Cross subsidy

A firm operates a cross subsidy when it uses profits from one line of business to finance losses in another line of business. There are many reasons for maintaining a cross subsidy, either to promote a product new to the market which is making losses, or as a form of predatory pricing designed to eliminate an existing competitor, the latter is illegal under UK and European competition law.

Cross price elasticity (CPed) measures the responsiveness of demand for good X following a change in the price of good Y (a

Economics

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Economics

Cross-border supply

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.

Economics

Cross-hauling

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.

Economics

CRS

Constant returns to scale = CRTS

Economics

CRTS

Constant returns to scale

Economics

Crude

Crude oil.

Economics

CSE

Consumer support estimate

Economics

CSO

Civil society organization

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The view that imports undermine a country's culture and identity -- for example by changing consumption patterns to ones

Economics

Cultural argument for more similar to those abroad, or by reducing demands for domestically produced art and music -- and therefore that imports protection should be restricted.

Economics

Cumulation

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.

Economics

Currency

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

Economics

Currency area

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.

Economics

Currency basket

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

Economics

Currency bloc

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

Economics

Currency board

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.

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Currency convertibility

See convertible currency.

Economics

Currency crisis

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.

Economics

Currency depreciation

See depreciation.

Economics

Currency factor

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.

Economics

Currency in circulation

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.

Economics

Currency intervention Exchange market intervention.

Economics

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

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Economics

Currency reserves

This usually means international reserves.

Economics

Currency risk

Uncertainty about the future value of a currency.

Economics

Currency speculation

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.

Economics

Currency swap

See swap.

Economics

Currency union

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.

Economics

Current account

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.

Current account balance

The current account balance comprises the balance of trade in goods and services plus net investment incomes from overseas assets. (This income in the form of interest, profits and dividends from external assets located outside the UK is also the difference between GDP and GNP). We also add in the net balance of private transfers between countries and government transfers (e.g. UK government payments to help fund the various spending programmes of the European Union).

Economics

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Economics

Current account deficit

Debits minus credits on current account. See deficit.

Economics

Current account surplus

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

Economics

Current prices

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.

Economics

CUSFTA

Canada-US Free Trade Agreement.

Economics

CUSTA

Same as Canada-US Free Trade Agreement.

Economics

Customs area

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

Economics

Customs classification

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

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Economics

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

Economics

Customs duty

An import tariff.

Economics

Customs officer

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

Economics

Customs procedure

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.

Economics

Customs Service

See U.S. Customs Service.

Economics

Customs station

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

Economics

Customs union

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.

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Economics

Customs valuation

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.

Economics

CVD

Countervailing duty

Economics

Cyclical unemployment

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

Economics

De minimis

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.

Economics

Deadweight loss

A loss of social welfare deriving from a policy or action that has no corresponding gain. Deadweight losses of welfare are often associated with the economic costs of monopoly power in a market or the effects of negative and positive externalities that remain ignored by the free market mechanism.

Economics

Debase

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

Economics

Debenture

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

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Debit

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.

Economics

Debt

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.

Economics

Debt burden

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

Economics

Debt cancellation

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.

Economics

Debt crisis

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

Economics

Debt overhang

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.

Economics

Debt relief

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.

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Economics

Debt service

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

Economics

Debt sustainability

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.

Economics

Debt/equity swap

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.

Economics

Debtor nation

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

Economics

Decile

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.

Economics

Decouple

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.

Economics

Decreasing cost

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

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A property of a production function such that changing all inputs by the same proportion changes output less than in proportion.

Economics

Decreasing returns to 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 scale and constant returns.

Economics

Deep integration

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.

Economics

Default

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.

Economics

Deficiency Payment

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.

Economics

Deficit

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.

Economics

Deficit financing

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.

Deflation

Price deflation is when the rate of inflation becomes negative. I.e. the general price level is falling and the value of money is increasing. Some countries have experienced deflation in recent years – good examples include Japan and China. In Japan, the root cause of deflation was very slow economic growth and a high level of spare (excess) capacity in many industries that was driving prices lower.

Economics

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Deflator

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.

Economics

Deflection

See trade deflection.

Economics

Degressive

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.

Economics

Deindustrialisation

Long-term decline in the importance of the manufacturing sector in an economy. We can distinguish between relative decline (e.g. where the share of total national output accounted for by manufacturing declines) and absolute decline.

Economics

Delocalization

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

Economics

Demand

Demand is defined as the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period. Each of us has an individual demand for particular goods and services.

Demand curve

A demand curve shows the relationship between the price of an item and the quantity demanded over a period of time. For normal goods, more of a product will be demanded as the price falls. This is because at lower prices, consumers can afford to purchase more with their income. A fall in prices causes an increase in a consumers' real income. Secondly, a fall in price makes one good relatively cheaper than a substitute encouraging consumers to switch their demand in favour of the lower priced product.

Economics

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Demand deposit

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.

Economics

Demand elasticity

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

Economics

Demand function

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.

Economics

Demand management

Demand management occurs when the government attempts to influence the level and growth of AD hence the levels of national income, employment, rate of inflation, growth and the balance of payments position.

Economics

Demand price

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

Economics

Demand schedule

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

Economics

Demand-pull inflation is likely when there is full employment of resources and aggregate demand is increasing at a time when SRAS is inelastic. Demand pull inflation is largely the result of AD being allowed to grow too fast compared to what the supplyDemand-pull inflation side capacity can meet. The result is excess demand for goods and services and pressure on businesses to raise prices in order to increase their profit margins.

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Economics

De-merit goods

Merit goods are 'good' for you. In contrast, de-merit goods are thought to be 'bad' for you. Examples include alcohol, cigarettes and various drugs. The consumption of de-merit goods can lead to negative externalities which causes a fall in social welfare. The government normally seeks to reduce consumption of de-merit goods. Consumers may be unaware of the negative externalities that these goods create - they have imperfect information.

Economics

Demographic transition

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.

Economics

Dependency ratio

The ratio of dependent population (the young and the elderly) to the working age population.

Economics

Dependency Theory

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

Economics

Deposit

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

Economics

Depreciate

See depreciation.

Economics

Depreciation

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."

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Economics

Deregulation

De-regulation or liberalisation means the opening up of markets to greater competition. The aim of this is to increase market supply (driving prices down) and widen the range of choice available to consumers. The discipline of competition should also lead to greater cost efficiency from producers – who are keen to hold onto their existing market share. Good examples of deregulation to use include: urban bus transport, parcel delivery services, mortgage lending, telecommunications, and gas and electricity supply.

Economics

Derived demand

The demand for a product X might be strongly linked to the demand for a related product Y - giving rise to the idea of a derived demand. For example, the demand for coal is derived in part on the demand for fossil fuels to burn in the process of generating energy. Likewise the demand for steel is strongly linked to the demand for new vehicles and many other manufactured products, so that when an economy goes into a downturn or recession, so we would expect the demand for steel to decline likewise.

Economics

Derogation

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.

Economics

Destabilizing speculation

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.

Economics

Destination principle

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.

Economics

Devaluation

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.

Economics

Develop

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

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Economics

Developed country

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

Economics

Developing country

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.

Economics

Development

Economic development

Economics

Development bank

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.

Economics

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

Economics

Development project additions to the country's capital stock, but they may involve improvements in infrastructure, educational facilities, discovery or

A project intended to increase a developing country's ability to produce in the future. Such projects are most commonly development of natural resources, etc.

Economics

DFI

Direct Foreign Investment

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Economics

DFS Model

Economics

Differential treatment See special and differential treatment.

Economics

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

Economics

Dillon Round

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.

Economics

Diminishing returns

The Law of Diminishing Returns occurs because factors of production are not perfect substitutes for each other. Resources used in producing one type of product are not necessarily as efficient when switched to the production of another good or service. The law of diminishing returns lies at the heart of conventional production and cost theory.

Economics

Direct factor content

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.

Economics

Direct foreign investment

Foreign direct investment

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

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Economics

Direct taxation

Direct taxation is levied on income, wealth and profit. Direct taxes include income tax, national insurance contributions, capital gains tax, and corporation tax.

Economics

Direction of trade

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.

Economics

Directly Unproductive 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 Profit-Seeking government policies. Examples are rent seeking and revenue seeking. Term coined by Bhagwati (1982). Activities

Economics

Director General

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

Economics

Direct-plus-indirect factor content

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.

Economics

Dirigiste

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.

Economics

Dirty float

Same as managed float.

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Economics

Disarticulation

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.

Economics

DISC

Domestic International Sales Corporation

Economics

Discount

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

Economics

Discount rate

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).

Economics

People who leave the active labour force - often because they have been structurally unemployed for a long time and have lost motivation to engage in active job search. The tax and benefit system may create disincentives for them to search and take Discouraged workers jobs. The Labour Government's New Deal programme seeks to bring more of the discouraged workers back into the active labour supply in the economy.

Economics

Discrete time

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

Economics

Discretionary fiscal policy

Discretionary fiscal changes are deliberate changes in direct and indirect taxation and government spending – for example a decision by the government to increase total capital spending on the road building budget or increase the allocation of resources going direct into the NHS.

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Discretionary licensing

See licensing.

Economics

Discriminatory tariff

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.

Economics

Diseconomies of scale

There are nearly always limits to the potential to achieve economies of scale. Indeed when a business expands beyond a certain size, average costs per unit may start to increase. This is known as diseconomies of scale. Diseconomies of scale arise mainly through problems of management. As a firm grows, management finds it more difficult to organize production efficiently. It is much easier to lose control of costs in a large organization than in a small business.

Economics

Disequilibrium

Inequality of supply and demand.

Economics

Disintegration

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

Economics

Disinvest

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.

Economics

Disparity

Inequality, usually income disparity.

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Economics

Disposable income

Disposable income measures income available for households to spend and is important when looking at the factors that determine consumer spending and saving. Personal disposable income = Gross UK Household income - Personal taxation + transfer payments.

Economics

Dispute settlement

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

Economics

Dispute Settlement Body

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.

Economics

Dispute settlement mechanism

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.

Economics

Dissipate rent

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

Economics

Distortion

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.

Economics

Distribution

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

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Economics

Diversification cone

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).

Economics

Diversified portfolio

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.

Economics

Diversify

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.

Economics

Diversion

See trade diversion.

Economics

Dividend

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

Economics

Division of Labour

Division of labour means the specialization of the functions and roles involved in making the separate parts of a product. It is closely tied to the standardization of production, the introduction and perfection of machinery, and the development of largescale industry. As a result of mass-production techniques, total production is many times what it would be had each worker made the complete product. Problems created by the division of labour include job monotony, technological unemployment, and eventually chronic unemployment if the economy does not expand quickly enough to reabsorb the displaced labour.

Economics

Divorce between ownership and control

The owners of a company normally elect a board of directors to control the business‘s resources for them. However, when the owner of a company sells shares, or takes out a loan to raise finance, they sacrifice some of their control.

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Economics

Dixit-Stiglitz function

Really just a symmetric CES function, the innovation of Dixit and Stiglitz (1977) 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.

Economics

Dixit-Stiglitz utility

The Dixit-Stiglitz function used as a utility function.

Economics

Doha Declaration

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.

Economics

Doha Ministerial

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

Economics

Doha Round

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.

Economics

Dollar standard

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.

Economics

Dollarization

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

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Economics

Domestic

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."

Economics

Domestic content protection

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.

Economics

Domestic content requirement

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

Economics

Domestic credit

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 shortterm loans to banks to use as their reserves.

Economics

Domestic distortions argument for protection

See second best argument.

Economics

Domestic International Sales Corporation

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.

Economics

Domestic law

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.

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Economics

Domestic market

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.

Economics

Domestic resource cost

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).

Economics

Domestic support

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.

Economics

Domestic trade

Commerce within a country; wholesale and retail trade.

Economics

Dominant market position

A firm holds a dominant position if it can operate within the market without taking account of the reaction of its competitors or of intermediate or final consumers.

Economics

Downstream dumping

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.

Economics

Drawback

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

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Economics

DRC

Domestic resource cost

Economics

DSM

Dispute settlement mechanism

Economics

DUKS

See baffling pigs.

Economics

Dummy

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.

Economics

Dumping

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.

Economics

Dumping margin

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

Economics

Duopoly

Any market that is dominated by two organisations.

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Economics

Duopsony

Two major buyers of a good or service in a market.

Economics

DUP Activities

Directly Unproductive Profit-Seeking Activities

Economics

Durable good

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

Economics

Dutch disease

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.

Economics

Dutiable imports

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.)

Economics

Duty

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

Economics

Duty drawback

See drawback.

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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.

Economics

Duty-free

Economics

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

Economics

Dynamic economies of scale

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.

Economics

Dynamic effects

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.

Economics

Dynamic efficiency

Dynamic efficiency occurs over time. It focuses on changes in the consumer choice available in a market together with the quality/performance of goods and services that we buy.

Economics

Dynamic gains from trade

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.

Economics

Dynamic model

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.

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Economics

Early harvest

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.

Economics

Earnings

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

Economics

Earth Summit

Rio Summit.

Economics

EBITDA

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

Economics

European Communities

Economics

ECB

European Central Bank

Economics

ECLAC

Economic Commission for Latin America and the Caribbean

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Economics

Eco-dumping

Environmental dumping

Economics

Econometrics

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.

Economics

Economic and Monetary Union

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

Economics

Economic boom

A boom occurs when real national output is rising at a rate faster than the estimated trend rate of growth. In boom conditions, national output and employment are expanding and aggregate demand is high. Typically, businesses use a boom to raise their output and widen their profit margins by increasing prices for consumers.

Economics

Economic Commission for Latin 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. America and the Caribbean

Economics

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

Economics

Economic development

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.

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Economic efficiency is achieved when an output of goods and services is produced making the most efficient use of our scarce resources and when that output best meets the needs and wants and consumers and is priced at a price that fairly reflects the value of resources used up in production.

Economics

Economic efficiency

Economics

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

Economics

Economic exposure

Same as exchange rate exposure.

Economics

Economic freedom

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.

Economics

Economic geography See New Economic Geography.

Economics

Economic growth

Economic growth is best defined as a long-term expansion of the productive potential of the economy. Sustained growth should lead higher real living standards and rising employment. Short term growth is measured by the annual % change in real national output (real GDP).

Economics

Economic indicator

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.

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Economics

Economic integration See integration.

Economics

Economic interdependence

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

Economics

Economic justice

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

Economics

Economic profit

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

Economics

Economic rate of return

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

Economic recession

A recession means a fall in the level of real national output (i.e. a period when the rate of growth is negative) leading to a contraction in employment, incomes and profits. The last recession in Britain lasted from the summer of 1990 through to the autumn of 1992. When real GDP reaches a low point, the economy has reached the trough – and with hope (and perhaps some luck!) a recovery is imminent.

Economic recovery

A recovery occurs when real national output picks up from the trough reached at the low point of the recession. The pace of recovery depends in part on how quickly AD starts to rise after the economic downturn. And, the extent to which producers raise output and rebuild their stock levels in anticipation of a rise in demand. The state of business confidence plays a key role here. Any recovery in production might be subdued if businesses anticipate that a recovery will be only temporary or weak in scale.

Economics

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Economics

Economic rent

See rent.

Economics

Economic sanction

The use of an economic policy as a sanction.

Economics

Economic slowdown

A slowdown occurs when the rate of growth decelerates – but national output is still rising. If the economy continues to grow without falling into outright recession, this is known as a soft-landing.

Economics

Economic union

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

Economics

Economic welfare

See welfare.

Economics

Economies of scale

Economies of scale are of huge importance to many businesses - not least those that have to compete in international markets where cost competitiveness is vital. Both producers and consumers stand to gain from economies of scale. Businesses can bring down their average costs by producing on a larger scale. This opens up the possibility of them making bigger profit margins and also building a competitive advantage in their chosen markets. For consumers, lower costs per unit can be translated into a reduction in market prices which leads to a rise in their real purchasing power and a potential improvement in economic welfare (e.g. measured by the level of consumer surplus).

Economics

Economies of scope

Economies of scope occur where it is cheaper to produce a range of products.

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Economics

ECSC

European Coal and Steel Community

Economics

ECU

European Currency Unit

Economics

Edgeworth Box

See Edgeworth-Bowley Box and Edgeworth production box.

Economics

Edgeworth Production Box

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.

Economics

Edgeworth-Bowley Box

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.

Economics

EEA

European Economic Area

Economics

EEC

European Economic Community

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Economics

Effect of trade

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.

Economics

Effective demand

Demand in economics must be effective. Only when a consumers' desire to buy a product is backed up by an ability to pay for it do we speak of demand. For example, many people would be willing to buy a luxury sports car, but their demand would not be effective if they did not have the financial means to do so. They must have sufficient real purchasing power.

Economics

Effective exchange rate

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.

Economics

Effective protection

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.

Economics

Effective protective rate

Same as effective rate of protection.

Economics

Effective rate of protection

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 b ij be the share of input i in the value of output j , and t i be the tariff on good i , the ERP of industry j is ERP j = (t j -Si b ij t i )/(1-Si b ij ). Due to Corden (1966).

Economics

Effective tariff

Effective rate of protection.

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Economics

Efficiency

See economic efficiency.

Economics

Efficiency locus

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.

Economics

Efficient allocation

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

Economics

Efficient market

A 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.

Economics

EFTA

European Free Trade Association

Economics

Elastic

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.

Economics

Elastic offer curve

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

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Elasticities approach

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.

Economics

Elasticity

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).

Economics

Elasticity of demand for exports

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.

Economics

Elasticity of demand for imports

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.

Economics

Elasticity of labour demand

Elasticity of labour demand measures the responsiveness of demand for labour when there is a change in the ruling market wage rate.

Economics

Elasticity of labour supply

The elasticity of labour supply to an occupation measures the extent to which labour supply responds to a change in the wage rate in a given time period.

Economics

Elasticity of substitution

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).

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Economics

Elasticity of transformation

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).

Economics

EMA

European Monetary Agreement

Economics

Embargo

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.

Economics

Emerging economy

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.

Economics

Emerging market

Same as emerging economy.

Economics

Emigration

The migration of people out of a country.

Economics

Emissions trading

Emission trading is another form of pollution control that uses the market mechanism to change relative prices and the incentives of producers and consumers.

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Empirical finding

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

Economics

Employment argument for protection

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.

Economics

EMS

European Monetary System

Economics

EMU

Economic and Monetary Union

Economics

Enabling Clause

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

Economics

Endogenous growth

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

Economics

Endogenous protection

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

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An economic variable that is determined within a model. It is therefore not subject to direct manipulation by the modeler, since

Economics

Endogenous variable that would override the model. In trade models, the quantity of trade itself is almost always endogenous. Contrasts with exogenous variable.

Economics

Endowment

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.

Economics

Engine of growth

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.

Economics

Engineering efficiency

See economic efficiency.

Economics

Entrep么t trade

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

Economics

Entrepreneur

An entrepreneur is an individual who seeks to supply products to a market for a rate of return (i.e. a profit). Entrepreneurs will usually invest their own financial capital in a business and take on the risks associated with a business investment. The reward to this risk-taking is the profit made from running the business. Many economists agree that entrepreneurs should be classed as specialised part of the factor input 'labour'.

Economics

Entry barriers

For a high level of profits to be maintained in the long run, a monopolist must successfully prevent the entry of new suppliers into a market. Barriers to entry are the mechanisms by which potential competitors are blocked. Monopolies can then enjoy higher profits in the long run as rivals have not diluted market share.

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Economics

Envelope

The outermost points traced out by a moving curve.

Economics

Environmental dumping

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 ecodumping.

Economics

Environmental Kuznets Curve

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).

Economics

Environmental protection argument for a trade intervention

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.

Economics

Environmental subsidy

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

Economics

EPU

European Payments Union.

Economics

EPZ

Export processing zone.

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Economics

Equal Pay Act

The Equal Pay Act introduced in 1970 sought to provide legal protection for female workers and encouraged employers to bring the pay for males and females into line.

Economics

Equation of Exchange

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.

Economics

Equilibrium

Equilibrium means ‗at rest‘ or ‗a state of balance‘ - i.e. a situation where there is no tendency for change.

Economics

Equilibrium level

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

Economics

Equilibrium position

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

Economics

Equilibrium wage

The equilibrium price of labour (market wage rate) in a given market is determined by the interaction of the supply and demand for labour.

Economics

Equity

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

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Economics

Equivalent quota

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

Economics

Equivalent tariff

Tariff equivalent.

Economics

Equivalent variation

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.

Economics

ERM

Exchange Rate Mechanism

Economics

ERP

Effective rate of protection

Economics

ERR

Economic rate of return

Economics

Escalation

Regarding the structure of tariffs, see tariff escalation.

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Economics

Escape clause

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

Economics

Ethical trade

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.

Economics

Ethical Trading Initiative

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

Economics

ETI

Ethical Trading Initiative

Economics

European Union

Economics

EU enlargement

The process of taking more member countries into the EU.

Economics

EU15

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

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Economics

Euler's Theorem

The property of a function X=F(V) that is homogeneous of degree N that SiViÂśF/ÂśVi=NX.

Economics

Euratom

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

Economics

Euribor

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.

Economics

Euro

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.

Economics

Euro Zone

A term for the participating members of the European Single Currency. Twelve nations joined the new currency zone when it was established in January 1999.

Economics

Eurobond

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

Economics

Eurocurrency

See Eurodollar.

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Economics

Eurodad

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

Economics

Eurodollar

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.

Economics

Euro-Mediterranean Partnership

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.

Economics

Europe 1992

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.

Economics

Europe Agreement

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.

Economics

European Central Bank

The European Central Bank (ECB) sets a common official rate of interest for the participating members of the single European currency. The ECB has an inflation target of 0-2%. It seeks to maintain the internal purchasing power of the Euro through the use of a Euro Area monetary policy.

Economics

European Coal and Steel Community

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.

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Economics

European Communities

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.

Economics

European Currency Unit

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.

Economics

European Economic Area

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

Economics

European Economic Community

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.

Economics

European Free Trade in 1960 among Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the United Kingdom. As of 2007 it includes Association Iceland, Liechtenstein, Norway, and Switzerland.

Economics

European Monetary Agreement

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.

Economics

European Monetary System

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.

A free trade area made up of countries in Europe that did not join the European Economic Community. EFTA was established

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Economics

European Payments Union

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.

Economics

European Recovery Program

See Marshall Plan.

Economics

European Union

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.

Economics

Even case

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.

Economics

Everything But Arms

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.

Economics

Ex ante analysis

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.

Economics

Ex post analysis

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.

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Economics

Ex post tariff

Implicit tariff.

Economics

Excess capacity

The difference between the current output of a business and the total amount it could produce in the current time period. Often in a recession or slowdown, there is a rise in excess capacity (= to a fall in capacity utilisation) due to a fall in demand. The effect can be to increase the average fixed costs of production.

Economics

Excess demand

When demand for a good or service exceeds the production capacity of a business in a given time period. When a firm cannot raise output in the short term the elasticity of supply will be zero (i.e. perfectly inelastic).

Economics

Excess profit

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

Economics

Excess supply

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

Economics

Exchange

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

Economics

Exchange control

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.

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Economics

Exchange equalization fund

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.

Economics

Exchange market

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

Economics

Exchange market intervention

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.

Economics

Exchange rate

The exchange rate measures the external value of sterling in terms of how much of another currency it can buy. For example how many dollars or Euros you can buy with ÂŁ5000. The daily value of the currency is determined in the foreign exchange markets (FOREX) where billions of $s of currencies are traded every hour.

Economics

Exchange rate determination

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.

Economics

Exchange rate exposure

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

Economics

Exchange rate index

The Exchange Rate Index is a weighted index of sterling's value against a basket of international currencies. The weights used are determined by the proportion of trade between the UK and each country.

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Economics

Exchange Rate Mechanism

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.

Economics

Exchange rate overshooting

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).

Economics

Exchange rate protection

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.

Economics

Exchange rate regime

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.

Economics

Exchange rate risk

Exchange risk

Economics

Exchange rate stability

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

Economics

Exchange rationing

See exchange control or ration foreign exchange.

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Economics

Exchange risk

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.

Economics

Exchange stabilization fund

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

Economics

Excise tax

A tax on consumption of a particular good.

Economics

Exercise

To execute the terms of a contract. See option.

Economics

Exhaustion

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.

Economics

Exogenous

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

Economics

Exogenous growth

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.

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Economics

Exogenous variable

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.

Economics

Expansion

Economic expansion

Expansionary

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.

Economics

Expectations

Expectations of consumers and businesses can have a powerful effect on planned expenditure in the economy e.g. expected increases in consumer incomes, wealth or company profits encourage households and firms to spend more – boosting AD. Similarly, higher expected inflation encourages spending now before price increases come into effect - a short term boost to AD.

Economics

Expected value

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.

Economics

Experience good

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.

Economics

Explicit collusion

The aim collusion between firms is to maximise joint profits and act as if the market was a pure monopoly.

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Economics

Export

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

Economics

Export bias

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.

Economics

Export cartel

A cartel of exporting countries or firms.

Economics

Export credit

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.

Economics

Export credit insurance

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

Economics

Export facilitation

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

Economics

Export led growth

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.

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Economics

Export licensing

See licensing.

Economics

Export limitation

Any policy that restricts exports.

Economics

Export multiplier

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

Economics

Export performance requirement

Export requirement.

Economics

Export pessimism

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.

Economics

Export platform

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.

Economics

Export platform FDI

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

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Economics

Export price index

Price index of the goods that a country exports.

Economics

Export processing zone

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.

Economics

Export promotion

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 overvalued currency would otherwise create bias against exports. Contrasts with import substitution.

Economics

Export quota

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

Economics

Export requirement

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

Economics

Export subsidy

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

Economics

Export tariff

A tax on exports, more commonly called an export tax.

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Economics

Export tax

A tax on exports.

Economics

Export-import company

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.

Economics

Exports

Exports sold overseas are an inflow of demand (an injection) into the circular flow of income and therefore add to the demand for UK produced output.

Economics

External balance

Balance of payments equilibrium.

Economics

External benefits

Positive externalities lead to social benefits exceeding private benefits.

Economics

External costs

External costs are those costs faced by a third party for which no appropriate compensation is forthcoming. Identifying and then estimating a monetary value for air pollution is a difficult exercise - but one that is increasingly important for economists concerned with the impact of economic activity on our environment.

Economics

External debt

The amount that a country owes to foreigners, including the debts of both the country's government and its private sector.

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Economics

External diseconomy Negative externality.

Economics

External economies of scale

External economies arise from the growing size of an industry. As the industry grows in size and there are more firms in the industry, these companies may enjoy lower average total costs for several reasons: Firms will be able to draw on a pool of skilled labour, trained by firms and government, thus reducing their own training and living costs.

Economics

External economy

Positive externality.

Economics

External increasing returns to scale

External economies of scale.

Economics

Externalities

Externalities are third party effects arising from production and consumption of goods and services for which no appropriate compensation is paid. Externalities occur in nearly every market and industry and can cause market failure if the price mechanism does not take into account the full social costs and benefits of production and consumption. Externalities occur outside of the market i.e. they affect economic agents not directly involved in the production and/or consumption of a particular good or service.

Economics

Externalities argument for protection

The (second best) argument that an industry should be protected because it generates positive externalities for other industries or consumers.

Economics

Externality

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.

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Economics

Facilitating payment

As permitted under the U.S. Foreign Currupt Practices Act, a facilitating payment is a payment for "routine governmental action," such as obtaining permits, processing papers, providing normal government services, etc. It is, in fact, a bribe, but a small one that does not induce any illegal or exceptional behavior.

Economics

Factor

Primary factor.

Economics

Factor abundance

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.

Economics

Factor accumulation

An increase in the quantity of a factor, usually capital or sometimes human capital.

Economics

Factor augmenting

Said of a technological change or technological difference if production functions differ by scaling of a factor input only: F 2(V 1,V 2)=F 1(lV 1,V 2), where F 1(路) and F 2(路) are the production functions being compared, V 1 is the factor being augmented, V 2 is a vector of all other factor inputs, and l is a constant.

Economics

Factor bias

See bias.

Economics

Factor content

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.

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Economics

Factor content pattern of trade

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.

Economics

Factor cost

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," adding up revenues from goods sold.

Economics

Factor endowment

The quantity of a primary factor present in a country. See endowment.

Economics

Factor immobility

Factor immobility occurs when a factor is unable to switch easily between different sectors of the economy.

Economics

Factor intensity

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.

Economics

Factor intensity reversal

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.

Economics

Factor intensity uniformity

The absence of factor intensity reversals.

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Economics

Factor market

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.

Economics

Factor mobility

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.

Economics

Factor movement

International factor movement.

Economics

Factor of production

Factor (definition 1).

Economics

Factor price

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."

Economics

Factor price equalization

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.

Economics

Factor Price and frictionless trade will cause FPE between two countries if they have identical, linearly homogeneous technologies and their Equalization Theorem factor endowments are sufficiently similar to be in the same diversification cone.

One of the major theoretical results of the Heckscher-Ohlin Model with at least as many goods as factors, showing that free

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Economics

Factor price frontier

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.

Economics

Factor proportions

The ratios of factors employed in different industries. See factor intensities.

Economics

Factor Proportions Model

The Heckscher-Ohlin Model of trade.

Economics

Factor scarcity

See factor abundance.

Economics

Factor share

The fraction of payments to value added in an industry that goes to a particular primary factor.

Economics

Factor space

A graph in which the axes measure quantities of factors.

Economics

Factor-price space

A graph with factor prices on the axes.

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Economics

Factor-saving

Biased in favor of using less of a particular factor.

Economics

Factor-using

Biased in favor of using more of a particular factor.

Economics

Fair price

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.

Economics

Fairness argument for protection

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.

Economics

FAO

Food and Agriculture Organization of the United Nations

Economics

FAS

Same as FOB but without the cost of loading onto a ship. Stands for "free alongside ship."

Economics

Fast track

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.

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Economics

Favorable exchange rate

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.

Economics

FDI

Foreign Direct Investment

Economics

Fed

The Federal Reserve System of the United States.

Economics

Federal funds rate

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.

Economics

Federal Reserve System

The central bank of the United States.

Economics

Feldstein-Horioka puzzle

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.

Economics

Fiat money

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.

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Economics

Fifty Years Is Enough 50 Years Is Enough.

Economics

Final good

A good that requires no further processing or transformation to be ready for use by consumers, investors, or government. Contrasts with intermediate good.

Economics

Financial account

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.

Economics

Financial asset

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.

Economics

Financial capital

The value of financial assets, as opposed to real assets such as buildings and capital equipment.

Economics

Financial crisis

A loss of confidence in a country's currency or other financial assets causing international investors to withdraw their funds from the country.

Economics

Financial economies level of risk. Firms therefore have to pay a risk premium on their loans. The smaller firm may find it more difficult to raise

Small firms often have to pay higher interest rates on loans since they are perceived by financial organizations to carry a higher money through selling new shares than a larger firm.

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Economics

Financial instrument

A document, real or virtual, having legal force and embodying or conveying monetary value.

Economics

Financial intermediary

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.

Economics

Financial market

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.

Economics

Financial market integration

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.

Economics

Financial stability

The avoidance of financial crisis.

Economics

Finite resources

There are only a finite number of workers, machines, acres of land and reserves of oil and other natural resources on the earth. Because resources are finite, we cannot produce an infinite number of goods and services. By producing more for an ever-increasing population, we are in danger of destroying the natural resources of the planet. This will have serious consequences for the long-term sustainability of economies throughout the world and potentially enormous implications for our living standards and the quality of life.

Economics

FIR

Factor intensity reversal.

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Economics

Firm

A firm is an organisation that uses factors of production (resources) to create goods and services egg public limited companies plcs.

Economics

First best

See second best.

Economics

First degree homogeneous

Homogeneous of degree 1.

Economics

First mover advantage

The idea that a business that creates a new product and which is first into the market can develop a competitive advantage in that market perhaps through learning by doing, because it has the advantage of being there first - making it more difficult and costly for new firms to come in.

Economics

First order condition

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.

Economics

First theorem of welfare economics

The proposition of welfare economics that a competitive general equilibrium is Pareto optimal. A corollary is that free trade is Pareto optimal among countries.

Economics

Fiscal deficit

A deficit in the government budget of a country.

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Economics

Fiscal expansion

A fiscal expansion will cause an outward shift of AD. For example, the Government may choose to increase its expenditure e.g. financed by a higher budget deficit, - this directly increases AD.

Economics

Fiscal policy

Fiscal policy involves the use of government spending, taxation and borrowing to influence both the pattern of economic activity and also the level and growth of aggregate demand, output and employment. It is important to realise that changes in fiscal policy affect both aggregate demand (AD) and aggregate supply (AS).

Economics

Fisher Effect

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).

Economics

Fixed costs

These costs relate to the fixed factors of production and do not vary directly with the level of output. Examples of fixed costs include: rent and business rates, the depreciation in the value of capital equipment (plant and machinery) due to age and marketing and advertising costs.

Economics

Fixed exchange rate

In a fixed exchange rate system, the central bank acting on the government‘s behalf intervenes in the currency market so that the exchange rate stays close to an exchange rate target. When Britain joined the European Exchange Rate Mechanism in October 1990, we fixed sterling against other European currencies. The pound, for example, was permitted to vary against the German Mark by only 6% either side of a central target of DM2.95. Britain left the ERM in September 1992 when sterling came under sustained selling pressure, and the authorities could no longer justify very high interest rates to maintain the pound‘s value when the domestic economy was already suffering from a deep recession.

Economics

Fixed exchange rate

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.

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Economics

Flexible exchange rate

Same as floating exchange rate.

Economics

Floating exchange rate

The UK is currently operating with a floating exchange rate – where the currency‘s value is purely market determined and the Bank of England does not seek to intervene through buying and selling currencies in order to influence the pound‘s value.

Economics

Floor

See price floor.

Economics

FMI

Fondo Monetario Internacional (Spanish for International Monetary Fund

Economics

FOB

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.

Economics

FOC

First order condition.

Economics

FOGS Negotiations

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.

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Economics

Food and Agriculture A UN body whose purpose is to "defeat hunger" throughout the world mostly by sharing information and expertise. Organization of the United Nations

Economics

Food security

The reliable availability of a sufficient quantity and quality of nutritious food for a population.

Economics

Footloose factor

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.

Economics

Footloose industry

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.

Economics

Forced labor

The use of labor that is compelled to work, subject to physical punishment if it does not.

Economics

Foreign asset position

The amount of assets that residents of a country own abroad. Also used to mean the net foreign asset position.

Economics

Foreign Corrupt Practices Act

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.

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Foreign debt

The amount a country owes to foreigners. More precisely, the negative of the net foreign asset position.

Economics

Foreign direct investment

Acquisition or construction of physical capital by a firm from one (source) country in another (host) country.

Economics

Foreign exchange

Foreign currency; any currency other than a country's own.

Economics

Foreign exchange market

Currencies are traded around the world in a truly global market with London easily the largest FOREX market in the world. The value of most currencies is determined within the foreign exchange markets by the forces of demand and supply.

Economics

Foreign exchange rate

The exchange rate.

Economics

Foreign exchange risk

Exchange risk.

Economics

Foreign investment argument for protection

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.

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Economics

Foreign portfolio investment

Economics

Foreign repercussion in turn to cause further changes at home. Most commonly, a rise in income stimulates imports, causing an expansion abroad

Portfolio investment across national borders and/or across currencies.

The feedback effect on a domestic economy when its macroeconomic changes cause large enough changes abroad for those that in turn raises demand for the home country's exports.

Economics

Foreign reserves

International reserves

Economics

Foreign reserves crisis

The financial crisis that results from (or causes) a central bank coming close to running out of international reserves.

Economics

Foreign Sales Corporation

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.

Economics

Foreign trade deficit

Trade deficit

Economics

Foreign trade zone

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."

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Economics

Formula approach

A procedure for organizing multilateral trade negotiations using a formula for tariff reductions as a starting point.

Economics

Forward

On the forward market.

Economics

Forward curve

In a forward market, the pattern of forward rates, or forward premia, over various time horizons.

Economics

Forward discount

Opposite of forward premium.

Economics

Forward integration

Acquisition by a firm of a larger part of its distribution chain, moving it closer to selling directly to its ultimate customers.

Economics

Forward linkage

The provision by one firm or industry of produced inputs to another firm or industry.

Economics

Forward market

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.

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Economics

Forward premium

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.

Economics

Forward price

In any forward market, the price of the item being traded for delivery at a future date; in exchange markets, the forward rate.

Economics

Forward rate

Also called the forward exchange rate, this is the exchange rate on a forward market transaction.

Economics

Four Tigers

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.

Economics

Four-firm concentration ratio

See concentration ratio.

Economics

FPE

Factor price equalization.

Economics

Fragmentation

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).

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Franchises and licences give a firm the right to operate in a market - and are usually open to renewal every few years. Examples include: Commercial television and radio licences, local taxi route licences and the franchise holders to run regional rail services.

Economics

Franchises

Economics

Free capital markets international capital flows, the absence of government or central bank intervention in exchange markets, and the absence of

This is not a standard term, but it seems to be used, variously, to describe the absence of government regulation of interference with national financial and development policies by international financial institutions.

Economics

Free enterprise

A system in which economic agents are free to own property and engage in commercial transactions. See laissez faire, economic freedom, <>.

Economics

Free entry

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.

Economics

Free exit

The assumption that firms are permitted to leave an industry and can do so costlessly. See free entry.

Economics

Free goods

Not all goods have an opportunity cost. Free goods are not scarce and no cost is involved when consuming them.

Economics

Free list

A list of goods that a country has designated as able to be imported without being subject to tariff or import licensing.

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In a free market economic system, governments take the view that markets work, assume a laissez faire (let alone) approach, step back, and allow the forces of supply and demand to set prices and allocate resources. Government intervention is required mainly to prevent or correct market failure through for example enforcing anti-monopoly legislation (i.e. preventing abuses of market power), enforcing private property rights, and redistributing income through the tax and benefit system etc.

Economics

Free Market Economy

Economics

Free on board

See FOB.

Economics

Free port

See foreign trade zone.

Economics

Free rider problem

If a public good is supplied, it will be available to them just as it would be to anyone else because pure public goods are nonexcludable. This is the essence of the ―free rider problem‖: the incentive which consumers have to avoid contributing to financing public goods in proportion to their valuation of such good.

Free trade exists when there are few barriers to international trade between countries. This allows resources to be allocated without the intervention of import tariffs, quotas, and other forms of import controls. Free trade based on comparative advantage can under certain conditions lead to a rise in economic welfare. Countries can specialise in the production of goods and services in which they have a comparative advantage (lower opportunity cost).

Economics

Free trade

Economics

Free trade agreement A negotiated treaty among two or more countries to form a free trade area.

Economics

Free trade area

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.

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Economics

Free Trade Area of the Americas

A preferential trading arrangement being negotiated among most of the countries (all but Cuba) of the western hemisphere.

Economics

Free trade association

Free Trade Area.

Economics

Free trade zone

An export processing zone.

Economics

Free zone

See foreign trade zone.

Economics

Frequency

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.

Economics

Frictional unemployment

This type of unemployment reflects job turnover in the labour market. Even when there are vacancies it takes time to search and find new employment and workers will remain frictionally unemployed. Improving the flow of information in the labour market is one way of reducing the scale of frictional unemployment. See also structural and cyclical unemployment.

Economics

Frictionless trade

The absence of natural barriers to trade, such as transport costs.

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Economics

Friedman rule

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.

Economics

FSC

Foreign Sales Corporation

Economics

FTA

Free trade area or free trade agreement

Economics

FTAA

Free Trade Area of the Americas

Economics

FTZ

Free trade zone

Economics

Full employment

Full employment occurs when there is no cyclical unemployment. Some workers will be frictionally or structurally unemployed even at the full employment level of GDP

Economics

Functional distribution How the income of an economy is divided among the owners of different factors of production, into wages, rents, etc. of income

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Economics

Futures market

A futures market is a commodity exchange where contracts for the future delivery of grain, livestock, and precious metals are bought and sold. Speculation in futures serves to protect both the producers and the users of the commodities from unpredictable price fluctuations.

Economics

Gains from trade

The net benefits that countries experience as a result of lowering import tariffs and otherwise liberalizing trade.

Economics

Gains from trade theorem

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).

Economics

Game

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.

Economics

Game theory

A game happens when there are two or more interacting decision-takers (players) and each decision or combination of decisions involves a particular outcome (pay-off.)

Economics

Gastarbeiter

Guest worker.

Economics

GATS

General Agreement on Trade in Services

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Economics

GATT

General Agreement on Tariffs and Trade

Economics

GATT Articles

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.

Economics

GATT-Speak

Variation on GATT-think.

Economics

GATT-Think

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).

Economics

GCC

Gulf Cooperation Council

Economics

GDP

Gross domestic product.

Economics

GDP deflator

The deflator for GDP, thus the ratio of nominal GDP to real GDP (usually multiplied, as with a price index, by 100).

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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 subsumed within the WTO in 1995.

Economics

General Agreement on Tariffs and Trade

Economics

General Agreement countries to provide national treatment to foreign service providers and for them to select and negotiate the service sectors to on Trade in Services be covered under GATS.

The agreement, negotiated in the Uruguay Round, that brings international trade in services into the WTO. It provides for

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.

Economics

General equilibrium

Economics

This is government spending on state-provided goods and services including public and merit goods. Transfer payments in the form of welfare benefits (e.g. pensions, job-seekers allowance) are not included in general government spending because they General Government are not a payment to a factor of production for output produced. They are simply a transfer from one group within the economy Spending (i.e. people in work paying income taxes) to another group (i.e. pensioners drawing their state pension having retired from the labour force, or families on very low incomes).

Economics

Generalized System of Preferences

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.

Economics

Genetically modified organism

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.

Economics

Geographical immobility

People may also experience geographical immobility – meaning that there are barriers to them moving from one area to another to find work.

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Economics

Geography

See New Economic Geography.

Economics

Giffen good

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.

Economics

Gini coefficient

The Gini coefficient is a statistical measure of income distribution. A Gini coefficient of 0 means perfect equality; 1 total inequality.

Economics

Global competitiveness

Competitiveness, applied internationally.

Economics

Global optimum

An allocation that is better, by some criterion, than all others possible; optimum optimorum.

Economics

Global quota

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.

Economics

Global Trade Analysis Project

A project based at Purdue University, providing a data base and CGE modeling tools for analysis of global trade.

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Economics

Globalisation

Globalisation is the increased worldwide integration and interdependence of those economies that trade. For example, transnational firms locate the production and assembly of goods in different locations across the world.

Economics

GMO

Genetically modified organism.

Economics

Gnomes of Zurich

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.

Economics

GNP

Gross national product.

Economics

Gold Exchange Standard

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.

Economics

Gold Standard

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.

Golden Rule

The golden rule was introduced into fiscal policy by Gordon Brown when he became Chancellor in 1997. The rule states that government borrowing over the course of the economic cycle should be used to finance government investment spending (so called public sector asset accumulation). Current spending on goods and services together with spending on welfare payments should be financed by current tax revenues.

Economics

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Economics

Good

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.

Economics

Government debt

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.

Economics

Government failure

Even with good intentions governments seldom get their policy application correct. They can tax, control and regulate but the eventual outcome may be a deepening of the market failure or even worse a new failure may arise. Government failure may range from the trivial, when intervention is merely ineffective, but where harm is restricted to the cost of resources used up and wasted by the intervention, to cases where intervention produces new and more serious problems that did not exist before. The consequences of this can take many years to reverse.

Economics

Government paternalism

Some economists argue that the ―nanny state‖ is when the government imposes its own preferences on consumers. For example, when the government subsidies university tuition fees and taxes cigarettes it is saying ‗we know better than you what is good for you‘.

Economics

Government procurement

Purchase of goods and services by government and by state-owned enterprises. Transparency in government procurement is one of the Singapore Issues.

Economics

Government services. When these methods include a preference for domestic firms, they constitute an NTB. Subject of a Tokyo Round procurement practice Code, and later a WTO plurilateral agreement.

Economics

Graduation

The methods by which units of government and state-owned enterprises determine from whom to purchase goods and

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.

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Economics

Grandfather clause

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.

Economics

Gravity equation

An estimated equation of the gravity model.

Economics

Gravity model

A model of the flows of bilateral trade based on analogy with the law of gravity in physics: T ij = AY i Y j /D ij , where T ij is exports from country i to country j , Y i ,Y j are their national incomes, D ij 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 Pรถyhรถnen (1963).

Economics

Gray area measure

A policy or practice whose conformity with existing rules in unclear, such as a VER under the GATT prior to the WTO.

Economics

Gray market

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.

Economics

Green box

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.

Economics

Green exchange rate

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.

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Economics

Green field investment

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

Economics

Green room group

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.

Economics

Gross capital investment

Gross investment spending includes an estimate for capital depreciation since some investment is needed to replace technologically obsolete and worn out plant and machinery. Providing that net investment is positive, businesses are expanding their capital stock giving them a higher productive capacity and therefore meet a higher level of demand in the future.

Economics

Gross domestic product

Gross Domestic Product (GDP) measures the value of output produced within the domestic boundaries of the UK over a given time period. GDP includes the output of the many foreign owned firms that are located in the UK following the high levels of foreign direct investment in the UK economy over many years.

Economics

Gross international reserves

International reserves, without any deduction for the fact that some of them may have been borrowed. Contrasts with net international reserves.

Economics

Gross national income

National income plus capital consumption allowance.

Economics

Gross national product

Gross National Product (GNP) measures the final value of output or expenditure by UK owned factors of production whether they are located in the UK or overseas.

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Economics

Gross output

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.

Economics

Gross substitutes

Two goods are gross substitutes if a rise in the price of one causes and increase in demand for the other.

Economics

Group of Seven (or Eight)

G-7 (or G-8)

Economics

Group of Seventy Seven

G-77.

Economics

Group of Ten

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.

Economics

Growth

See economic growth.

Economics

Growth accounting

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.

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Economics

Grubel-Lloyd index

The measure of the intra-industry trade suggested by Grubel and Lloyd (1975). For an industry i with exports X i and imports M i the index is I = [(X i +M i ) - |X i - M i |]100/(X i +M i ). This is the fraction of total trade in the industry, X i +M i , that is accounted for by IIT (times 100).

Economics

GSP

Generalized System of Preferences

Economics

GTAP

Global Trade Analysis Project

Economics

Guest worker

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.

Economics

Gulf Cooperation Council

An agreement among six countries of the Persian Gulf region -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates -- in 1981 with the aim of coordinating and integrating their economic policies.

Economics

Harberger triangle

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.

Economics

Harberger-LaursenMetzler Effect

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).

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Economics

Hard currency

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.

Economics

Hard peg

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.

Economics

Harmful externality

Negative externality.

Economics

Harmonization

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.

Economics

Harmonized System

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.

Economics

Harrod neutral

A particular specification of technological change or technological difference that is labor augmenting.

Economics

Hat algebra

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.)

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Economics

Havana Charter

The charter for the never-implemented International Trade Organization. The draft was completed at a conference in Havana, Cuba, in 1948.

Economics

Headquarters services

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.

Health rationing occurs when the demand for health care services outstrips the available resources leading to waiting lists and delays for health treatment. Rationing may take place in various ways - for example health service practitioners may ration the resources to patients on the basis of clinical need. In private sector markets, health care will be available on the basis of willingness and ability to pay.

Economics

Health rationing

Economics

Heavily indebted poor The name given to those poor countries with large debts, the target of initiatives to forgive that debt as a means of assisting development. countries

Economics

Heckscher-Ohlin Core Propositions

See core propositions.

Economics

Heckscher-Ohlin Model

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).

Economics

Heckscher-Ohlin Theorem

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.

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Economics

Heckscher-OhlinSamuelson Model

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.

Economics

Heckscher-OhlinVanek Model

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.

Economics

Heckscher-OhlinVanek Theorem

The prediction of the H-O-V Model that a country's net factor content of trade equals its own factor endowment minus its worldexpenditure share of the world factor endowment. That is, for country i , F i = V i - s i V W , where F i is the factor content of its trade, V i ,V W its and the world's factor endowments, and s i its share of world expenditure. Due to Vanek (1968).

Economics

Hedge

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.

Economics

Hedonic pricing

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.

Economics

Helms-Burton Act

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.

Economics

Herfindahl index

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.

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Economics

Hicks-neutral

Said of a technological change or technological difference if production functions differ by scaling of output only: F 2(V )=lF 1(V ), where F 1(路) and F 2(路) are the production functions being compared, V is a vector of factor inputs, and l>0 is a constant.

Economics

High dimension

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.

Economics

High powered money Same as monetary base, in the sense of currency plus commercial bank reserves.

Economics

HIPC

Heavily indebted poor countries.

Economics

H-O Model

Heckscher-Ohlin Model.

Economics

Home bias

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.

Economics

Homogeneous

Having the property that all constituent elements are the same, as a homogeneous good.

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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 (路) is the homogeneous function, V is a vector of arguments, l>0 is any constant, and g (路) is some strictly increasing positive function. Special cases include homogeneous of degree N and linearly homogeneous.

Economics

Homogeneous function

Economics

Homogeneous good

A good all units of which are the same; a homogeneous product.

Economics

Homogeneous of degree 1

The same as linearly homogeneous and, for a production function, constant returns to scale. See homogeneous of degree N.

Economics

Homogeneous of degree N

A homogeneous function where the monotonic function is the constant raised to the exponent N : F (lV )=lN F (V ). For N >1, see increasing returns to scale; for N <1, see decreasing returns to scale.

Economics

Homogeneous of degree zero

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.

Economics

Homogeneous product

The product of an industry in which the outputs of different firms are indistinguishable. Contrasts with differentiated product.

Economics

Homohypallagic

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.

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Economics

Homothetic

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.

Economics

Homothetic demand

Demand functions derived from homothetic preferences. The demand functions are not themselves literally homothetic.

Economics

Homothetic preferences

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.

Economics

Homothetic tastes

Homothetic preferences.

Economics

Horizontal discipline

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.

Economics

Horizontal equity

Horizontal equity requires equals to be treated equally e.g. people in the same income group should be taxed at the same rate.

Economics

Horizontal integration merge, or a leading bank successfully takes-over another bank. The world's biggest contested takeover took place in 2000

Where two firms join at the same stage of production in one industry. For example two car manufacturers may decide to when British business Vodafone mounted a successful bid for German telecoms firm Mannesmann.

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Economics

Horizontal intraindustry trade

Intraindustry trade in which the exports and imports are at the same stage of processing. Likely due to product differentiation. Contrasts with vertical IIT.

Economics

Hormone dispute

See beef hormone case.

Economics

HOS Model

Heckscher-Ohlin-Samuelson Model.

Economics

Host country

The country into which a foreign direct investment is made.

Economics

HOT

Heckscher-Ohlin Theorem.

Economics

Hot money

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.

Economics

House price inflation

The annual percentage change in house prices. There are two commonly quoted measures of house price inflation - from the Halifax (Britain's largest mortgage lender) and the Nationwide Building Society.

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Economics

Household Savings Ratio

The household savings ratio is measured as the level of savings as a percentage of disposable income. In recent years there has been a fall in the savings ratio in part because consumer borrowing has reached record levels, fuelled in part by the rapid acceleration in house prices.

Economics

HOV Model

Heckscher-Ohlin-Vanek Model.

Economics

Harmonized System

Economics

Hub and spoke integration

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.

Economics

Human capital

Human capital is the stock of skills, experience and qualifications held by the labour force that can be brought into the production function. New Growth theorists believe there is a strong link between investment in human capital and long-term growth.

Economics

Human development measure how far each indicator has moved from the minimum value towards a desirable level or maximum deemed attainable. The components of the HDI are usually income, life expectancy and education. Wealth and political rights can also be added index

A composite measure of human development published by the United Nations. The HDI is comprised of components which

into the overall calculations.

Economics

Human resource management

HRM describes improvements to procedures involving recruitment, training, promotion, retention and support of faculty and staff. This becomes critical to a business when the skilled workers it needs are in short supply. Recruitment and retention of the most productive and effective employees makes a sizeable difference to corporate performance in the long run (as does the flexibility to fire those at the opposite extreme!)

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Economics

Hyperinflation

Hyperinflation is extremely rare. Recent examples include Argentina, Brazil, Georgia and Turkey (where inflation reached 70% in 1999). The classic example of hyperinflation was of course the rampant inflation in Weimar Germany between 1921 and 1923. When hyperinflation occurs, the value of money becomes worthless and people lose all confidence in money both as a store of value and also as a medium of exchange.

Economics

Hysteresis

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.

Economics

Immigration

The migration of people into a country.

Economics

Immiserizing growth

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.

Economics

Impairment

See nonviolation

Economics

Imperfect capital mobility

Any departure from perfect capital mobility, permitting interest rates or returns to capital to differ between countries.

Economics

Imperfect competition

Covers market structures between perfect competition and pure monopoly, i.e. an industry with barriers to entry and differentiated products - examples include oligopoly and duopoly.

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Economics

Consumers and producers require complete information if they are to make efficient choices. In perfectly competitive markets we assume that all agents in the market have perfect information about the availability of goods and services and also the prices charged by suppliers. Consumers can make purchasing decisions on the basis of full and free information on the products that they are buying. In reality, all of us experience information deficits which can lead to a misallocation of resources. Imperfect information Information failure occurs when people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially ‗wrong‘ choices. Consumers can never be expected to have a full-informed view about the products they are faced with in each and every market. Searching for information is time consuming and carries an obvious opportunity cost. Likewise, producers do not have full information about the products and prices being charged by their competitors.

Economics

Imperfectly competitive

Economics

Implicit price deflator GDP. Without qualification the term refers to the GDP deflator and is thus an index of prices for everything that a country

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.

A broad measure of prices derived from separate estimates of real and nominal expenditures for GDP or a subcategory of produces, unlike the CPI, which is restricted to consumption and includes prices of imports.

Economics

Implicit tariff

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.

Economics

Import

A good that crosses into a country, across its border, for commercial purposes.

Economics

Import authorization

The requirement that imports be authorized by a special agency before entering a country, similar to import licensing.

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Economics

Import bias

Any bias in favor of importing.

Economics

Import demand elasticity

The elasticity of demand for imports with respect to price.

Economics

Import duty

A tariff on imports.

Economics

Import elasticity

Usually means the import demand elasticity.

Economics

Import license

The license to import under an import quota or under exchange controls.

Economics

Import licensing

See licensing.

Economics

Import parity price

A price charged for a domestically produced good that is set equal to the domestic price of an equivalent imported good -- thus the world price plus transport cost plus tariff.

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Economics

Import penetration

Import penetration is a measure of the proportion (or percentage) of domestic demand in a particular market or industry that is taken up by overseas output. For example a rising share of coal used in energy generation comes from overseas suppliers. Import penetration is also very high in electronic goods industries, textiles and clothing.

Economics

Import price index

Price index of the goods that a country imports.

Economics

Import promotion

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.

Economics

Import propensity

The marginal propensity to import (or sometimes the average propensity, if they are different).

Economics

Import protection

See protection.

Economics

Import quota

A quota is a physical limit imposed upon the amount of a good that can be imported.

Economics

Import relief

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.

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Economics

Import substitute

A good produced on the domestic market that competes with imports, either as a perfect substitute or as a differentiated product.

Economics

Import substituting industrialization

A strategy for economic development based on replacing imports with domestic production. (ISI)

Economics

Import substitution

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.

Economics

Import surcharge

A tax levied uniformly on most or all imports, in addition to already-existing tariffs.

Economics

Import surveillance

The monitoring of imports, usually by means of automatic licensing.

Economics

Import-competing

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.

Economics

Import-export company

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.

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Economics

Imports

Imports are a withdrawal of demand (a leakage) from the circular flow of income and spending. Goods and services come into the economy for us to consume and enjoy - but there is a flow of money out of the economic system to pay for them.

Economics

Import-weighted average tariff

See trade weighted average tariff.

Economics

Impossible trinity

The impossibility of combining all three of the following: monetary independence, exchange rate stability, and full financial market integration.

Economics

Impost

A tax or tariff. (This is not a commonly used word.)

Economics

Improve the terms of increase in what the country gets in return for what it gives up, this is associated with an improvement in the country's welfare, trade although whether that actually occurs depends on the reason prices change.

Economics

Improve the trade balance

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.

Economics

In kind

Referring to a payment made with goods instead of money.

To increase the terms of trade; that is, to increase the relative price of exports compared to imports. Because it represents an

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Economics

Incentives

Incentives matter enormously in our study of microeconomics, markets and market failure. For competitive markets to work efficiently economic agents (i.e. consumers and producers) must respond to appropriate price signals in the market. Government intervention in markets can often change the incentives that both producers and consumers face - for example a change in relative prices brought about by the introduction of government subsidies and taxation.

Economics

Income

Income represents a flow of earnings from using factors of production to generate an output of goods and services.

Economics

Income disparity

Inequality of income, usually referring to differences in average per capita incomes across countries.

Economics

Income distribution

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.

Economics

Income effect

Income effects refer to changes in the real purchasing power of consumers. For example when the average price level falls, a given amount of money income can now buy more goods and services. Consumer demand for normal goods will increase, but decrease for inferior goods. Changes in real price levels affect the real incomes of households and firms.

Economics

Income elastic

Having an income elasticity greater than one.

Economics

Income elasticity

Normally the income elasticity of demand; that is, the elasticity of demand with respect to income.

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Economics

Income elasticity of demand

Income elasticity of demand measures the relationship between a change in quantity demanded and a change in real income. The formula for income elasticity is: percentage change in quantity demanded divided by the percentage change in income.

Economics

Income inelastic

Having an income elasticity less than one.

Economics

Income redistribution labor is the scarce factor, this can make sense as explained in the Stolper-Samuelson Theorem, but it is a second-best argument for a tariff argument.

Economics

Incomplete information

See complete information.

Economics

Incomplete specialization

Production of goods that compete with imports.

Economics

INCOTERMS

International commercial terms; that is, the language of international commerce.

Economics

Increasing opportunity cost

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.

The argument that tariffs should be used in order to redistribute income towards the poor. In a rich country, where unskilled

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A property of a production function such that changing all inputs by the same proportion changes output more than in

Economics

Increasing returns to 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 scale returns and constant returns.

Economics

Incremental capital output ratio

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.

Economics

Indebtedness

The amount that is owed; thus amount of an entity's (individual, firm, or government's) financial obligations to creditors.

Economics

Index

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.

Economics

Index number

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.

Economics

Index number problem

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.

Economics

Index of openness

Openness index

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Economics

Indifference curve

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.

Economics

Indirect exchange rate

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.)

Economics

Indirect tax

An indirect tax is imposed on producers (suppliers) by the government. Examples include excise duties on cigarettes, alcohol and fuel and also value added tax. Taxes are levied by the government for a number of reasons - among them as part of a strategy to curb pollution and improve the environment. A tax increases the costs of a business causing an inward shift in the supply curve. The vertical distance between the pre-tax and the post-tax supply curve shows the tax per unit. With an indirect tax, the supplier may be able to pass on some or all of this tax onto the consumer through a higher price. This is known as shifting the burden of the tax and the ability of businesses to do this depends on the price elasticity of demand and supply.

Economics

Indirect taxation

Indirect taxes are taxes on spending – such as excise duties on fuel, cigarettes and alcohol and Value Added Tax (VAT) on many different goods and services.

Economics

Industrial concentration

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.

Industrial policy

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.

Economics

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Economics

Industrialization

The establishment and subsequent growth of industrial production in a country, usually meaning heavy manufacturing.

Economics

Inelastic

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.

Economics

Inelastic offer curve

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.

Economics

Inequality

The extent to which income and wealth between the inhabitants of a country is dispersed.

Economics

Infant industry argument

The theoretical rationale for infant industry protection.

Economics

Infant industry protection

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).

Inferior goods

For normal products, more is demanded as income rises, and less as income falls. Most products are like this but there are exceptions called inferior products. They are often cheaper poorer quality substitutes for some other good. Examples include black-and-white television sets, cigarettes, white bread and several other basic foods. With a higher income a consumer can switch from the cheaper substitute to the more expensive, but preferred alternative. As a result, less of the inferior product is demanded at higher levels of income. Inferior goods have a negative income elasticity of demand.

Economics

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Economics

Infinite wants

Human beings want better food; housing; transport, education and health services. They demand the latest digital technology, more meals out at restaurants, more frequent overseas travel, better cars, cheaper food and a wider range of cosmetic health care treatments. Whilst our economic resources are limited, human needs and wants are infinite. Indeed the development of society can be described as the uncovering of new wants and needs - which producers attempt to supply by using the available factors of production.

Economics

Inflation

Inflation is a sustained rise in the general price level over time. The rate of inflation is the percentage change in a given price index over the last twelve months.

Economics

Inflation adjusted

Adjusted for inflation.

Inflation rate

The rate of inflation is measured by the annual percentage change in the level of consumer prices. The British Government has set an inflation target of 2% using the consumer price index (CPI). It is the job of the Bank of England to set interest rates so that AD is controlled and the inflation target is reached. Since the Bank of England was made independent, inflation has stayed comfortably within target range. Indeed Britain has one of the lowest rates of inflation inside the EU.

Economics

Inflation target

The Government‘s target for inflation is 2% for inflation measured by the consumer price index (CPI). It is the job of the Bank of England to set interest rates so that AD is controlled and the inflation target is reached. Since the Bank of England was made independent inflation has stayed within target range - indeed the economy has enjoyed a sustained period of low inflation.

Economics

Informal economy

The informal economy refers to undeclared economic activity.

Economics

Infrastructure

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.

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Economics

Injury

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.

Economics

Innovation

The Oxford English Dictionary defines innovation as "making changes to something established". Invention, by contrast, is the act of "coming upon or finding: discovery".

Economics

Input-output

Refers to the structure of intermediate transactions among industries, in which one industry's output is an input to another, or even to itself.

Economics

Input-output table

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

Economics

Instability

The property of not being stable; thus, moving around over time, and/or uncertain in its movement over time.

Economics

Instrument

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.

Economics

Integrated World Economy

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).

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Integration

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.

Economics

Intellectual property

Products of the mind, such as inventions, works of art, music, writing, film, etc.

Economics

Intellectual property protection

Laws that establish and maintain ownership rights to intellectual property. The principal forms of IP protection are patents, trademarks, and copyrights.

Economics

Intellectual property right

The right to control and derive the benefits from something one has invented, discovered, or created.

Economics

Intensive

Of production, using a relatively large amount of an input. See factor intensity.

Economics

Inter-American Development Bank

A development bank for the countries of Latin America and the Caribbean.

Economics

Interbank rate

The rate of interest charged by a bank on a loan to another bank. See LIBOR.

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Economics

Interdependence

Interdependence exists when the actions of one firm has an effect on its competitors in the market. Interdependence is a common feature of an oligopoly.

Economics

Interest

The amount paid by a borrower to a lender above the amount (the principal) that has been borrowed.

Economics

Interest arbitrage

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.

Economics

Interest bearing account

An account in a bank or other financial institution that pays interest to the depositor.

Economics

Interest elasticity of demand

The change in demand for a good or service brought about by a change in interest rates. The demand for many products is sensitive to interest rate changes - notably sectors of consumer demand linked to the strength of the housing market. Goods and services bought on credit might also be expected to have a relatively high interest elasticity of demand.

Economics

Interest equalization tax

A tax levied between 1963 and 1974 by the United States of 15% on interest received from foreign borrowers, intended to discourage capital outflows.

Economics

Interest parity

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.

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Economics

Interest rate

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.

Economics

Interest rate parity

Interest parity

Economics

Interest rate transmission mechanism

The transmission mechanism between the Bank changing rates and it having an effect on AgD, national output employment and inflation is complex and involves time lags. Interest changes affect household consumption and savings decisions and corporate output and capital investment decisions.

Economics

Interest rates

There is no unique rate of interest in the economy. For example we distinguish between savings rates and borrowing rates. However interest rates tend to move in the same direction. For example if the Bank of England cuts the base rate of interest then we expect to see lower mortgage rates and lower rates on savings accounts with Banks and Building Societies.

Economics

Interindustry trade

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.

Economics

Intermediate good

Same as intermediate input.

Economics

Intermediate input

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.

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Economics

Intermediate transaction

The sale of a product by one firm to another, presumably to be used as an intermediate input.

Economics

Intermittent dumping

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.

Economics

Intermodalism

The use of more than one form (mode) of transportation, as when a shipment travels by both sea and rail.

Economics

Internal balance

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.

Economics

Internal debt

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.

Economics

Internal economies of 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. scale

Economics

Internal expansion

Firms can generate higher sales and increased market share by expanding their operations and exploiting possible economies of scale. The alternative is to grow externally through mergers and takeovers. See also integration of firms.

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Economics

Internal growth

Internal growth occurs when a business gets larger by increasing the scale of its own operations rather than relying on integration with other businesses.

Economics

Internal market

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.

Economics

Internalization

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.

Economics

Internalize

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.

Economics

International

Involving transactions or relations between nations. The term, according to Suganami (1978), was coined by Bentham (1789).

Economics

International adjustment process

Any mechanism for change in international markets.

Economics

International Bank for The largest of the five institutions that comprise the World Bank Group, IBRD provides loans and development assistance to Reconstruction & middle-income countries and creditworthy poorer countries. Development

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Economics

International Centre for Settlement of Investment Disputes

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.

Economics

International Cocoa Organization

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.

Economics

International Coffee Organization

An intergovernmental organization set up in 1963 that administers the International Coffee Agreement. See international commodity agreement.

Economics

International commodity agreement

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.

Economics

International A program currently coordinated by the World Bank to gather extensive information about prices in many countries so as to Comparison Program ascertain the purchasing power of their currencies and thus permit international comparisons of real incomes.

Economics

International competitiveness

See competitiveness.

Economics

International Cotton Advisory Committee

An association of governments dealing with cotton. It grew out of an International Cotton Meeting in 1939. See international commodity agreement.

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Economics

International Development Association

One of the five institutions that comprise the World Bank Group, IDA provides interest free loans and other services to the poorest countries.

Economics

International economics

The study of economic interactions among countries -- including trade, investment, financial transactions, and movement of people -- and the policies and institutions that influence them.

Economics

International exhaustion

See exhaustion.

Economics

International factor movement

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.

Economics

International finance

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.

Economics

International Finance 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. Corporation

Economics

International financial Usually refers to intergovernmental organizations dealing with financial issues, most often the IMF and/or the World Bank. institution

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Economics

International Fisher Effect

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.

Economics

International Grains Council

An intergovernmental organization, concerned with grains trade, that administers the Grains Trade Convention of 1995. See international commodity agreement.

Economics

International institution

An organization established by multiple national governments, usually to administer a program or pursue a purpose that the governments have agreed upon.

Economics

International investment

International capital movement

Economics

International Jute Organization

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.

Economics

International Labor Organization

A United Nations specialized agency that establishes and monitors compliance with international standards for human and labor rights.

Economics

International Lead The international organization formed in 1959 to share information about lead and zinc. See international commodity and Zinc Study Group agreement.

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Economics

International liquidity Refers to the adequacy of a country's international reserves.

Economics

International macroeconomics

Economics

International Same as international finance, but with more emphasis on the role of money and less on other financial assets. monetary economics

Economics

International Monetary Fund

Economics

International Olive Oil The intergovernmental organization in charge of administering the International Olive Oil Agreement, which originated in 1956. See international commodity agreement. Council

Economics

International Organization for Migration

International organization assisting migrants and the management of migration.

Economics

International parity conditions

Refers collectively to purchasing power parity and interest parity.

Same as international finance, but with more emphasis on the international determination of macroeconomic variables such as national income and the price level.

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.

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Economics

International political A field of study within social science, especially political science, that addresses the interrelationships between international economics and political forces and institutions. economy

Economics

International reserves exchange market to influence or peg the exchange rate. Usually includes foreign currencies themselves (especially US

The assets denominated in foreign currency, plus gold, held by a central bank, sometimes for the purpose of intervening in the dollars), other assets denominated in foreign currencies, gold, and a small amount of SDRs.

Economics

International Rubber Study Group

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.

Economics

International specialization

See specialization.

Economics

International Sugar Organization

An intergovernmental body that administers the International Sugar Agreement of 1992. See international commodity agreement.

Economics

International trade

See trade.

Economics

International Trade Administration

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.

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Economics

International Trade Commission

An independent, quasi-judicial federal agency of the U.S. government that provides information and expertise to the legislative and executive branches of government and directs actions against unfair trade practices. In trade policy, its commissioners assess injury in cases filed under the escape clause, anti-dumping, and countervailing duty statutes.

Economics

International Trade Organization

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.

Economics

International Tropical An organization created in 1983 for consultation among producers and consumers of tropical timber. An objective was that all Timber Organization timber traded by members should originate from sustainably managed forests.

Economics

Internationalization

Another term for fragmentation. Used by Grossman and Helpman (1999).

Economics

Intertemporal

Occurring across time, or across different periods of time.

Economics

Intertemporal trade

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.

Economics

Intervention

See exchange market intervention.

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Economics

Intervention currency A currency that is commonly used by central banks for exchange market intervention. See reserve currency.

Economics

Intraindustry trade

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.

Economics

Intra-mediate trade

Another term for fragmentation. Used by Antweiler and Trefler (2002).

Economics

Intra-product specialization

Another term for fragmentation. Used by Arndt (1997).

Economics

Inventories

Goods being kept on hand for future use in production or future sale.

Economics

Invertible

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.

Economics

Investment

Addition to the stock of capital of a firm or country.

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Economics

Invisible

In referring to international trade, used as a synonym for "service." "Invisibles trade" is trade in services. Contrasts with visible.

Economics

Invisible hand

The 18th Century economist Adam Smith - one of the founding fathers of modern economics, described how the invisible or hidden hand of the market operated in a competitive market through the pursuit of self-interest to allocate resources in society's best interest. This remains the central view of all free-market economists, i.e. those who believe in the virtues of a free-market economy with minimal government intervention.

Economics

Invoice

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.

Economics

IOM

International Organization for Migration

Economics

Intellectual property

Economics

IPE

International political economy

Economics

IPRs

Intellectual property rights

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Economics

IRS

Increasing returns to scale = IRTS.

Economics

IRTS

Increasing returns to scale.

Economics

IS-Curve

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.

Economics

ISI

Import substituting industrialization

Economics

IS-LM Model

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.

Economics

IS-LM-BP Model

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.

Economics

Isocost line

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.

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Economics

Iso-price curve

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.

Economics

Isoquant

A curve representing the combinations of factor inputs that yield a given level of output in a production function.

Economics

Israel-US Free Trade A free trade area between the United States and Israel that was initiated in 1985. Area

Economics

ITA

International Trade Administration

Economics

ITC

International Trade Commission

Economics

ITO

International Trade Organization

Economics

IWE

Integrated World Economy

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Economics

J-curve

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".

Economics

Joint Supply

Joint supply describes a situation where an increase or decrease in the supply of one good leads to an increase or decrease in supply of another. For example an expansion in the volume of beef production will lead to a rising market supply of beef hides. A contraction in supply of lamb will reduce the supply of wool.

Economics

Joint venture

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.

Economics

Jones Act

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.

Economics

Jones' hat algebra

See hat algebra.

Economics

Jubilee 2000

A movement advocating the cancellation of debts that burden developing countries, intended to occur in the year 2000.

Economics

Joint venture

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The criterion that, for a change in policy or policy regime to be viewed as beneficial, the gainers should be able to compensate

Economics

Kaldor-Hicks Criterion 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).

Economics

Kaleidoscope comparative advantage

A variant of fragmentation due to Bhagwati and Dehejia (1994).

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.

Economics

Keiretsu

Economics

Kemp-Wan Theorem for the world, so long as nondistorting lump-sum transfers within the union are possible. This is accomplished by setting the

The proposition, due to Kemp and Wan (1976), that any group of countries can form a customs union that is Pareto-improving vector of common external tariffs so as to leave world prices unchanged.

Economics

Kennedy Round

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.

Economics

Keynes

A British economist who is most noted for his work The General Theory of Employment, Interest, and Money, published 1936. The General Theory formed the foundation of Keynesian economics and created the modern study of macroeconomics.

Economics

Keynesian consumption theory

John Maynard Keynes developed a theory of consumption that focused primarily on the importance of people‘s disposable income in determining their spending. A rise in real income gives people greater financial resources to spend or save. The rate at which consumers increase demand as income rises is called the marginal propensity to consume.

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Economics

Kinked demand curve

The kinked demand curve model assumes that a business might face a dual demand curve for its product based on the likely reactions of other firms in the market to a change in its price or another variable.

Economics

Knowledge-based industries

Knowledge based industries are essentially service industries. Examples include communication, finance, and personal services. However hi-tech manufacturing also comes under this umbrella term. This would include pharmaceuticals, computer hardware and software industries and TV and other communication equipment.

Economics

Kuznets Curve

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).

Economics

Labeling

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.

Economics

Labor abundant

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.

Economics

Labor augmenting

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.

Economics

Labor demand

There is normally an inverse relationship between the demand for labour and the wage rate that a business needs to pay for each additional worker employed.

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Economics

Labor force

The labour force is defined as the number of people either in work or actively seeking paid employment and available to start work.

Economics

Labor intensive

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.

Economics

Labor market

This is made up of firms willing to employ workers and labour seeking employment. The demand for labour by firms is downward sloping with respect to wage (price of labour), while the supply of labour by households is upward sloping with respect to wage. The labour market is in equilibrium where the demand for labour equals the supply of labour.

Economics

Labor market discrimination

Discrimination is a cause of labour market failure and a source of inequity in the distribution of income and wealth and it is usually subject to government intervention e.g. through regulation and legislation.

Economics

Labor market incentives

Cuts in income tax might be used to improve incentives for people to seek work and also as a strategy to boost labour productivity. Some economists argue that welfare benefit reforms are more important than tax cuts in improving incentives – in particular to create a ―wedge‖ or gap between the incomes of those people in work and those who are in voluntary unemployment.

Economics

Labor productivity

The value of output per unit of labor input. The reciprocal of the unit labor requirement.

Economics

Labor right

See labor standard.

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Economics

Labor scarce

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.

Economics

Labor standard

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.

Economics

Labor standards argument for protection

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.

Economics

Labor theory of value

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.

Economics

Labor-saving

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

Economics

Labor-using

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

Economics

Laffer Curve

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.

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Economics

LAFTA

Latin American Free Trade Association

Economics

Lagging indicator

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.

Economics

Lagrangian

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.

Economics

LAIA

Latin American Integration Association

Economics

Laissez faire

Free enterprise. The doctrine or system of government non-interference in the economy except as necessary to maintain economic freedom. Includes free trade.

Economics

Land

Land is the natural resources available for production. Some nations are endowed with natural resources and specialise in the extraction and production of these resources – for example – the development of the North Sea Oil and Gas in Britain and Norway.

Economics

Land reform

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.

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Economics

Large country

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.

Economics

Latent demand

Latent demand exists when there is willingness to purchase a good or service, but where the consumer lacks the real purchasing power to be able to afford the product. Latent demand is affected by persuasive advertising - where the producer is seeking to influence consumer tastes and preferences.

Economics

Latin American Free Trade Association

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.

Economics

Latin American Integration Association

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.

Economics

Laurel-Langley Agreement

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.

Economics

Laursen-Metzler Effect

See Harberger-Laursen-Metzler Effect.

Economics

Law of Comparative Advantage

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).

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Economics

Law of demand

The law of demand is that there is an inverse relationship between the price of a good and demand. As prices fall we see an expansion of demand. If price rises there should be a contraction of demand.

Economics

Law of Diminishing Returns

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.

Economics

Law of One Price

The principle that identical goods should sell for the same price throughout the world if trade were free and frictionless.

Economics

Law of unintended consequences

The law of unintended consequences is that actions of consumer and producers — and especially of government—always have effects that are unanticipated or "unintended." Particularly when economic agents do not always act in the way that the economics textbooks would predict.

Economics

LDC

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.

Economics

Leading indicator

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.

Economics

Learning by doing

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.

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Economics

Learning curve

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.

Economics

Least Developed Country

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.

Economics

An institution that has the capacity and willingness to make loans when no one else can. Within a country, the central bank Lender of Last Resort 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.

Economics

Leontief composite

A composite of two or more goods or factors that includes them in fixed proportions, analogous to the Leontief technology.

Economics

Leontief Paradox

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.

Economics

Leontief production function

See Leontief technology.

Economics

Leontief technology

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.

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Economics

Lerner paradox

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.

Economics

Lerner Symmetry Theorem

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).

Economics

Lerner-Pearce Diagram

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.

Economics

Less developed country

Refers to any country whose per capita income is low by world standards. Same as developing country.

Economics

Letter of credit

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.

Economics

Level playing field

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.

Economics

Levy

To impose and collect a tax or tariff.

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Economics

Liability

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.

Economics

Liberal

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.

Economics

Liberal trade

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.

Economics

Liberalism

The set of views associated with being liberal, in the sense of freedom.

Economics

Liberalization

The process of making policies less constraining of economic activity.

Economics

LIBOR

London interbank offered rate.

Economics

Licensing

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.

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Economics

Life cycle

See product cycle.

Economics

Life expectancy

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.

Economics

Light manufacturing

Sectors of the economy that produce manufactured goods without large amounts of physical capital, thus likely to be labor intensive.

Economics

Limit pricing

When a firm sets price just low enough to discourage possible new entrants.

Economics

Linder Hypothesis

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).

Economics

Linear regression model

A linear relationship between a dependent variable and one or more independent variables plus a stochastic disturbance: Yi=b0+b1X1i+...+bnXni+ui.

Economics

Linearly homogeneous

Homogeneous of degree 1. Sometimes called linear homogeneous.

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Economics

Linking scheme

A requirement that, in order to get an import license, the importer must buy a certain amount of the same product from local producers.

Economics

Liquid

Possessing liquidity.

Economics

Liquid assets

The assets in a portfolio that possess liquidity, or the total value of those assets.

Economics

Liquidity

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.

Economics

Liquidity crisis

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.

Economics

Liquidity trap

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.

Economics

Living wage

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.

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Economics

LM-Curve

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.

Economics

Loan

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.

Economics

Local content requirement

See domestic content requirement.

Economics

Local optimum

An allocation that by some criterion is better than all those in its neighborhood.

Economics

Locational advantage resource, transport cost, or barriers to trade. May explain why a country's firms succeed in trade, or why a multinational firm

Any reason for a firm to locate production, or a stage of production, in a particular place, such as availability of a natural locates there. (See OLI.)

Economics

Locomotive effect

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.

Economics

Logarithm

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.

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Economics

Logrolling

The exchange of political favors, especially among legislators who agree to support each others' initiatives. Logrolling contributed importantly to the Smoot-Hawley Tariff.

Economics

Lomé Convention

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.

Economics

London interbank offered rate

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.

Economics

Long run

The long run in economics is defined as a period of time in which all factor inputs can be changed. The firm can therefore alter the scale of production. If as a result of such an expansion, the firm experiences a fall in long run average total cost, it is experiencing economies of scale. Conversely, if average total cost rises as the firm expands, diseconomies of scale are happening.

Economics

Long run aggregate supply

Long run aggregate supply (LRAS) shows total planned output when both prices and average wage rates can change – it is a measure of a country‘s potential output and the concept is linked strongly to that of the production possibility frontier.

Economics

Long-term capital

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).

Economics

Lorenz Curve

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.

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Economics

Lost Decade

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.

Economics

Louvre Accord

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.

Economics

Love of variety

Preference for variety.

Economics

Ltd

The abbreviation used in the United Kingdom to represent a limited liability company, thus analogous to "Inc", for incorporated, in the United States.

Economics

Lump sum

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.

Economics

M0 (narrow money)

M0 (Narrow money) - comprises notes and coins in circulation banks' operational balances at the Bank of England. Over 99% of M0 is made up of notes and coins as cash is used mainly as a medium of exchange. Most economists believe that changes in M0 have little effect on total national output and inflation. At best M0 is seen as a co-incident indicator of consumer spending and retail sales. M0 reflects changes in the economic cycle, but does not cause them.

Economics

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.

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Economics

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.

Economics

M4 (broad money)

M4 (Broad money) includes deposits saved with banks and building societies and money created by lending in the form of loans and overdrafts. M4 = M0 plus sight (current accounts) and time deposits (savings accounts). When a bank or another lender grants a loan to a customer, bank liabilities and assets raise by the same amount and so does the money supply.

Economics

Maastricht Treaty

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.

Economics

Macroeconomic

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.

Economics

Macroeconomic equilibrium

Macro-economic equilibrium is established when AD intersects with SRAS. The output and the general price level in the economy will tend to adjust towards this equilibrium position. If the general price level is too high for example, there will be an excess supply of output and producers will experience an increase in unsold stocks. This is a signal to cut back on production to avoid an excessive level of inventories. If the price level is below equilibrium, there will be excess demand in the short run leading to a run down of stocks – a signal for producers to expand output.

Economics

Macroeconomic objectives

Government macroeconomic objectives are low and stable inflation & unemployment, high & sustainable economic growth, a satisfactory balance of payments and an acceptable distribution of income.

Economics

Macroeconomic policy

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.

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Economics

Macroeconomics

Macroeconomics is more concerned with the economy as a whole. For example, how the levels of output, inflation, employment, growth, imports and exports are determined.

Economics

Made-to-measure tariff

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.

Economics

Magnification effect

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).

Economics

MAI

Multilateral Agreement on Investment

Economics

Managed float

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.

Economics

Managerial economies

A large manufacturer can employ specialist staff to supervise production, thus cutting managerial costs per unit. Greater control of the workforce should raise labour productivity. Specialist administrative equipment, like networked systems of computers, can be used profitably in large firms. The cost of transmitting business information is reduced and employees can communicate more effectively.

Economics

Mandated countertrade

A requirement by government that importing firms engage in countertrade, as a means of increasing exports.

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Economics

Manufactured good

A good that is produced by manufacturing.

Economics

Manufacturing

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.

Economics

Maquiladora

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.

Economics

Marginal analysis

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.

Economics

Marginal cost

Marginal cost is defined as the change in total costs resulting from increasing output by one unit. Marginal costs relate to variable costs only. Changes in fixed costs in the short run affect total costs, but not marginal costs.

Economics

Marginal product

Marginal product (MP) = the change in total output from adding one extra unit of labour.

Economics

Marginal profit

The amount by which a firm's profit rises or falls when output increases by one unit; thus marginal revenue minus marginal cost.

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Economics

Marginal propensity

The fraction of a change in income devoted to an activity, such as consumption, importing, or saving. See propensity.

Economics

Marginal propensity to consume

The marginal propensity to consume is the proportion of each extra pound spent by consumers. If the MPC = 0.8 consumers spend 80p of every extra pound received – they save or use for tax or import payments the remaining 20p.

Economics

Marginal propensity to import

Consumers in Britain have a high marginal propensity to import goods and services so that when their real incomes are rising and their spending increases, so too does the demand for imports. Unless there is a corresponding increase in UK exports overseas, then the balance of trade in goods and services will move towards heavier deficit.

Economics

Marginal propensity to save

Marginal propensity to save (mps) = the change in saving divided by the change in income. The MPS is a component of the function used to calculate the national income multiplier. If the marginal propensity to save rises, then (ceteris paribus) we expect to see a rise in the value of the multiplier.

Economics

Marginal rate of substitution

In a production function or a utility function, the ratio at which one argument (input) substitutes for another along an isoquant or indifference curve.

Economics

Marginal rate of More complete name for the marginal rate of substitution between factors in a production function, sometimes used to technical substitution distinguish it from the analogous concept in a utility function.

Economics

Marginal rate of transformation

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.

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Economics

Marginal returns

Loosely, the extra that you get in return for doing more of something.

Economics

Marginal revenue

Marginal Revenue (MR) = The change in revenue from selling one extra unit of output.

Economics

Marginal revenue product

Marginal Revenue Product (MRPL) measures the change in total revenue for a firm from selling the output produced by additional workers employed.

Economics

Marginal utility

Marginal Utility is the change in total utility or satisfaction resulting from the consumption of one more unit of a good. The hypothesis of diminishing marginal utility states that as the quantity of a good consumed increases, the marginal utility falls.

Economics

Marginal value product

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.

Economics

Marginalism

The belief that marginal analysis provides a useful theory of economic behavior.

Economics

Marine Mammal Protection Act

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 tunadolphin case.

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Economics

Market

The interaction between supply and demand to determine the market price and corresponding quantity bought and sold.

Economics

Market access

The ability of firms from one country to sell in another.

Economics

Market adjustment

The process by which the economy moves to a new market equilibrium when conditions change.

Economics

Market balance

Equality of supply and demand.

Economics

Market clearing

Equality of supply and demand. A market-clearing condition is an equation (or other representation) stating that supply equals demand. A market-clearing price is a price that causes supply and demand to be equal.

Economics

Market demand

Market demand is the sum of the individual demand for a product from each consumer in the market. If more people enter the market, then demand at each price level will rise. For example, market demand for mobile phones has expanded rapidly over the last few years as call costs have fallen. Eventually though the market demand for mobile phones will reach saturation point every product has a life-cycle.

Economics

Market dominance

Market dominance occurs when a firm acquires monopoly power.

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Economics

Market dynamics

The process by which market adjustment takes place. Common examples include Walrasian and Marshallian.

Economics

Market economy

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.

Economics

Market equilibrium

Equilibrium means a state of equality between demand and supply. Without a shift in demand and/or supply there will be no change in market price. Prices where demand and supply are out of balance are termed points of disequilibrium. Changes in the conditions of demand or supply will shift the demand or supply curves. This will cause changes in the equilibrium price and quantity in the market.

Economics

Market failure

Market failure occurs when freely-functioning markets, fail to deliver an efficient allocation of resources. The result is a loss of economic and social welfare.

Economics

Market failure under monopoly

The standard case against monopoly is that the monopoly price is higher than both marginal and average costs leading to a loss of allocative efficiency and a failure of the market mechanism.

Economics

Market imperfection

Any departure from the ideal benchmark of perfect competition, due to externalities, taxes, market power, etc.

Economics

Market mechanism

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.

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Economics

Market power

Market power refers to the ability of a firm to influence or control the terms and condition on which goods are bought and sold. Monopolies can influence price by varying their output because consumers have limited choice of rival products.

Economics

Market power

Ability of a firm or other market participant to influence price by varying the amount that it chooses to buy or sell.

Economics

Market price

The price at which a market clears.

Economics

Market rate

The interest rate or exchange rate at which a market clears.

Economics

Market structure

Markets can be characterised according to how many suppliers are seeking the demand of consumers. The spectrum of competition ranges from competitive markets where there are many sellers, each of whom has little or no control over the market price - to a pure monopoly where a market or an industry is dominated by one single supplier. In many sectors of the economy we see an oligopoly - where a just a few producers dominate the majority of the market. In a duopoly two firms dominate the market.

Economics

Market supply

Market supply is the total amount of an item producers are willing and able to sell at different prices, over a given period of time egg one month. Industry, a market supply curve is the horizontal summation of all each individual firm‘s supply curves.

Economics

Market value

See factor cost.

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Economics

Marketable pollution permits

A marketable pollution permit gives a firm the right to emit a given quantity of waste / pollution in a given time period. The quantity of pollution permits issued is determined by the regulators / government as they aim curb pollution to a socially optimum level. These permits can be bought and sold.

Economics

Marketing board

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.

Economics

A large-scale manufacturer can buy raw materials and other inputs (components) in bulk and thereby negotiate lower prices than the small manufacturer. When a major buyer in a market has substantial buying power, this is termed a monopsony. For example, the major hotel chains can buy the consumables used in hotel rooms at much lower cost than individual consumers. Marketing economies The motor industry can use its monopsony power when negotiating the supply of tyres, in-car entertainment systems and other component parts. The average cost of selling each unit produced can also be lower, because advertising and marketing costs can be spread over a large output sold and specialist salesmen/buyers are employed to maximise sales.

Economics

Markup

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.

Economics

Marshall Plan

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.

Economics

Marshallian adjustment

A market adjustment mechanism in which quantity rises when demand price exceeds supply price and falls when supply price exceeds demand price.

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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.

Economics

Marshall-Lerner condition

Economics

Marxist

Referring to the writings of Karl Marx and to a body of economic thought based, more or less loosely, on those writings.

Economics

Material injury

The injury requirement of the AD and CVD statutes, understood to be less stringent than serious injury but otherwise apparently not precisely defined.

Economics

Maximum price

The Government can set a legally imposed maximum price in a market that suppliers cannot exceed - in an attempt to prevent the market price from rising above a certain level. To be effective a maximum price has to be set below the free market price. One example of a maximum price might be for foodstuffs when a shortage of essential foodstuffs threatens a very large rise in the free market price. Other examples include rent controls on properties - for example the complex system of rent controls still in place in Manhattan in the United States.

Economics

Maximum price system

Similar to a minimum price system, except that the price specified is the highest, rather than the lowest, permitted for an imported good.

Economics

Maximum revenue tariff

A tariff set to collect the largest possible revenue for the government.

Economics

Meade Geometry

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.

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Economics

Mean

The arithmetic average of the values of an economic or statistical variable. For a variable x with values x i , i= 1,…,n , the mean is mean(x ) = Si =1…n (x i /n ).

Economics

Means tested benefits

The process of means-testing looks at the levels of income and wealth of an individual or household to assess if they are entitled to something.

Economics

Measure of economic 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. welfare

Economics

Mercantilism

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.

Economics

Merchandise trade

Exports and imports of goods. Contrasts with trade in services.

Economics

MERCOSUR

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.

Economics

Mergers

Mergers take place when two businesses agree to merge their operations and become one single company. There are different types of integration between firms - see also horizontal and vertical integration.

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Economics

Merit good

A merit good is a product that the government believes consumers undervalue and under-consume because of imperfect information.

Economics

METI

Ministry of Economy, Trade and Industry.

Economics

Metzler Condition

Economics

Metzler paradox

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.

Economics

MEW

Measure of economic welfare.

Economics

MFA

Multifiber Arrangement.

Economics

MFN

Most Favored Nation.

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Economics

MFN rate

MFN tariff.

Economics

MFN status

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.

Economics

MFN tariff

The tariff level that a member of the GATT/WTO charges on a good to other members.

Economics

Microeconomics

Microeconomics concerns itself with the study of economics and decisions taken at the level of the individual firm, industry or consumer / household. Microeconomics is also concerned with how prices are determined in markets; how much people get paid in different occupations; how we decide what to buy; the effects of government intervention on the prices and quantities of individual goods and services and the efficiency with which our scarce resources are used.

Economics

Middle product

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.

Economics

MIGA

Multilateral Investment Guarantee Agency

Economics

Migration

The permanent relocation of people from one country to another. See emigration, immigration.

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Economics

Millennium Round

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.

Economics

Mill's test

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.

Economics

Minimum efficient scale

The minimum efficient scale (MES) is the scale of production where the internal economies of scale have been fully exploited. It corresponds to the lowest point on the long run average cost curve

Economics

Minimum import price See minimum price system.

Economics

Minimum price

A minimum price is a legally imposed price floor below which the normal market price cannot fall. To be effective the minimum price has to be set above the normal equilibrium price. A good example of this is minimum wage legislation currently in force in the UK. The National Minimum Wage was introduced by the Labour Government in April 1999. The main adult rate for the minimum wage in the UK is ÂŁ4.80 per hour.

Economics

Minimum price system

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.

Economics

Minimum wage

The National Minimum Wage was introduced in the UK with effect from 1st April 1999. It is a legally guaranteed wage rate for workers aged 18 years or older.

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Economics

Minister of International Trade

Title, in many but not all countries, of the trade minister.

Economics

Ministerial

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).

Economics

Ministry of Economy, The Japanese government ministry that deals with economic issues, including the vitality of the private sector, external economic relations, energy policy, and industrial development. Trade and Industry

Economics

Ministry of International Trade and Industry

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.

Economics

Missing trade

See mystery of the missing trade.

Economics

MITI

Ministry of International Trade and Industry

Economics

Mixed economy

The price mechanism is the only allocative mechanism solving the economic problem in a free market economy. However, most modern economies are mixed economies, comprising not only a market sector, but also a non-market sector, where the government uses the planning mechanism to provide goods and services such as police, roads and health.

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Economics

Mixing regulation

Specification of the proportion of domestically produced content in products sold on the domestic market.

Economics

MNC

Multinational Corporation

Economics

MNE

Multinational Enterprise

Economics

Modality

Method or procedure. WTO documents speak of modalities of negotiations, i.e., how the negotiations are to be conducted.

Economics

Mode of supply

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.

Economics

Model

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.

Monetary approach

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.

Economics

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Economics

Monetary base

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.

Economics

Monetary independence

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.

Economics

Monetary integration The adoption of a common currency by two or more countries.

Economics

Monetary policy

Monetary policy now involves changes in interest rates to influence the rate of growth of AD. A tightening of monetary policy involves higher interest rates to reduce consumer and investment spending. Monetary Policy is now in the hand of the Bank of England –it decides on interest rates each month.

Economics

Monetary policy asymmetry

Fluctuations in interest rates do not have a uniform impact on the economy. Some industries are more affected by base rate changes than others (for example exporters and industries connected to the housing market). And, some regions of the British economy are also more exposed (sensitive) to a change in the direction of interest rates.

Economics

Monetary union

Two or more countries sharing a common currency.

Economics

Monetize

To turn anything into money.

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Economics

Money

Money is defined as any asset that is acceptable as a medium of exchange in payment for goods and services.

Economics

Money income

Nominal income; contrasts with real income.

Economics

Money market

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.

Economics

Money overhang

A money supply that is larger than people want to hold at prevailing prices. 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.

Economics

Money supply

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.

Economics

Monopolistic

Having some power to set price.

Economics

Monopolistic competition

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.

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Economics

Monopoly

A pure monopolist is a single seller of a product in a given market or industry. In simple terms this means the firm has a market share of 100%. The working definition of a monopolistic market relates to any firm with greater than 25% of the industries' total sales. Monopolies can develop in a variety of ways:

Economics

Monopoly argument

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.

Economics

Monopsony

As a firm grows in size it can purchase its factor inputs in bulk at negotiated discounted prices. This is particularly the case when a firm has monopsony (buying) power in the market.

Economics

Monopsony employer

A monopsony producer has significant buying power in the labour market when seeking to employ extra workers. A monopsony employer may use their buying-power to drive down wage rates.

Economics

Monotonic

Changing in one direction only; thus either strictly rising or strictly falling, but not reversing direction.

Economics

Moral hazard

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.

Mortgage equity withdrawal

Mortgage equity withdrawal (also known as housing equity loans) is new borrowing secured on the value of housing that is not invested in the housing stock. In other words, home-owners can take out housing equity loans to finance major items of spending and add that loan to their existing mortgage. Some people use housing equity loans to pay-off unsecured loans for example on their credit cards. The acceleration in UK house prices in the last few years has seen a re-emergence of housing equity withdrawal.

Economics

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The principle, fundamental to the GATT, of treating imports from a country on the same basis as that given to the most favored

Economics

Most Favored Nation 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.

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.

Economics

Mothballing

Economics

Movement of natural persons employed by or associated with a firm in order to participate in the firm's business. Also called temporary producer persons movement.

Economics

MPC

Marginal propensity to consume.

Economics

MRS

Marginal rate of substitution.

Economics

MRT

Marginal rate of transformation.

Economics

Multi-cone equilibrium single country, and instead there are multiple diversification cones. This, or a two cone equilibrium, will arise if countries' factor

One of four modes of supply under the GATS, this involving the temporary movement across national borders of natural

A free-trade equilibrium in the Heckscher-Ohlin Model in which prices are such that all goods cannot be produced within a endowments are sufficiently dissimilar compared to factor intensities of industries. Contrasts with one cone equilibrium.

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Economics

Multifactor model

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.

Economics

Multifiber Arrangement

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.

Economics

Multifunctionality

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.

Economics

Multilateral

Among a large number of countries. Contrasts with bilateral and plurilateral.

Economics

Multilateral agreement

An agreement among a large number of countries.

Economics

Multilateral Agreement on Investment

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.

Economics

Multilateral aid

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.

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Economics

Multilateral Investment Guarantee Agency

One of the five institutions that comprise the World Bank Group, MIGA helps encourage foreign investment in developing countries.

Economics

Multinational corporation

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.

Economics

Multinational enterprise

A firm, usually a corporation, that operates in two or more countries. In practice the term is used interchangeably with multinational corporation.

Economics

Multiple equilibria

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.

Economics

Multiplier

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.

An initial change in aggregate demand can have a much greater final impact on the level of equilibrium national income. This is commonly known as the multiplier effect and it comes about because injections of demand into the circular flow of income stimulate further rounds of spending – in other words ―one person‘s spending is another‘s income‖ – and this can lead to a much bigger effect on equilibrium output and employment.

Economics

Multiplier effect

Economics

Multistage production Another term for fragmentation. Used by Dixit and Grossman (1982).

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Economics

Mundell-Fleming Model

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).

Economics

Mutatis mutandis

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.

Economics

Mutual recognition

The acceptance by one country of another country's certification that a satisfactory standard has been met for ability, performance, safety, etc.

Economics

Mystery of the missing trade

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.

Economics

NAIRU

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.

Economics

Narrow money

Economics

Nash

Used as an adjective applied to a strategy in a game, this means that it is part of a Nash equilibrium.

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Economics

Nash equilibrium

An idea important to game theory which describes any situation where all of the participants in a game are pursuing their best possible strategy given the strategies of all of the other participants.

Economics

Nation

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.

Economics

National

(adj.) Of, relating to, or belonging to a nation.

Economics

National Bureau of Economic Research

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.

Economics

National debt

The accumulated government debt created through government borrowing when it is running a budget deficit. If the government manages to achieve a budget surplus, some of the national debt might be repaid.

Economics

National defense argument for protection

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.

Economics

National exhaustion

See exhaustion.

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Economics

National income

Economics

National Income and The statistics collected by the Bureau of Economic Analysis on aggregate economic activity in the United States. Product Accounts

Economics

National sovereignty

See sovereignty.

Economics

National treatment

The principle of providing foreign producers and sellers the same treatment provided to domestic firms.

Economics

Natural monopoly

For a natural monopoly the long-run average cost curve falls continuously over a large range of output.

Economics

Natural person

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.

Economics

Natural rate of unemployment

The natural rate of unemployment is the unemployment rate at the full employment level of national income where there is no cyclical unemployment but inevitable frictionally and structurally unemployed.

National income refers to money measurements of economic activity in a country over a period of time.

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Economics

Natural resource

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.

Economics

Natural trade

Trade that is either free or restricted, but that is not artificially encouraged by subsidies or other stimulants.

Economics

Natural trading bloc

A trading bloc consisting of natural trading partners.

Economics

Natural trading partner

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).

Economics

NBER

National Bureau of Economic Research

Economics

NDP

Net domestic product

Economics

Necessity test

A procedure to determine whether a trade restriction intended to serve some purpose is necessary for that purpose.

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Economics

Needs and wants

Humans have many different types of wants and needs egg: economic, social and psychological. In economics the focus is on studying how material wants and needs are satisfied: A need is something essential for survival egg food satisfies hungry people. A want is something desirable but not essential to survival egg cola quenches thirst. Household (consumer) wants and needs are satisfied (met) by consuming (using) products i.e. goods or services.

Economics

Negative externalities

Negative externalities occur when production and/or consumption impose external costs on third parties outside of the market for which no appropriate compensation is paid.

Economics

Negative list

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.

Economics

Neighborhood

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.

Economics

Neighborhood production structure

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.

Economics

Neoclassical

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.

Economics

Neoclassical ambiguity

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.

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Economics

Neoclassical economics

Most of modern, mainstream economics based on neoclassical assumptions. Tends to ascribe inevitability, if not necessarily desirability, to market outcomes.

Economics

Neoclassical growth model

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).

Economics

Neoclassical production function

A production function with the properties of constant returns to scale and smoothly diminishing returns to individual factors.

Economics

Neoliberalism

A view of the world that favors social justice while also emphasizing economic growth, efficiency, and the benefits of free markets.

Economics

NES

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.

Economics

Net domestic product

Gross domestic product minus depreciation. 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.

Economics

Net economic welfare Same as MEW

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Net Exports

Net exports (X-M) reflect the net effect of international trade on the level of aggregate demand. When net exports are positive, there is a trade surplus (adding to AD); when net exports are negative, there is a trade deficit (reducing AD).

Economics

Net foreign asset position

The value of the assets that a country owns abroad, minus the value of the domestic assets owned by foreigners. Equals balance of indebtedness.

Economics

Net foreign factor income

The income of a country's factors earned abroad minus the income paid to foreign-owned factors domestically.

Economics

Net international reserves

International reserves minus reserves that have been borrowed from the IMF and other governments.

Economics

Net investment

Economic activity results in capital consumption – machines become worn out and obsolescent. Net investment only occurs after such depreciation of fixed assets is taken into account. Net investment = gross investment – depreciation.

Economics

Net national product

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.

Economics

Net output

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.

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Economics

Net present value

Same as present value, being sure to include (negative) payments as well as (positive) receipts.

Economics

Network

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.

Economics

Neutral

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.

Economics

NEW

Net economic welfare

Economics

New bancor

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.

Economics

New classical economics

A branch of economics that stresses the importance of competitive markets as a way of improving economic welfare. New classical economists believe that markets clear rapidly - i.e. excess demand in a market will cause higher prices; excess supply causes a fall in prices. They believe that government economic policy should allow the free operation of markets and that intervention should be limited to allowing private sector markets to work efficiently.

Economics

New Economic Geography

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.

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New Economy

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.

Economics

New International Economic Order

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.

Economics

New paradigm

New paradigm economists believe that improvements to the supply-side performance of the economy are changing the traditional trade-offs between the main macro-economic objectives. They argue that the diffusion of information technology is producing large increases in productivity and that these efficiency gains will allow stronger economic growth and rising employment without risking a sharp acceleration in inflation. The term new paradigm is most widely used in the United States but has also been applied to the strong performance of the UK economy in recent years. Essentially the new paradigm view believes that the supply-side of the economy can grow sufficiently quickly for policy makers to keep aggregate demand at a high level.

Economics

New Trade Theory

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).

Economics

Newly Industrializing Country

Refers to a group of countries previously regarded as developing that then achieved high rates and levels of economic growth.

Economics

Newly Industrializing Economy

Newly Industrializing Country

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Economics

News

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.

Economics

NGO

Non-governmental organization

Economics

NIC

Newly Industrializing Country

Economics

NIE

Newly Industrializing Economy

Economics

NIEO

New International Economic Order

Economics

NIPA

National Income and Product Accounts

Economics

NNP

Net national product

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Economics

Nominal

In the form most directly observed or named, in contrast to a form that has been adjusted or modified in some fashion.

Economics

Nominal anchor

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.

Economics

Nominal exchange rate

The actual exchange rate at which currencies are exchanged on an exchange market. Contrasts with real exchange rate.

Economics

Nominal interest rate The interest rate actually observed in the market, in contrast to the real interest rate.

Economics

Nominal rate of protection

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.

Economics

Nominal return

The earnings on an asset or other investment, comparable to a nominal interest rate, thus not adjusted for inflation.

Economics

Nominal tariff

The nominal protection provided by a tariff; that is, the tariff itself. Contrasts with effective tariff.

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Economics

Nominal wage

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.

Economics

Non price competition

Non-price competition assumes increased importance in oligopolistic markets. Non-price competition involves advertising and marketing strategies to increase demand and develop brand loyalty among consumers.

Economics

Non-actionable subsidy

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.

Economics

Non-automatic licensing

Import licensing that is discretionary, based on an import quota, or performance related.

Economics

Nonbinding

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.

Economics

Nonconvexity

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.

Economics

Nondistorted

Without distortions. Many propositions in trade theory are strictly valid, often only implicitly, only in nondistorted economies.

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Economics

Nondistorting lump sum

Redundant appellation for a lump sum tax or subsidy.

Economics

Noneconomic objectives argument for protection

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.

Economics

Non-governmental organization

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.

Economics

Nonhomothetic

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.

Economics

Non-market economy

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.

Economics

Non-market-clearing

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.

Economics

Nonproduction worker

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.

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Economics

Nonprohibitive tariff

Economics

Non-specific subsidy A subsidy that is available to more than a single specific industry and is therefore non-actionable under WTO rules.

Economics

Nonsterilization

Refers to exchange market intervention that is done without sterilizing its effects on the domestic money supply.

Economics

Nontariff barrier

Any policy that interferes with exports or imports other than a simple tariff, prominently including quotas and VERs.

Economics

Nontariff measure

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.

Economics

Nontradable

Not capable of being traded among countries.

Economics

Nontradable good

A good that, by its nature, is nontradable.

A tariff that is not prohibitive.

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Economics

Nontraded good

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.

Economics

Nonviolation

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.

Economics

Normal goods

Normal goods have a positive income elasticity of demand so as consumers' income rises, so more is demanded at each price level. Normal necessities have an income elasticity of demand of between 0 and +1. Normal luxuries have an income elasticity of demand > +1 i.e. the demand rises more than proportionate to a change in income.

Economics

Normal profit

Normal profit is the minimum level of profit required to keep the factors of production in their current use in the long run.

Economics

Normal value

Price charged for a product on the domestic market of the producer. Used to compare with export price in determining dumping.

Economics

Normative

Refers to value judgments as to "what ought to be," in contrast to positive which is about "what is."

Economics

Normative statements express an opinion about what ought to be. They are subjective statements rather than objective statements - i.e. they carry value judgments. For example, the level of duty on petrol is too unfair and unfairly penalizes Normative statements motorists. Or the government should increase the national minimum wage to ÂŁ6 per hour in order to reduce relative poverty. A third example - the UK government should join the Single European Currency as soon as possible.

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Economics

North American Free The agreement to form a free trade area among the United States, Canada, and Mexico that went into effect January 1, 1994. Trade Agreement

Economics

North-South model

An economic model in which two countries, North and South, represent developed and less developed countries respectively.

Economics

NTB

Nontariff barrier

Economics

NTM

Nontariff measure

Economics

Nullification

See nonviolation

Economics

Numeraire

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.

Economics

OAS

Organization of American States

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Objectives

Objectives are the aims of government policy whereas instruments are the means by which these aims might be achieved and targets are often thought to be intermediate aims – linked closely to the final objective.

Economics

OBM

Obsolescing Bargain Model

Economics

Obsolescing Bargain favors the MNE but where, over time as the MNE's fixed assets in the country increase, the bargaining power shifts to the Model government. Due to Vernon (1971).

A model of interaction between a multinational enterprise and a host country government, which initially reach a bargain that

Economics

Occupational immobility

Occupational immobility occurs when there are barriers to the mobility of factors of production between different sectors of the economy which leads to these factors remaining unemployed, or being used in ways that are not economically efficient. Some capital inputs are occupationally mobile – a computer can be put to use in many different industries. Commercial buildings can be altered to provide a base for many businesses. However some units of capital are specific to the industry they have been designed for. Labour often experiences occupational immobility. For example, workers made redundant in the sheet metal industry or in heavy engineering may find it difficult to gain re-employment in the near term. They may have job-specific skills that are not necessarily needed in growing industries. This implies that there is a mismatch between the skills on offer from the unemployed and those required by employers looking for extra workers. This is also called structural unemployment and explains why there is a core of workers in the UK who find it difficult to find paid work. Clearly this leads to a waste of scarce resources and represents market failure.

Economics

OEA

Organización de Estados Americanos (Spanish for Organization of American States)

Economics

OECD

Organisation for Economic Co-operation and Development

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Economics

OEEC

Organisation for European Economic Co-operation

Economics

Offer curve

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.

Economics

The Office of Fair Trading plays a key role in protecting the economic welfare of consumers, and in helping to enforce UK competition policy. Its main roles are to identify and put right trading practices which are against the consumer's interests and Office of Fair Trading to investigate anti-competitive practices and abuses of market power and bringing about market structures, which encourage competitive behaviour. The Office of Fair Trading reports on allegations of anti-competitive practices including claims of collusive behaviour where firms are thought to be engaging in price-fixing.

Economics

Official rate

The par value of a pegged exchange rates.

Economics

Official reserve transactions

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 (-).

Economics

Official reserves

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.

Economics

Offset requirement

As a condition for importing into a country, a requirement that foreign exporters purchase domestic products and/or invest in the importing country.

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Economics

Offshoring

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.

Economics

Ohlin definition

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).

Economics

OIM

French acronym of International Organization for Migration

Economics

OIT

Organizaci贸n Internacional del Trabajo (Spanish for International Labor Organization)

Economics

OLI Paradigm

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).

Economics

Oligopoly

An oligopoly is a market dominated by a few large suppliers. The degree of market concentration is high with typically the leading five firms taking over sixty per cent of total market sales.

Economics

Oligopsony

A market structure in which there are a small number of buyers.

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Economics

OMA

Orderly Marketing Arrangement

Economics

OMC

Organizaci贸n Mundial de Comercio (Spanish for World Trade Organization)

Economics

OMO

Open market operation.

Economics

One cone equilibrium country, and there is only one diversification cone. This will arise if countries' factor endowments are sufficiently similar

A free-trade equilibrium in the Heckscher-Ohlin Model in which prices are such that all goods can be produced within a single compared to factor intensities of industries. Contrasts with multi-cone equilibrium.

Economics

One-dollar-one-vote yardstick

A characterization of the Kaldor-Hicks welfare criterion normally used in evaluating trade policies and more generally in costbenefit analysis, based on a sum of monetary values including consumer and producer surplus.

Economics

One-way arbitrage

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).

Economics

One-way option

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.

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Economics

ONU

Organización de Naciones Unidas (Spanish for United Nations)

Economics

OPEC

Organization of Petroleum Exporting Countries

Economics

Open currency position

An open position.

Economics

Open economy

Britain is a highly ‗open economy‘. This means that a large and rising share of our output of goods and services is tied to trade with other countries around the world. Britain is for example the world‘s second largest exporter of services (behind the United States) and a significant percentage of our total manufacturing output and employment is directly or indirectly dependent on our performance in international markets, many of which are now intensely competitive.

Economics

Open market operation

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.

Economics

Open markets

Markets that are free of restrictions on who can buy and sell.

Economics

Open position

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.

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Economics

Open regionalism

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.

Economics

Open-economy multiplier

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.

Economics

Openness

The extent to which an economy is open to trade, and sometimes also to inflows and outflows of international investment.

Economics

Openness coefficient

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.

Economics

Openness index

Any measure of openness.

Economics

Operating costs

Another term for variable costs.

Opportunity cost

There is a well known saying in economics that "there is no such thing as a free lunch". Even if we are not asked to pay a price for consuming a good or a service, economic resources are used up in the production of it and there must be an opportunity cost involved - i.e. the next best alternative that might have been produced using those resources. Opportunity cost measures the cost of any choice in terms of the next best alternative foregone.

Economics

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Optimal

Best, by whatever criterion decisions are being made; thus yielding the highest level of utility, profit, economic welfare, or whatever objective is being pursued.

Economics

Optimal currency area

The optimal grouping of regions or countries within which exchange rates should be held fixed. First defined (as "optimum currency areas") by Mundell (1961).

Economics

Optimal output

For a firm this usually means the output of the good that it produces that, when sold, maximizes profit.

Economics

Optimal tariff

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.

Economics

Optimal tariff argument

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).

Economics

Optimum

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.

Economics

Optimum optimorum

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.

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Economics

Option

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.

Economics

Orderly Marketing Arrangement

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.

Economics

Organic growth

Firms can generate higher sales and increased market share by expanding their operations and exploiting possible economies of scale. This is internal rather than external growth (i.e. organic growth) and therefore tends to be a slower means of expansion contrasted to mergers and acquisitions.

Economics

Organisation for Economic Cooperation and Development

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.

Economics

Organisation for European Economic Co-operation

An international organization established in 1948 as the recipient institution of aid through the Marshall Plan. In 1961 it was replaced by the OECD.

Economics

Organization of American States

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.

Economics

Organization of Petroleum Exporting Countries

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.

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Economics

Origin principle

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.

Economics

Origin rule

See rules of origin.

Economics

Original income

Original income comes from wages and salaries in work, self-employment income, investment incomes.

Economics

Ostentatious consumption

Some goods are luxurious items where satisfaction comes from knowing both the price of the good and being able to flaunt consumption of it to other people! A higher market price may also be regarded as a reflection of product quality and some consumers on high incomes are prepared to pay this for the "snob value effect". Examples might include perfumes, designer clothes, and top of the range cars. Goods of ostentatious consumption have a high-income elasticity of demand. That is, demand rises more than proportionately to an increase in consumers' income. With products of ostentatious consumption, the demand curve may slope upwards from left to right - more is bought at higher prices.

Economics

Output augmenting

Said of a technological change or technological difference if one production function produces a scalar multiple of the other. Also called Hicks neutral.

Economics

Output gap

The output gap is an important concept in macroeconomics. It is defined as the difference between the actual level of national output and its potential level and is usually expressed as a percentage of the level of potential output.

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Economics

Output quotas

Sometimes producers may deliberately limit supply through output quotas. This is designed to reduce market supply and force the price upwards. An example of this is the fishing quota introduced by the EU Commission as part of the Common Fisheries Policy. In part the quota is designed to protect fish stocks from permanent depletion.

Economics

Outsourcing

Performance outside a firm or plant of a production activity that was previously done inside.

Economics

Outward oriented strategy

Export promotion.

Economics

Overdraft facility

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.

Economics

Overhang

See debt overhang and money overhang.

Economics

Overheads

Another term for fixed costs.

Economics

Over-invoicing

The provision of an invoice that reports the price as higher than is actually being paid.

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Economics

Overshooting

Economics

Over-valued currency to a pegged or managed rate that is above the market-clearing rate, or, under a floating rate, it may be due to speculative

See exchange rate overshooting.

The situation of a currency whose value on the exchange market is higher than is believed to be sustainable. This may be due capital inflows. Contrasts with under-valued currency.

Economics

Pacific Rim

A collective term for the countries that border on the Pacific Ocean.

Economics

Panel

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.

Economics

Par

Equality. See at par.

Economics

Par value

The central value of a pegged exchange rate, around which the actual rate is permitted to fluctuate within set bounds.

Economics

Paradox

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.

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Parallel import

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.

Economics

Para-tariff

A charge on an imported good instead of, or in addition to, a tariff.

Economics

Parent

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.

Economics

Pareto criterion

The criterion that for change in an economy to be viewed as socially beneficial it should be Pareto-improving.

Economics

Pareto efficiency

A Pareto efficient allocation of resources occurs when resources cannot be readjusted to make one consumer better off without making another worse off.

Economics

Pareto-improving

Making no one worse off and making at least one person better off.

Economics

Pareto-optimal

Having the property that no Pareto-improving change is possible.

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Economics

Paris Club

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.

Economics

Parity

Equality. Same as par. See also interest parity and purchasing power parity.

Economics

Parsimonious

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.

Economics

Partial

Favoring one person or side over another; not impartial.

Economics

Partial equilibrium

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.

Economics

Participation rate

The percentage of the population of working age in the labour force.

Economics

Pass-through

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.

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Economics

Patents

Patents are government enforced property rights to prevent the entry of rivals. They are generally valid for 17-20 years and give the owner an exclusive right to prevent others from using patented products, inventions, or processes.

Economics

Path dependent

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.

Economics

Patriotism argument for protection

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.

Economics

Pattern of specialization

Which goods a country produces and which it does not produce.

Economics

Pattern of trade

See trade pattern.

Economics

Pauper labor argument

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.

Economics

Payment at sight

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.

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Economics

Payments deficit

Economics

Payments imbalance Imbalance in the balance of payments, normally including both current and capital accounts.

Economics

Peak

The point in the business cycle when an economic expansion reaches its highest point before turning down. Contrasts with trough.

Economics

Peak pricing

When a business raises its prices at a time when demand has reached a peak - higher prices might be justified on the grounds of the higher marginal costs of supply at peak times.

Economics

Peg

To maintain a pegged exchange rate; thus to set a currency's value within a narrow range.

Economics

Pegged exchange rate

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.

Economics

Penetration pricing

A pricing policy used to enter a new market, usually by setting a very low price.

Balance of payments deficit.

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Economics

Per capita

Per person.

Economics

Per capita income

Total income divided by the size of the population. Real GNP per capita is used as a benchmark for comparing living standards between countries. However, real GNP per head has limitations as a measure of living standards.

Economics

Per capita output

The value of an economy's output per person, GDP divided by population and thus the same as per capita income.

Economics

Perfect capital mobility

The absence of any barriers to international capital movements.

Economics

Perfect competition

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.

Economics

Perfect foresight

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.

Economics

Perfect price discrimination

With perfect price discrimination, the firm separates the whole market into each individual consumer and charges them the price they are willing and able to pay.

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Economics

Perfect substitute

A good that is regarded by its demanders as identical to another good, so that the elasticity of substitution between them is infinite.

Economics

Perfectly competitive

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.

Economics

Perfectly elastic

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.

Economics

Perfectly mobile capital

Perfect capital mobility.

Economics

Performance requirement

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.

Economics

Performance target

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.

Economics

Peril point

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.

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Economics

Periphery

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.

Economics

Permanent normal trading relations

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.

Economics

Permit

A license issued by government granting permission to engage in some activity, such as to export, import, or invest.

Economics

Petrodollar

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.

Economics

Phantom GDP

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.

Economics

Physical capital

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.

Economics

Phytosanitary

Pertaining to the health of plants. See sanitary and phytosanitary regulations.

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Economics

Piecemeal tariff reform

The reduction of only one tariff (or a subset of tariffs) by a country that has additional tariffs on other products.

Economics

Platform

See export platform.

Economics

Plaza Accord

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%.

Economics

Plurilateral

Among several countries -- more than two, which would be bilateral, but not a great many, which would be multilateral.

Economics

Plurilateral agreement

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.

Economics

PNTR

Permanent normal trading relations

Economics

PNUD

Programa de Naciones Unidas para el Desarrollo (Spanish for United Nations Development Programme)

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Economics

Point elasticity

See elasticity

Economics

Policy

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.

Economics

Policy trade-offs

There are potential trade-offs between objectives imply that choices may have to be made in the short and medium run - for example possible trade-offs between unemployment and inflation and between economic growth and inflation.

Economics

Political economy

Early name for the discipline of economics.

Economics

Political economy of protection

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.

Economics

Polluter pays principle

The principle that firms which cause pollution should bear the cost of eradicating it, ameliorating it, or compensating those who have been affected by it.

Economics

Pollution haven

A country that, because of its weak or poorly enforced environmental regulations, attracts industries that pollute the environment.

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Economics

Pollution permit

A marketable pollution permit gives a business the right to emit a given volume of waste or pollution into the environment.

Economics

Pollution taxes

One common approach to adjust for externalities is to tax those who create negative externalities. This is sometimes known as ―making the polluter pay‖. Introducing a tax increases the private cost of consumption or production and ought to reduce demand and output for the good that is creating the externality. Taxes send a signal to polluters that our environment is valuable and is worth protecting.

Economics

Porter's Diamond

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.

Economics

Portfolio

The entirety of the financial assets (and usually also liabilities) that an economic agent or group of agents owns.

Economics

Portfolio approach

An approach to explaining exchange rates that stresses their role in changing the proportions of different currencydenominated assets in portfolios. The exchange rate adjusts to equate these proportions to desired levels.

Economics

Portfolio capital

Financial assets, including stocks, bonds, deposits, and currencies.

Economics

Portfolio flow

The sale or purchase of financial assets across countries.

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Economics

Portfolio investment

The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.

Economics

Positive

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."

Economics

Positive externalities

Positive externalities exist when third parties benefit from the spill-over effects of production/consumption e.g. the social returns from investment in education & training or the positive benefits from health care and medical research.

Economics

Positive list

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.

Economics

Positive statements

Positive statements are objective statements that can be tested or rejected by referring to the available evidence. Positive economics deals with objective explanation. For example: A rise in consumer incomes will lead to a rise in the demand for new cars. Or, a fall in the exchange rate will lead to an increase in exports overseas. Or if the government decides to raise the tax (duty) on beer, this will lead to a fall in profits of the major brewers.

Economics

Positive sum game

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.

Economics

Potential output

Potential output measures the productive capacity of the economy in a given time period. This is determined by the stock of available factor inputs and their productivity. In the long run, an increase in potential output comes about from an increase in the economically active labour supply and an increase in labour productivity. See also supply-side economic policies.

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Economics

Poverty datum line

Same as poverty line.

Economics

Poverty line

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.

Economics

Poverty Reduction and Growth Facility

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.

Economics

Poverty trap

A situation in which a rise in income results in the recipient being worse off once tax has been paid and benefits withdrawn. The poverty trap acts as a disincentive for people on low incomes to earn some extra income from working extra hours or taking another job.

Economics

PPF

Production possibility frontier

Economics

PPP

Purchasing power parity

Economics

PPP exchange rate

Purchasing power parity exchange rate

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Economics

Prebisch-Singer Hypothesis

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).

Economics

Precautionary principle

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.

Economics

Predation

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.

Economics

Predatory dumping

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.

Economics

Predatory pricing

When a business deliberately reduces price in the short run so as to force competitors out of the industry. Predatory pricing is illegal under current UK and EU competition law.

Economics

Preference for variety reality this may reflect their ability to find products more closely suited to their own particular needs, but as modeled in the Dixit-

The increased utility that people experience when they have access to a larger number of differentiated product varieties. In Stiglitz utility function, they are better off consuming small quantities of each of a larger number of products.

Economics

Preferences

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.

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Economics

Preferential duty

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.

Economics

Preferential Trading Arrangement

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).

Economics

Present value

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 X t is the amount in period t and r the interest rate, then present value at time t =0 is V = St (X t )/(1+r )t .

Economics

Preshipment inspection

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.

Economics

Preston Curve

The relationship between a country's life expectancy and its real per capita income. Named after Preston (1975).

Economics

PRGF

Poverty Reduction and Growth Facility

Economics

Price ceiling

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.

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Economics

Price competition

Competition among firms by reducing price, as opposed to by changing characteristics of the product.

Economics

Price control

Intervention by a government to set the price in a market or limit its movement, thus attempting to override the market mechanism.

Economics

Price definition

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 w X A /w Y A < w X B /w Y B , where w I J 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).

Economics

Price discrimination

Price discrimination occurs when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated with costs.

Economics

Price elastic

Having a price elasticity greater than one (in absolute value).

Economics

Price elasticity

The elasticity of supply or demand with respect to price.

Price elasticity of demand

Price elasticity of demand measures the responsiveness of demand for a product following a change in its own price. The formula for calculating the co-efficient of elasticity of demand is: Percentage change in quantity demanded divided by percentage change in price. If the demand increased by 10% due to a fall in a good's own price of 5%, the price elasticity of demand for a product would be 2. Since changes in price and quantity nearly always move in opposite directions, economists usually do not bother to put in the minus sign. We are more concerned with the co-efficient of price elasticity of demand.

Economics

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Price elasticity of supply (Pes) measures the relationship between change in quantity supplied and a change in price. When supply is elastic, producers can increase production without a rise in cost or a time delay. When supply is inelastic, firms find it hard to change their production levels in a given time period. The formula for price elasticity of supply is: Percentage change in quantity supplied divided by the Percentage change in price.

Economics

Price elasticity of supply

Economics

Price fixing

Price fixing represents an attempt by suppliers to control supply and fix price at a level close to the level we would expect from a monopoly.

Economics

Price floor

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.

Economics

Price index

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 p b , p g in the base and given years respectively would be I = 100Sp g q / Sp b q .

Economics

Price inelastic

Having a price elasticity of less than one (in absolute value).

Economics

Price leadership

Price leadership occurs when one firm has a clear dominant position in the market and the firms with lower market shares follow the pricing changes prompted by the dominant firm.

Economics

Price level

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.

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Economics

Price line

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.

Economics

Price mechanism

The price mechanism is the means by which decisions of consumers and businesses interact to determine the allocation of resources between different goods and services.

Economics

Price specie flow mechanism

Same as specie flow mechanism.

Economics

Price stability

Price stability can be defined as a situation where the rate of change in the general price level is small enough for it not to affect in any meaningful way the long term decisions of businesses and consumers. When inflation is stable at say 1% or 2%, then expectations of inflation will be fairly stable too and day-to-day, neither businesses nor individuals have little need to factor inflation into their calculations. Price stability does not necessarily mean zero inflation.

Economics

Price stabilization

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.

Economics

Price support

Government action to increase the price of a product, usually by buying it. May be associated with a price floor.

Economics

Price system

Same as market mechanism.

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Economics

Price taker

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.

Economics

Price undertaking

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.

Economics

Pricing to market

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).

Economics

Primary budget surplus

The primary budget surplus (or deficit) of a government is the surplus excluding interest payments on its outstanding debt.

Economics

Primary commodity

Primary product

Economics

Primary factor

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.

Economics

Primary input

Same as primary factor.

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Primary product

A good that has not been processed and is therefore in its natural state, specifically products of agriculture, forestry, fishing, and mining.

Economics

Primary Sector

This involves extraction of natural resources e.g. agriculture, forestry, fishing, quarrying, and mining.

Economics

Primary surplus

The government budget surplus, not including net interest payments on the government debt.

Economics

Prime rate

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.

Economics

Principal

The initial amount of a loan, thus not including interest.

Economics

Principal supplier

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.

Economics

Principal-Agent Theory

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.

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Economics

Prisoners' dilemma

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.

Economics

Private benefit

The benefit to an individual economic agent, such as a consumer or firm, from an event, action, or policy change. Contrasts with social benefit.

Economics

Private cost

The cost to an individual economic agent, such as a consumer or firm, from an event, action, or policy change. Contrasts with social cost.

Private Finance Initiative

The Conservatives introduced the Private Finance Initiative in 1992 as a way of funding expensive infrastructure developments without running up debts. Rather than borrowing to fund new projects, John Major's government entered into a long-term leasing agreement with private contractors. Under a PFI, companies borrow the cash to build and run new hospitals, schools and prisons for a period of up to 60 years. So far, about 150 PFI contracts have been signed, worth more than ÂŁ40bn, with more in the pipeline.

Economics

Private Finance Initiative (PFI)

The need for extra finance of merit goods has brought to the top of the political agenda the debate about public versus private sector funding. The current Labour government is committed to using public private partnerships (PPPs) to inject extra finance for capital spending in education, health and transport. The private finance initiative gives the private sector responsibility for building and managing projects like roads and hospitals in return for a yearly fee. PPPs have been used by Labour to build large numbers of schools, hospitals and roads. More controversially, it is also the chosen route for part-privatising the London Underground and the air traffic control system.

Economics

Privatisation

Privatisation means the transfer of assets from the public (government) sector to the private sector. In the UK the process has led to a sizeable reduction in the size of the public sector of the economy.

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Economics

Probability density

For a continuous random variable, a function whose integral over any set is the probability of the variable being in that set.

Economics

Probability distribution

A specification of the probabilities for each possible value of a random variable.

Economics

Processed good

A good that has been transformed in some way by a production activity, in contrast to a raw material.

Economics

Procurement

See government procurement.

Economics

Procurement officer

A government official responsible for purchasing goods and services and for deciding among alternative suppliers.

Economics

Producer presence

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.

Producer subsidy

Subsidies represent payments by the government to suppliers that have the effect of reducing their costs and encouraging them to increase output. The effect of a subsidy is to increase supply and therefore reduce the market equilibrium price. The subsidy causes the firm's supply curve to shift to the right. The total amount spent on the subsidy is equal to the subsidy per unit multiplied by total output.

Economics

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Economics

Producer support estimate

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.

Economics

Producer surplus

Producer surplus is the difference between what producers are willing and able to supply a good for and the price they actually receive. The level of producer surplus is shown by the area above the supply curve and below the market price.

Economics

Product

A good or service that is produced.

Economics

Product cycle

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).

Economics

Product differentiation

Product differentiation occurs when a business seeks to distinguish what are essentially the same products from one another by real or illusory means. This means that the assumption of homogeneous products made under conditions of perfect competition no longer applies.

Economics

Product life cycle

See product cycle.

Economics

Product line pricing

It is frequently observed that a producer may manufacture many related products. They may choose to charge one low price for the core product (accepting a lower mark-up or profit on cost) as a means of attracting customers to the components / accessories that have a much higher mark-up or profit margin.

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Economics

Product markets

Product markets are where businesses and consumers meet to buy and sell the output of goods and services produced by an economy.

Economics

Product price equalization

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.

Production involves in nearly all cases, using up scarce resources. Production can take place at various levels - ranging from primary industries in which basic resources are extracted through manufacturing and construction (secondary industries) to tertiary and quaternary industries (the service sector).Production refers to the output of goods and services produced within a market in a given time period.

Economics

Production

Economics

Production externality An externality arising from production.

Economics

Production factor

Factor of production.

Economics

Production function

A mathematical relationship between the output of a business in a given time period and the inputs (factors of production) used to produce that output. We normally make a distinction between short run and long run production although this is often blurred in many industries.

Economics

Production A table reporting various combinations of outputs that are possible for an economy, given its technology and factor possibilities schedule endowments. Thus the data on which the production possibility frontier is based.

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Production possibility See production possibility frontier. curve

Economics

A production possibility frontier (PPF) or boundary shows the combinations of two or more goods and services that can be produced using all available factor resources efficiently. A PPF is normally drawn on a diagram as concave to the origin Production possibility because the extra output resulting from allocating more resources to one particular good may fall. I.e. as we move down the frontier PPF, as more resources are allocated towards Good Y, the extra output gets smaller - and more of Good X has to be given up in order to produce the extra output of Good Y. This is known as the principle of diminishing returns.

Economics

Production worker

Economics

Productive efficiency average cost curve. Output is being produced at minimum cost per unit implying an efficient use of scarce resources and a

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.

The output of productive efficiency occurs when a business in a given market or industry reaches the lowest point of its high level of factor productivity.

Economics

Productivity

When economists and government ministers talk about productivity they are referring to how productive labour is. But productivity is also about other inputs into production. So, for example, a company could increase productivity by investing in new capital machinery which embodies the latest technological progress, and which reduces the number of workers required to produce the same amount of output.

Economics

Productivity of labor

See labor productivity.

Economics

Profit

The net gain from an activity.

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Economics

Profit maximisation

Profit maximisation occurs when marginal cost = marginal revenue (MC=MR).

Economics

Profit per unit

Profit per unit (or the profit margin) = AR – ATC.

Economics

Profit related pay

Where part of the earnings of people working for a business are linked directly to the profits made by that business. Profit related pay is often used as an incentive to raise productivity.

Economics

Profit remittance

In a multinational corporation, the return of part of the profit earned by a subsidiary in one country to the parent in another.

Economics

Profit shifting

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.

Economics

Profits

Profits are made when total revenue exceeds total cost. Total profit = total revenue - total cost. Profit per unit supplied = price = average total cost. The standard assumption is that private sector businesses seek to make the highest profit possible from operating in a market. There are times when this assumption can be dropped - but the profit seeking firm or business remains a powerful component of standard economic analysis.

Economics

Progressive taxation

With a progressive tax, the marginal rate of tax rises as income rises. I.e. as people earn more income, the rate of tax on each extra pound earned goes up. This causes a rise in the average rate of tax (the percentage of income paid in tax).

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Economics

Prohibited subsidy

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.

Economics

Prohibition

Denial of the right to import or export, applying to particular products and/or particular countries. Includes embargo.

Economics

Prohibitive tariff

A tariff that reduces imports to zero.

Economics

Propensity

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.

Property rights confer legal control or ownership of a good. For markets to operate efficiently, property rights must be clearly defined and protected - perhaps through government legislation and regulation. If an asset is un-owned no one has an economic incentive to protect it from abuse. This can lead to what is known as the Tragedy of the Commons i.e. the over use of common land, fish stocks etc which leads to long term permanent damage to the stock of natural resources.

Economics

Property rights

Economics

Proportional taxation standard rate of tax of 25% across all income levels. If the marginal rate of tax is constant, the average rate of tax will also be

With a proportional tax, the marginal rate of tax is constant. For example, we might have an income tax system that applied a constant.

Economics

Prospective analysis Ex ante analysis.

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Economics

Protection

Without any adjective, or as "import protection," this refers to restriction of imports by means of tariffs and/or NTBs, and thereby intended to insulate domestic producers from competition with imported goods.

Economics

Protectionism

Advocacy of protection. The word has a negative connotation, and few advocates of protection in particular situations will acknowledge being protectionists.

Economics

Protocol of accession

Legal document specifying the procedures for a country to join an international agreement or organization, including the rights and responsibilities that accompany such accession.

Economics

PSE

Producer support estimate

Economics

PTA

Preferential Trading Arrangement

Economics

Public bad

Public bads would include environmental damage and global warming which affects everyone – no one is excluded from the disbenefits of others polluting economic activity.

Public goods

The characteristics of pure public goods are the opposite of private goods: Non-excludability: The benefits of public goods cannot be confined to only those who have paid for it. In this sense, non-payers can enjoy the benefits of consumption for no financial cost. Non-rivalry in consumption: Consumption of a public good by one person does not reduce the availability of a good to others - we all consume the same amount of public goods even though our tastes for these goods (and therefore our valuation of the benefit we derive from them) might differ.

Economics

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Economics

Public procurement

Government procurement.

Economics

Punitive tariff

A high tariff the purpose of which is to inflict harm on a foreign exporter as punishment for some previous behavior.

Economics

Purchasing power

The amount of goods that money will buy, usually measured (inversely) by the CPI.

Economics

Purchasing power parity

The equality of the prices of a bundle of goods (usually the CPI) in two countries when valued at the prevailing exchange rate. Called absolute PPP.

Economics

Purchasing power parity exchange rate

An exchange rate calculated to yield absolute purchasing power parity. Useful for making comparisons of real values (wages, GDP) across countries with different currencies. Since absolute purchasing power parity theory is rarely correct, this contrasts with the nominal exchange rate.

Economics

Purchasing power parity theory

A theory of the exchange rate that the rate will adjust to achieve purchasing power parity, in either its absolute or its relative form.

Economics

Pure competition

Same as perfect competition.

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Economics

Pure exchange economy

A theoretical economy in which goods are not produced, but exist as endowments, and are then traded among consumers.

Economics

Quantitative Restriction

Economics

Quad

Refers both to the Quadrilateral Meetings and to the participants in those meetings, the U.S., Canada, EU, and Japan.

Economics

Quadrilateral meetings

Meetings that occur occasionally involving the trade ministers of the U.S., Canada, EU, and Japan to discuss trade policy issues.

Economics

Qualitative

Referring only to the characteristics of something being described, rather than exact numerical measurement.

Economics

Quantitative

Expressed in numerical values. See qualitative.

Economics

Quantitative Restriction

A restriction on trade, usually imports, limiting the quantity of the good or service that is traded; a quota is the most common example, but VERs usually take the form of QRs. QRs on traded services are more likely to restrict the number or activities of foreign service providers than the services themselves, since the latter are hard to monitor and measure.

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Economics

Quantity definition

A method of defining relative factor abundance based on ratios of factor quantities: Compared to country B , country A is abundant in factor X relative to factor Y iff X A /Y A > X B /Y B , where I J is the quantity of factor I with which country J is endowed, I=X ,Y , J=A ,B .

Economics

Quantity quota

A quota specifying quantity, in units, weight, volume, etc. of a good.

Economics

Quantity theory of money

The classic theory of the price level and therefore of inflation, building on the equation of exchange and the additional assumption that velocity of money is constant. Together, these imply that the rate of inflation equals the rate of growth of money minus the rate of growth of real output.

Economics

Quarter

One of the four three-month periods into which the calendar year is divided for the reporting of economic data.

Economics

Quartile

One of four segments of a distribution that has been divided into quarters. For example, the second-from-the-bottom quartile of an income distribution is those with incomes above the bottom 25% of the population and below the top 50%.

Economics

Quasi public goods

A quasi-public good is a near-public good i.e. it has many but not all the characteristics of a public good. Quasi public goods are: (i) Semi-non-rival: up to a point extra consumers using a park, beach or road do not reduce the amount of the product available to other consumers. Eventually additional consumers reduce the benefits to other users. (ii) Semi-non-excludable: it is possible but often difficult or expensive to exclude non-paying consumers. E.g. fencing a park or beach and charging an entrance fee; building toll booths to charge for road usage on congested routes.

Economics

Quasi-fiscal

Having to do with financial transactions of units that are not included in a government's budget but that have some of the same effects as fiscal policy. Most often mentioned as having quasi-fiscal effects are central banks.

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Economics

Quasi-linear utility

A utility function of the form U (x 0,x 1,...,x n ) = x 0 + Si u i (x i ), where u i (Ă&#x2014;) are strictly concave functions. This is useful for generating demand functions for goods x i that depend only on their own prices in terms of the numeraire x 0.

Economics

Quaternary Sector

The quaternary sector is involved with information processing e.g. education, research and development, administration, and financial services such as accountancy.

Economics

Quid pro quo FDI

FDI in response to the threat of protection. Done by a firm that exports into the domestic market, the motive is to create jobs there and lessen the threat that its exports will be restricted. Due to Bhagwati (1985).

Economics

Quintile

One of five segments of a distribution that has been divided into fifths. Analogous to quartile.

Economics

Quota

A government-imposed restriction on quantity, or sometimes on total value.

Economics

Quota by country

A quota that specifies the total amount to be imported (or exported) and also assigns specific amounts to each exporting (or importing) country.

Economics

Quota rent

The economic rent received by the holder of the right (or license) to import under a quota. Equals the domestic price of the imported good, net of any tariff, minus the world price, times the quantity of imports.

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R&D

Research and development.

Economics

Race to the bottom

The idea that, if one country provides a competitive advantage to its firms by lax regulation (of the environment, for example), then competing firms in other countries will demand even weaker regulation by their governments, and regulation will be reduced to minimal levels everywhere.

Economics

Radical political economy

See political economy.

Economics

Random variable

An economic or statistical variable that takes on multiple (or a continuum of) values, each with some probability that is specified by a probability distribution (or probability density function).

Economics

Rate of interest

Interest rate.

Economics

Rate of return

The percentage of an asset's value that the owner of the asset earns, usually per year.

Economics

Ration

In the presence of excess demand (for a good, etc.), to allocate among demanders by some means other than the price they are willing to pay.

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Ration foreign exchange

To ration access to scarce foreign currency under a pegged exchange rate with an over-valued currency. Usually done by means of import licensing. See exchange control.

Economics

Rational consumers

Our working assumption is that consumers make choices about what to consume based on the objective of maximising their own welfare. They have a limited income (i.e. a limited budget) and they seek to allocate their funds in a way that improves their own standard of living. Of course in reality consumers rarely operate in a perfectly informed and rational way. Very often, decisions about which products to purchase and consume are actually based on imperfect information which can lead to a loss of welfare not only for consumers themselves but society as a whole. As consumers we have all made poor choices about which products to buy.

Economics

Rational expectations

In forming opinion about future events, the use of all available information to assess the probabilities of the possible states of the world. More simply, expectations that are as correct as is possible with available information.

Economics

Rationing function of prices

Prices serve to ration scarce resources when demand in a market outstrips supply. When there is a shortage of a product, the price is bid up - leaving only those with a willingness and ability to buy with the effective demand necessary to purchase the product. Be it the demand for cup final tickets or the demand for a rare antique the market price acts a rationing device to equate demand with supply. Rationing by other means might be regarded as inefficient. Consumers with the highest income stand to have most influence on what is eventually produced. This can cause difficulties when there is a high degree of inequality in the distribution of income and wealth.

Economics

Raw material

A good that has not been transformed by production; a primary product.

Economics

Ray

A straight line drawn from the origin of a diagram. In the Heckscher-Ohlin Model, two rays are used to define a diversification cone.

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RCA

Revealed comparative advantage.

Economics

Reaction curve

The graph of a reaction function.

Economics

Reaction function

The function specifying the choice of a strategic variable by one economic agent as a function of the choice of another agent. Most familiar: specifying output choices of firms in a Cournot duopoly.

Economics

Real

Expressed in terms of the amounts of goods and services that something is worth at market prices.

Economics

Real effective exchange rate

The effective exchange rate adjusted for the rates of inflation in each country.

Economics

Real exchange rate

The nominal exchange rate adjusted for inflation. Unlike most other real variables, this adjustment requires accounting for price levels in two currencies. The real exchange rate is: R = EP*/P where E is the nominal domestic-currency price of foreign currency, P is the domestic price level, and P* is the foreign price level.

Economics

Real GDP

The real counterpart to nominal GDP, obtained by valuing output in a given year at prices from another year, called the base year.

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Economics

Real income

Real income measures the quantity of goods and services that a consumer can afford to buy. An increase in real income will cause the demand curve to shift to the right for normal goods. See also the Keynesian theory of consumption for the link between real disposable income and household demand. See also real national income (or real GDP) and the standard of living.

Economics

Real interest rate

The real rate of interest is often important to businesses and consumers when making spending and saving decisions. The real rate of return on savings, for example, is the money rate of interest minus the rate of inflation. So if a saver is receiving a money rate of interest of 6% on his savings, but price inflation is running at 3% per year, the real rate of return on these savings is only + 3%.

Economics

Real model

An economic model without money. Most general equilibrium models of trade are real models. This includes the Ricardian Model, the Heckscher-Ohlin Model, and the models of the New Trade Theory.

Economics

Real money balances The real value of the amount of money held by a person, household, or firm, or the amount in circulation in the economy.

Economics

Real national income National income adjusted for inflation.

Economics

Real terms

Same as real. A "wage expressed in real terms" is just the real wage.

Economics

Real trade

A shorthand term for most of the theory of international trade, which consists largely of real models. Contrasts with international finance.

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Real wage

The wage of labor -- or more generally the price of any factor -- relative to an appropriate price index for the goods and services that the worker (or factor owner) consumes.

Economics

Recession

A significant decline in economic activity. In the U.S., recession is approximately defined as two successive quarters of falling GDP, as judged by NBER. A recession in one country may be caused by, or may itself cause, recession in another country with which it trades.

Economics

Reciprocal demand

The concept that, in international trade, it is not just supply and demand that interact, but demand and demand. That is, a trading equilibrium is a reciprocal equilibrium in which one country's demand for another country's products (and willingness to pay for them with its own) matches with the other country's demands for the products of the first.

Economics

Reciprocal demand curve

An offer curve. So called to emphasize that a country exports in order, reciprocally, to get imports in return.

Economics

Reciprocal dumping

The sale by firms from two countries into each others' markets for prices below what each charges at home. So called because the exports of both firms meet the price-discrimination definition of dumping. Brander and Krugman (1983) introduced the term and showed that this is likely to happen in an international duopoly with transport costs.

Economics

Reciprocal trade agreement

Agreement between two countries to open their markets to each other's exports, usually by each reducing tariffs. Early trade rounds under the GATT consisted mostly of reciprocal trade agreements, extended to other contracting parties by the MFN requirement.

Economics

Reciprocal Trade Agreements Act of 1934

US legislation in 1934 in which Congress delegated the setting of tariffs to the President, who was then authorized to negotiate reciprocal trade agreements.

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Reciprocity

A principle that underlies GATT negotiations, that countries exchange comparable concessions.

Economics

Reciprocity Conditions

In the production structure of the Heckscher-Ohlin Model, the fact that the effect of a small change in any factor endowment on output of any good is equal to the effect of a small change in the price of that good on the price of that factor. That is, the matrices of Rybczynski derivatives and Stolper-Samuelson derivatives are the same. Also called Samuelson's reciprocity conditions, from Samuelson (1953).

Economics

Red box

A category of subsidies that is forbidden under WTO rules. This terminology is used in the Agriculture Agreement, where however there is no red box. Presumably equivalent to prohibited subsidies.

Economics

Redistributed tariff revenue

Refers to a common assumption that tariff revenue is given to consumers as transfer payments (not in proportion to what they paid by importing) to be spent like any other income. Since in general equilibrium the effects of a tariff depend on how the revenue is spent, this is a useful neutral assumption.

Economics

Redundant tariff

A tariff that, if changed, will not change the quantity of imports, either because the tariff is prohibitive, or because some other policy such as a quota or an embargo is limiting quantity.

Economics

Reexport

The export without further processing or transformation of a good that has been imported. See entrepot trade.

Economics

Reference price

See minimum price system.

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Reflation

Expansionary monetary or fiscal policy.

Economics

Regional aid

A subsidy directed at a geographic region within a country to assist its development. Such subsidies are non-actionable under WTO rules.

Economics

Regional integration

The formation of closer economic linkages among countries that are geographically near each other, especially by forming preferential trade agreements.

Economics

Regional policy

In a trade context, this usually refers to a regional aid.

Economics

Regional trade

Trade among countries that are geographically close together, especially on the same continent.

Economics

Regionalism

The formation or proliferation of preferential trading arrangements.

Economics

Registered exports and imports

If a country regulates what can be traded, then "registered" means legal. In contrast, unregistered exports and imports are smuggled in some fashion.

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Regression analysis

The statistical technique of finding a straight line that approximates the information in a group of data points. Used throughout empirical economics, including in both international trade and finance.

Economics

Regression model

See linear regression model.

Economics

Regressive taxation

With a regressive tax, the rate of tax falls as incomes rise – I.e. the average rate of tax is lower for people of higher incomes. In the UK, most examples of regressive taxes come from excise duties of items of spending such as cigarettes and alcohol. There is well-documented evidence that the heavy excise duty applied on tobacco has quite a regressive impact on the distribution of income in the UK.

Economics

Regressor

In a linear regression model, an independent -- or right-hand-side -- variable. That is, one of the variables that is being used to explain another.

Economics

Regulation

Any government effort to influence the performance of the economy or the behavior of economic agents, especially firms, within it. Conflicts sometimes arise between domestic regulations and international commerce or commitments.

Economics

Regulatory capture

This is when the industries under the control of a regulatory body (i.e. a government agency) appear to operate in favour of the vested interest of producers rather than consumers.

Economics

Relative demand

The ratio of the demand for one good to the demand for another, most useful in representing general equilibrium in a two-good economy, where relative price adjusts to equate relative supply and relative demand.

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Economics

Relative factor prices

The ratio of the price of one factor to the price of another. In a two-factor model with constant returns to scale, this alone determines the ratio of factors employed in a sector.

Economics

Relative poverty

Relative poverty measures the extent to which a household's financial resources falls below an average income threshold for the economy. Although living standards and real incomes have grown because of higher employment and sustained economic growth over recent years, the gains in income and wealth have been unevenly distributed across the population.

Economics

Relative price

The price of one thing (usually a good) in terms of another; i.e., the ratio of two prices. The relative price of good X in terms of good Y is p X / p Y</SUB< i>.

Economics

Relative supply

The ratio of the supply of one good to the supply of another, most useful in representing general equilibrium in a two-good economy, where relative price adjusts to equate relative supply and relative demand.

Economics

Remedy

In a trade dispute in the WTO or other forum, the measure recommended by the dispute settlement panel to resolve the dispute, usually a measure that will bring the offending country into compliance with WTO (or other) rules.

Economics

Remittances

Payments from one country to another that are not payment for anything (goods, services, assets, the use of capital, etc.), such as charitable contributions, gifts to family members, and government aid.

Economics

Remuneration

Payment in return for services rendered.

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Rent

Economic rent: The premium that the owner of a resource receives over and above its opportunity cost.

Economics

Rent seeking

The using up of real resources in an effort to secure the rights to economic rents that arise from government policies. In international economics the term usually refers to efforts to obtain quota rents. Term introduced by Krueger 1974.

Economics

Rent seeking behaviour

Behaviour by producers in a market that improves the welfare of one but at the expense of another .

Economics

Rental price

The payment per unit time for the services of a unit of a factor of production, such as land or capital.

Economics

Rentier

A person whose income comes mainly from rent on land or, more broadly, from assets rather than labor. (Pronounced "Ron' Tee Yay".)

Economics

Reparations

Payment or other compensation provided by a government to a group of people or to another country to compensate for loss or damage that it has caused. Internationally, reparations have been paid after a war by the losers to the winners, most notably by Germany after World War I.

Economics

Repatriation

To return something, especially money or profit, to the country of its owner or its origin.

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Repo

Repurchase agreement.

Economics

Repurchase agreement

An agreement to sell a security for a specified price and to buy it back later at another specified price. A repo is essentially a secured loan.

Economics

Reschedule

To renegotiate the terms of a loan, reducing payments by extending them over time and/or forgiving a portion of the principal. Debt rescheduling has been a primary means of dealing with international debt crises.

Economics

Research and development

Research and development spending is heaviest in those industries that require a leading edge in the development of new projects and processes. And in industries and markets where there are high level gains from acquiring patents.

Economics

Reserve asset

Any asset that is used as international reserves, including a national currency, precious metal such as gold, or SDRs.

Economics

Reserve currency

A currency that is used as international reserves, often because it is an intervention currency. See also seigniorage.

Economics

Reserve ratio

The ratio of a commercial bank's reserves to its deposits.

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Reserves

International reserves of a government or central bank.

Economics

Resource

An input to be used in an activity, especially production.

Economics

Resource allocation

Resource allocation refers to a given use of land, labour, capital and entrepreneurs those results in particular amounts of goods and services being produced. A reallocation of resources means some factors of production are switched from one use to another i.e. into different industries and occupations resulting in different amounts of goods and services produced.

Economics

Restricted trade

Trade that is restrained in some fashion by tariffs, transport costs, or NTBs.

Economics

Restriction on trade

See trade restriction.

Economics

Restrictive business practice

Action by a firm or group of firms to restrict entry by other firms, that is, to prevent other firms from selling their product or in their market. This is a restraint of competition and would normally be illegal under competition policy.

Economics

Restructure

To alter the terms of repayment of a debt, usually by extending repayment over a longer period of time, perhaps at a lower interest rate.

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Economics

Results-based trade policy

The use of trade policies targeted to specific indicators of economic performance. For example, in the early 1990s, the U.S. insisted on achieving specified market shares in trade with Japan.

Economics

Retail price index

The Retail Price Index (RPI) is a measure of domestic inflation. The ONS defines the RPI as ―an average measure of change in the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK‖.

Economics

Retaliation

The use of an increased trade barrier in response to another country increasing its trade barrier, either as a way of undoing the adverse effects of the latter's action or of punishing it.

Economics

Retrospective analysis

Ex post analysis.

Economics

Return

The amount that is earned by someone who holds an asset, usually expressed as a percentage of what it cost to acquire the asset. The return includes interest, dividends, and capital gains and losses, the latter due to both changes in the price of the asset and, for international holdings, changes in exchange rates.

Economics

Return to capital

Same as the rental price of capital. Since capital can only be measured in monetary units, the rental price is, say, dollars per dollar's worth of capital per unit time, and it therefore has the form of a rate of return like an interest rate.

Economics

Returns to scale

In the long run, all factors of production are variable. How output responds to a change in factor inputs is called returns to scale.

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Economics

Revealed comparative advantage

Economics

Revealed preference they purchase compared to other bundles of equal or smaller value. Used by Samuelson (1939) and Ohyama (1972),

Balassa's (1965) measure of relative export performance by country and industry, defined as a country's share of world exports of a good divided by its share of total world exports. The index for country i good j is RCAij = 100(Xij /Xwj)/(Xit /Xwt) where Xab is exports by country a (w=world) of good b (t=total for all goods).

The use of the value of expenditure to "reveal" the preference of a consumer or group of consumers for the bundle of goods especially, to examine the gains from trade.

Economics

Revenue

Revenue (or turnover) is the income generated from the sale of output in goods markets.

Economics

Revenue argument for a tariff

The use of a tariff to raise revenue for the government. Many other kinds of tax cause smaller distortions and are therefore preferable to tariffs for this purpose. However, a tariff is one of the easier taxes to collect, and it is therefore common in the early stages of a country's development.

Economics

Revenue deficit

In general use, this seems to be essentially the same as a budget deficit, but with attention given to the low level of revenue rather than to the high level of expenditure.

Economics

Revenue maximisation

Revenue maximization is when MR = zero (i.e. when price elasticity of demand = 1).

Economics

Revenue Seeking

The use of real resources in an effort to secure a share of the disposition of tariff revenues. Term due to Bhagwati and Srinivasan 1980.

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Economics

Reverse engineering The process of learning how a product is made by taking it apart and examining it.

Economics

Ricardian Model

The classic model of international trade introduced by David Ricardo to explain the pattern of, and the gains from, trade in terms of comparative advantage. It assumes perfect competition and a single factor of production, labor, with constant requirements of labor per unit of output that differ across countries.

Economics

Ricardo point

On the world PPF of a two-country, 2-good Ricardian Model, the point at which each country is specialized in production of a different good; the kink of the world PPF.

Economics

Ricardo-Viner Model

A specific factors model with a single specific factor in each industry and one mobile factor, named after two of the many who used this as the standard model of trade prior to the Heckscher-Ohlin Model. It extends the simple Ricardian Model by allowing the marginal product of labor to fall with output. It was revived by Jones (1971), Samuelson (1971), then merged with H-O by Mayer (1974), Mussa (1974), and Neary (1978).

Economics

Rio Summit

The United Nations Conference on Environment and Development, held 3-14 June 1992 in Rio de Janeiro, Brazil. 172 governments participated, including 108 heads of state. Also called the Earth Summit.

Economics

Risk

Uncertainty associated with a transaction or an asset.

Economics

Risk aversion

Desire to avoid uncertainty. Risk aversion is usually quantified by the mathematical expected value that one is willing to forego in order to get greater certainty.

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Economics

Risk free rate

The interest rate on a riskless, or safe, asset, usually taken to be a short-term U.S. government security.

Economics

Risk premium

The higher expected return (in the sense of mathematical expected value) that an uncertain asset must pay in order for risk averse investors to be willing to hold it.

Economics

Risk-bearing economies

A large firm sells in more markets and has a wider product range than a smaller company. The rapid expansion of multi product businesses is part of a process of diversification. This helps spread business risks so that if one market does badly the company has other markets to sell into.

Economics

Rollback

The phasing out of measures that are not consistent with an agreement.

Economics

ROO

Rule of origin.

Economics

Round

See trade round.

Economics

Rule of law

A legal system in which rules are clear, well-understood, and fairly enforced, including property rights and enforcement of contracts.

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Economics

Rules of origin

Rules included in a FTA specifying when a good will be regarded as produced within the FTA, so as to cross between members without tariff. Typical ROOs are based on percentage of value added or on changes in tariff heading.

Economics

Rules-based trade policy

Institutional arrangements in which national trade policies are governed by internationally agreed-upon rules, as in the GATT and WTO.

Economics

Run on a currency

The short-term capital outflows that occur when a pegged exchange rate regime is thought to be running out of reserves and is thus expected (and therefore forced) to devalue.

Economics

Rybczynski derivative The effect of a small change in a single factor endowment on the output of a good.

Economics

Rybczynski Theorem output of the industry that uses that factor intensively and reduces the output of the other (or some other) industry. Due to

The property of the Heckscher-Ohlin Model that, at constant prices, an increase in the endowment of one factor increases the Rybczynski (1955).

A system of international labor standards and mechanisms for compliance and certification overseen by the nonprofit Social Accountability International with participation by corporations, unions, and NGOs.

Economics

SA8000

Economics

Safeguard protection Import protection provided under the Safeguards Clause.

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Economics

Safeguards Clause

Article XIX of the GATT that permits countries to restrict imports if they cause injury. Restrictions must be for a limited time and nondiscriminatory. See escape clause.

Economics

SAI

Social Accountability International

Economics

Sanction

To approve or give permission for an action, as when an international organization sanctions the use of particular economic policies.

Economics

Sanitary and phytosanitary regulations

Government standards to protect health, of humans, plants, and animals. SPS measures are subject to rules in the WTO to prevent them from acting as NTBs.

Economics

SAP

Structural adjustment program.

Economics

Satisficing

Seeking or achieving a satisfactory outcome, rather than the best possible. Contrasts with the optimizing behavior usually assumed in economics and trade theory. Alternative models based on satisficing are spreading within economics, but not yet much in international.

Economics

Satisficing behaviour

Maximising behaviour may be replaced by satisficing which in essence involves the owners setting minimum acceptable levels of achievement in terms of revenue and profit.

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Economics

Saving

Saving represents a decision to postpone consumption by saving out of current disposable income. Savings provide a financial safety net for households and allow them to finance their regular spending even when income flows are volatile.

Economics

Say's Law

The proposition that "supply creates its own demand." The idea is clearest in a barter economy, where the act of supplying one thing is, intrinsically, the act of demanding something else. Named for Jean Baptiste Say, although he never stated it in this form.

Economics

Scale economies

Increasing returns to scale.

Economics

Scarce

Available in small supply; opposite of abundant. Usually meaningful only in relative terms, compared to demand and/or to supply at another place or time. See factor abundance, factor scarcity.

Economics

Scarce factor

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

Economics

Scarcity

Scarce means limited. Our resources of land labour capital and enterprise are finite. There is only a limited amount of resources available to produce the unlimited amount of goods and services we desire.

Economics

Scarcity rent

An economic rent that is due to something being scarce.

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Economics

Schedule

Economics

Schengen Agreement the participating countries. In 1999 it was incorporated into the European Union. As of 2007, there were 15 participants: all

A list. See tariff schedule.

An agreement (later, convention) signed in 1985 to remove all frontier controls and permit free movement of persons between EU15 countries except Ireland and the U.K., plus Iceland and Norway.

Economics

Scientific tariff

A made-to-measure tariff.

Economics

Scitovszky indifference curve

An indifference curve for a group of individuals representing the minimum needed to keep all of them at given levels of utility. A well-behaved family of such indifference curves is defined holding utilities of all but one individual constant and varying only the one. These are useful in discussing the gains from trade. Due to Scitovszky (1942).

Economics

SDR

Special Drawing Right

Economics

SDRM

Sovereign Debt Restructuring Mechanism

Economics

Seasonal quota

A restriction on the quantity of imports of a good for a specified period of the year.

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Economics

Seasonal tariff

A tariff that is levied at different rates at different times of the year, usually on agricultural products, being highest at the time of the domestic harvest.

Economics

Seasonal unemployment

This is a kind of unemployment which occurs regularly because of seasonal changes in the demand for certain kinds of labour. Good examples include construction, hotels and leisure and agriculture. See also structural unemployment and real wage unemployment as alternative explanations for unemployment.

Economics

Seattle Ministerial

The ministerial meeting of the WTO that was held in Seattle in November, 1999. It attracted a large group of protesters and ended without agreement among the participating countries.

Economics

Second best

Refers to what is the optimal policy when the true optimum (the first best) is unavailable due to constraints on policy choice. The Theory of Second Best says that a policy that would be optimal without such constraints (such as a zero tariff in a small country) may not be second-best optimal if other policies are constrained. See Lipsey and Lancaster (1956).

Economics

Second degree price This type of price discrimination involves businesses selling off packages of a product deemed to be surplus capacity at lower prices than the previously published/advertised price. discrimination

Economics

Second theorem of welfare economics

The proposition of welfare economics that any Pareto optimal allocation can be attained by a competitive general equilibrium.

Economics

Secondary Sector

This involves the production of goods in the economy, i.e. transforming materials produced by the primary sector e.g. energy manufacturing and the construction industry.

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Economics

Secondary tariffs

Any charges imposed on imports in addition to the statutory tariff, such as an import surcharge.

Economics

Second-best argument for protection

Any argument for protection that can be countered by pointing to a different and less distortionary policy that would achieve the same desired result at lower economic cost.

Economics

Section 201

The escape clause of the U.S. Trade Act of 1974.

Economics

Section 301

The provision of U.S. trade law that permits private parties to seek redress through the U.S. government if their commercial interests have been harmed by illegal or unfair actions of foreign governments.

Economics

Securities

Stocks, bonds, and other tradable financial assets.

Economics

Seigniorage

The difference between what money can buy and its cost of production. Therefore, seigniorage is the benefit that a government or other monetary authority derives from the ability to create money. In international exchange, if one country's money is willingly held by another, the first country derives these seigniorage benefits. This is the case of a reserve currency.

Economics

Selective

Applied to a trade policy, this means one that affects only some countries, not all, in contrast to MFN policy. Selectivity is an important concern in the use of safeguards, which countries often would prefer to make selective but are required by GATT Article XIX to be nondiscriminatory.

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Economics

Self-sufficiency

Self-sufficiency is where people try to meet their own wants and needs without producing a surplus to trade.

Economics

Self-sufficiency argument for protection

The view that a country is better off providing for its own needs than depending on imports. It may be based on fear that war or foreign governments will interrupt imports. This is a second-best argument, since many policies could provide for that contingency without sacrificing all the gains from trade.

Economics

Sensitive

In trade negotiations and agreements, countries often identify lists of particular sensitive products or sensitive sectors that they regard as especially vulnerable to import competition and that they wish to exempt from trade liberalization.

Economics

Sequential game

A game with multiple stages, played one after the other.

Economics

Serious injury

The injury requirement of the escape clause, understood to be more stringent than material injury but otherwise apparently not rigorously defined.

Economics

Service

A product that is not embodied in a physical good and that typically effects some change in another product, person, or institution. Contrasts with good. Trade in services is the subject of the GATS.

Economics

Sex Discrimination Act

The Sex Discrimination Act of 1975 outlawed unequal opportunities for employment and promotion in the workplace because of gender and it set up the Equal Opportunities Commission.

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Economics

SEZ

Special economic zone.

Economics

Shadow exchange rate

The shadow price of foreign exchange.

Economics

Shadow price

The implicit value or cost associated with a constraint. That is, the increased value that will be achieved by relaxing the constraint by one unit. When foreign exchange is rationed, the shadow price of foreign exchange becomes the relevant exchange rate for making decisions.

Economics

Shallow integration

Reduction or elimination of tariffs, quotas, and other barriers to trade in goods at the border, such as trade-limiting customs procedures. Contrasts with deep integration.

Economics

Shelf life

The length of time that a good can be stored while still remaining useful enough to sell. Important for both perishable goods and goods that may become obsolete for reasons of technology or fashion. Relevant for international trade when, for example, customs procedures cause delays.

Economics

Shock

An unexpected change.

Economics

Short

Used with "sell" or "sale," this means that the seller does not currently have the thing being sold, but intends to acquire it on the market prior to making delivery.

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Economics

Short run

The short run is defined as a period of time where at least one factor of production is assumed to be in fixed supply

Economics

Short run aggregate supply

Short run aggregate supply (SRAS) shows total planned output when prices in the economy can change but the prices and productivity of all factor inputs e.g. wage rates and the state of technology are assumed to be held constant.

Economics

Short-term

Happening within the short run, or within a matter of months.

Economics

Short-term capital flow

A capital flow that is short-term; of interest because such capital flows are likely to be very liquid and therefore easily reversed and sources of instability in exchange markets.

Economics

Shrimp-Turtle Case

A case filed in the WTO against the United States for restricting imports of shrimp from countries whose shrimp were caught by means that endangered sea turtles. The WTO ruled against the U.S., enraging many environmentalists.

Economics

Shut down price

In the short run the firm will continue to produce as long as total revenue covers total variable costs or put another way, so long as price per unit > or equal to average variable cost (AR = AVC).

Economics

Shuttle trade

The trade accomplished by individuals and groups traveling to other countries, buying goods, and bringing them home, often in their luggage, to resell. An important source of imports for Russia in the 1990s, some people traveling abroad several times a month for this purpose.

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Prices have a signaling function - if prices are rising because of stronger demand from consumers, this is a signal to suppliers to expand output to meet the higher demand. In this sense consumer preferences send information to producers about the changing nature of our needs and wants. When demand is strong, higher market prices act as an incentive to raise output (production) because the supplier stands to make a higher profit.

Economics

Signaling function of prices

Economics

Silver standard

A monetary system in which the value of a currency is defined in terms of silver. If two currencies are both on a silver standard, then the exchange rate between them is approximately determined by their two prices in terms of silver.

Economics

Singapore Issues

The issues on which it was agreed to form working groups at the Singapore Ministerial: trade and investment, competition policy, transparency in government procurement, and trade facilitation.

Economics

Singapore Ministerial

The first ministerial meeting of the WTO, held in Singapore in 1996. It did not attempt to launch a round of trade negotiations, but it agreed to form working groups on several Singapore Issues.

Economics

Single European Act

Treaty, signed in Luxembourg and The Hague and entering into force 1 July 1987, completing the Single Market. See Europe 1992.

Economics

Single market

The creation of a single market within the European Union - that seeks to encourage free movement of goods, services, financial capital and people.

Economics

Single undertaking

A term, in trade negotiations, for requiring participants to accept or reject the outcome of multiple negotiations in a single package, rather than selecting among them.

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Economics

Skill

The abilities acquired by workers through education, training, and experience that permit them to be more productive. Essentially the same as human capital.

Economics

Skill intensive

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

Economics

Skill-biased

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

Economics

Skilled labor

Labor with a high level of skill or human capital. Identified empirically as labor earning a high wage, with a high level of education, or in an occupational category associated with these; sometimes crudely proxied as nonproduction workers.

Economics

Slicing up the value chain

Term for fragmentation used by Krugman (1996).

Economics

Slump

A decline in performance, either of a firm as a slump in sales or profits, or of a country as a slump in output or employment.

Economics

SMAC function

An acronym for the CES function based on the names of the four authors who introduced it in Arrow et al. (1961).

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Economics

Small country assumption

Economics

Small open economy policies do not alter world prices or incomes. The country is thus a price taker in world markets. The term is normally applied to

The assumption in an economic model that a country is too small to affect world prices, incomes, or interest rates.

An economy that is small enough compared to the world markets in which it participates that (as a good approximation) its a country as a whole, although it is sometimes used in the context of only a single product.

Economics

Smoot-Hawley Tariff

The Tariff Act of 1930, this raised average U.S. tariffs on dutiable imports to 53% and provoked retaliation by other countries.

Economics

Smuggle

To take a good across a national border illegally. If the good itself is legal, the purpose is usually to avoid paying a tariff or to circumvent some other trade barrier.

Economics

Snake

An arrangement in which currencies were pegged to each other but left free to float as a group against the U.S. dollar. Named for the graph that the limits of variation of a currency would follow over time.

Economics

Snake in the Tunnel

An arrangement used briefly in Europe after the collapse of the Bretton Woods System in which European currencies were permitted to vary Âą1% against each other (the snake but Âą2.25% against the dollar (the tunnel).

Economics

Social Accountability A U.S.-based nonprofit organization that develops and implements the SA8000 international workplace standards. International

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Economics

Social benefit

Social benefits refer to the total benefit to society from a good i.e. the benefit to individuals and any beneficial unintended spillover effects on third parties.

Economics

Social capital

The networks of relationships among persons, firms, and institutions in a society, together with associated norms of behavior, trust, cooperation, etc., that enable a society to function effectively.

Economics

Social cost

The cost to society as a whole from an event, action, or policy change. Includes negative externalities and does not count costs that are transfers to others, in contrast to private cost.

Economics

Social dumping

Export of a good from a country with weak or poorly enforced labor standards, reflecting the idea that the exporter has costs that are artificially lower than its competitors in higher-standards countries, constituting an unfair advantage in international trade.

Economics

Social efficiency

The socially efficient level of output and or consumption occurs when social marginal benefit = social marginal cost. At this point we maximise social economic welfare. The existence of negative and positive externalities means that the private optimum level of consumption or production often differs from the social optimum leading to some form of market failure and a loss of social welfare.

Economics

Social indifference curve

A curve showing the combinations of goods that, when available to a country, yield the same level of social welfare.

Economics

Social welfare function

A function mapping allocations of goods to the individuals in an economy to a level of welfare for the economy as a whole. If it depends only on the levels of utility of the individuals rather than separately on the allocations, then it is a Bergsonian social welfare function.

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Economics

SOE

State-owned enterprise.

Economics

Soft currency

A currency that is not widely accepted in exchange for other currencies, in contrast to a hard currency.

Economics

Softwood lumber dispute

A trade dispute between the U.S. and Canada that has extended over many years. Canada's forest land is mostly owned by provincial governments, which charge a "stumpage fee" for lumber companies to harvest trees. The U.S. claims that this fee is too low and constitutes an illegal subsidy.

Economics

Sole importing agency

An entity, either private or government, that has been granted by government the exclusive right to import certain goods.

Economics

Solow model

The neoclassical growth model. Also called the Solow-Swan Model.

Economics

Solow neutral

A particular specification of technological change or technological difference that is capital augmenting.

Economics

Solow residual

A measure of technological progress equal to the difference between the rate of growth of output and the weighted average of the rates of growth of capital and labor, with factor income shares as weights. Due to Solow (1957). Also called the growth of total factor productivity. Used to compare sources of growth across countries.

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Economics

Sound money

A currency that is responsibly managed so as to avoid excessive inflation.

Economics

Source country

See FDI.

Economics

Sovereign Debt Restructuring Mechanism

A framework proposed by the IMF for permitting countries facing financial crises to restructure their debts in an orderly manner and minimally disruptive manner, analogous to bankruptcy for a private debtor.

Economics

Sovereign spread

The spread on the debt of a sovereign government, and thus a measure of the riskiness of lending to it and the cost to it of borrowing.

Economics

Sovereignty

A country or region's power and ability to rule itself and manage its own affairs. Some feel that memberships in international organizations such as the WTO are a threat to their sovereignty.

Economics

Spaghetti bowl

Term frequently used by Bhagwati for the tangle of relationships created by multiple overlapping preferential trading arrangements.

Economics

Spare capacity

When a firm or economy is able to produce more with existing resources.

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Economics

Spatial arbitrage

Economics

Special and developed countries. It also permits tariff preferences among developing countries and by developed countries in favor of differential treatment developing countries, as under the GSP.

Economics

Special Drawing Right

Originally intended within the IMF as a sort of international money for use among central banks pegging their exchange rates, the SDR is a transferable right to acquire another country's currency. Defined in terms of a basket of currencies, today it mainly plays the role of a unit of international account.

Economics

Special economic zone

These exist in several countries, including especially China, and their characteristics vary. Typically they are regions designated for economic development oriented toward inward FDI and exports, both fostered by special policy incentives that may include being an EPZ.

Economics

Special entry procedure

An administrative procedure that is required as a condition of entry for an imported good, such as transport by the importing country's national fleet, or entry through a specific port or customs station.

Economics

Special safeguard

As part of the Agreement on Agriculture of the WTO, a special provision for providing safeguard protection to specified agricultural products that had been subject to tariffication.

Economics

Specialization

Self-sufficiency is where people try to meet their own wants and needs without producing a surplus to trade. Specialisation is when individuals, regions or countries concentrate on making one product to create a surplus to be traded.

Arbitrage on price differences in different locations.

The GATT principle that developing countries be accorded special privileges, exempting them from some requirements of

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Economics

Specie

Coins, normally including only those made of precious metal.

Economics

Specie flow mechanism

Under the gold standard, the mechanism by which international payments would adjust. A country with high inflation would export less, import more, and thus lose specie, i.e., gold. With the money supply fixed to the quantity of gold, the resulting monetary contraction would reduce prices. Due to David Hume.

Economics

Specific commitment

Under the GATS, the identification of a category of services in which a country will apply national treatment and assure market access for foreign service providers.

Economics

Specific factor

A factor of production that is unable to move into or out of an industry. The term is used to describe factors that would not be of any use in other industries and also -- more loosely -- factors that could be used elsewhere but do not, in the short run, have the time or resources needed to move. See specific factors model. The term seems to come from Haberler (1937).

Economics

Specific factors model

A model in which some or all factors are specific factors. The most common version is the Ricardo-Viner Model, with one specific factor (often capital or land) in each industry plus another factor (often labor) that is mobile between them. But an extreme form of the model, the Cairnes-Haberler Model, has all factors specific.

Economics

Specific tariff

A tariff specified as an amount of currency per unit of the good.

Economics

Specificity

The property that a policy measure applies to one or a group of enterprises or industries, as opposed to all industries.

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Economics

Specificity rule

The principle that the optimal policy for correcting a distortion is one that deals most directly, or specifically, with that distortion.

Economics

Speculation

The purchase or sale of an asset (or acquisition otherwise of an open position) in hopes that its price will rise or fall respectively, in order to make a profit. See destabilizing speculation and stabilizing speculation.

Economics

Speculative attack

In any asset market, the surge in sales of the asset that occurs when investors expect its price to fall. A common phenomenon in the exchange market, especially under an adjustable pegged exchange rate.

Economics

Speculative demand

The demand for a product can also be affected by speculative demand in the marketplace. Here, potential buyers are interested not just in the satisfaction they may get from consuming the product, but also the potential rise in market price leading to a capital gain or profit. When prices are rising, speculative demand may grow, adding to the upward pressure on prices. The speculative demand for housing and for shares (also known as equities) might come into this category.

Economics

Speculator

Anyone who engages in speculation. May include those who transfer their assets into different forms (or currencies) in order to avoid a prospective capital loss.

Economics

Splintering

Another term for fragmentation. Used by Bhagwati (1984).

Economics

Spoke

See hub and spoke integration.

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Economics

Sporadic dumping

Intermittent dumping.

Economics

Spot

On the spot market.

Economics

Spot market

A market for exchange (of currencies, in the case of the exchange market) in the present (as opposed to a forward or futures market in which the exchange takes place in the future).

Economics

Spot rate

The exchange rate on the spot market. Also called the spot exchange rate.

Economics

Spread

The difference between the price one must pay to buy something, such as a currency, and the price one receives for selling it.

Economics

SPS

Sanitary and phytosanitary

Economics

SST

Stolper-Samuelson Theorem

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Economics

Stability and Growth Pact

The 1997 agreement among the countries participating in the EMU to coordinate their fiscal policies in a way that would limit budget deficits and debt.

Economics

Stabilization policy

The use of monetary and fiscal policies to stabilize GDP, aggregate employment, and prices.

Economics

Stabilize

To reduce the size of fluctuations in an economic variable over time. Examples include stabilizing exchange rates by exchange market intervention; stabilizing the price of a commodity by operation of a buffer stock; and stabilizing GDP by macroeconomic stabilization policy.

Economics

Stabilizing speculation

Speculation that decreases the movements of the price in the market where the speculation occurs. See destabilizing speculation. Friedman (1953) provided a classic argument that speculation on a floating exchange rate would be stabilizing.

Economics

Stable

Of an equilibrium, that the dynamic adjustment away from equilibrium converges to the equilibrium.

Economics

Stackelberg equilibrium

A game theoretic equilibrium in which one player acts as a leader and another as a follower, the leader setting strategy taking account of the follower's optimal response. Contrasts with Nash equilibrium in which both players take the other's strategy as given.

Economics

Stakeholder conflict

Stakeholder conflict occurs when different stakeholders have different objectives. Firms have to choose between maximising one objective and satisfactorily meeting several stakeholder objectives, so called satisficing.

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Economics

Stakeholders

Stakeholders are groups who have an interest in the activity of a business e.g. shareholders, managers, employees, suppliers, customers, government and local communities. Different stakeholders have different objectives e.g. owners want maximum profits, customers low prices and workers high wages. Stakeholder conflict ensues. In plcs ownership and control are separate. Owners seek profits; managers may seek sales maximisation as these increase bonuses.

Economics

Stamp fee

See para tariff.

Economics

Standard

Rule and/or procedure specifying characteristics that must be met for a product to be sold in a country's domestic market, typically to protect health and safety. When a standard puts foreign producers at a disadvantage, it may constitute an NTB.

Economics

Standard error

A common measure of the uncertainty associated with a numerical estimate. In a regression analysis, standard errors are often reported with (or below) the coefficient estimates. As a rough rule of thumb, one can be 95% confident that the true coefficient is within Âą2 standard errors of the estimate.

Economics

Standard of living

The standard of living refers to the average amount of GDP for each person in a country i.e. per capita real GDP. It is found by dividing real GDP by the size of the population.

Economics

Standstill

A commitment to refrain from introducing new measures that are not consistent with an agreement.

Economics

State bank

A bank owned by government, other than the central bank, and performing the same functions as a commercial bank. State banks are often directed by their governments to provide credit to activities or persons favored by the government.

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Economics

State trading enterprise

An entity of government that is responsible for exporting and/or importing specified products. See marketing board.

Economics

State-owned enterprise

A firm owned by government. Relations between SOEs and private firms on international markets raise special problems for GATT, since SOEs may not respond normally to market forces and their actions may reflect government policies.

Economics

Static efficiency

Static efficiency occurs at a point in time and focuses on how much output can be produced now from a given stock of resources, and whether producers are charging a price to consumers that reflects fairly the cost of the factors used to produce a product.

Economics

Static gains from trade

The economic benefits from trade that arise in static models, including the efficiency gains from exploiting comparative advantage, the reduced costs from scale economies, reduction in distortion from imperfect competition, and increased product variety. Contrasts with dynamic gains from trade.

Economics

Static model

An economic model that has no explicit time dimension. A static model abstracts from the process by which an equilibrium or an optimum might be reached only over time, as well as from the dependence of the variables in the model itself on a changing past or future. Contrasts with dynamic model.

Economics

Statistical tax

See para tariff.

Economics

Status quo

The current situation. A preference for the status quo means a reluctance to change.

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Economics

Steady state

A type of equilibrium, especially in a neoclassical growth model, in which those variables that are not constant grow over time at a constant and common rate.

Economics

Sterilize

To use offsetting open market operations to prevent an act of exchange market intervention from changing the monetary base. With sterilization, any purchase of foreign exchange is accompanied by an equal-value sale of domestic bonds, and vice versa.

Economics

Stochastic

Random; arising from a process that generates different values each with some probability.

Economics

Stockpiling

The storage of something in order to have it available in the future if the need for it increases. In international economics, stockpiling occurs for speculative purposes; by governments to provide for national security; and by central banks managing international reserves.

Economics

Stocks

The change in stocks measures changes in the value of unsold inventories in a given time period. When aggregate demand is high and running ahead of current production, the value of stocks held by businesses tends to fall. This is known as destocking. Conversely when demand falls, business might be left with an unplanned increase in unsold output leading to a rise in stocks. Changes in stocks are normally a good leading indicator of where the economy is likely to head in the next six months.

Economics

Stolper-Samuelson derivative

In general equilibrium, the effect of a small change in the price of a single good on the price of a factor of production.

Economics

Stolper-Samuelson Theorem

The proposition of the Heckscher-Ohlin Model that a rise in the relative price of a good raises the real wage of the factor used intensively in that industry and lowers the real wage of the other factor.

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Economics

Straight-line PPF

The PPF that arises in the Ricardian Model, or in the HO Model if the two sectors have the same factor intensity. It is a downward sloping straight line with, therefore, a constant marginal rate of transformation.

Economics

Strategic entry deterrence

Strategic entry deterrence involves any move by existing firms to reinforce their position against other firms or potential rivals.

Economics

Strategic industry argument for a tariff

The view that an industry serves a special "strategic" purpose in an economy and needs to be protected by a tariff to prevent it from disappearing. Views of what constitutes a strategic purpose are often vague and contradictory.

Economics

Strategic trade policy increasing returns to scale to alter the outcome of international competition in a country's favor, usually by allowing its firms to

The use of trade policies, including tariffs, subsidies, and even export subsidies, in a context of imperfect competition and/or capture a larger share of industry profits. The seminal contribution was Brander and Spencer (1981).

In an example of strategic trade policy, the use of a tariff to extract monopoly profits from a foreign monopolist, or to shift profit

Economics

Strategic trade policy from foreign to domestic competitors in an international oligopoly. The monopoly case seems to have originated with Katrak argument for a tariff (1977), but the classic treatment of the larger issue is Brander and Spencer (1984).

Economics

Strategic variable

An economic variable that is chosen with regard to, and sometimes with a view to influencing, economic behavior by someone else. Most frequently refers to the choice of firms in an oligopoly.

Economics

Strategy

In game theory, a set of actions and contingent actions for the several stages of a sequential game, that is, a plan of action for each stage contingent on the outcome of preceeding stages.

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The reallocation of resources (labor and capital) among sectors of the economy in response to changing economic circumstances, including trading conditions, or changes in policy.

Economics

Structural adjustment

Economics

Structural adjustment loan. This "conditionality" typically includes reducing barriers to trade and capital flows, tax increases, and cuts in government program spending.

Economics

Structural the U.S. promised to reduce its budget deficit and encourage saving, while Japan promised to increase spending and facilitate Impediments Initiative entry of new businesses.

Economics

Structural unemployment

This type of unemployment exists even when there are job vacancies, due to a mismatch between the skills of the registered unemployed and those required by employers. People made redundant in one sector of the economy cannot immediately take up jobs in other sectors.

Economics

Structure of protection

The pattern of protection across sectors of an economy: which sectors are highly protected and which not, perhaps in terms of effective protection, or - even better - in terms of their expansion and contraction that would occur if all protection were removed.

Economics

Stumbling block

The term that Bhagwati (1991) used, together with building block, to address whether PTAs help move the world toward or away from multilateral free trade.

Economics

Subcontracting

Delegation by one firm of a portion of its production process, under contract, to another firm, including in another country. A form of fragmentation.

The list of budgetary and policy changes required by the IMF and World Bank in order for a developing country to qualify for a

A 1990 agreement between the United States and Japan to reduce their bilateral trade imbalance. Among other commitments,

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Economics

Subgame

A portion of a game that is itself a game.

Economics

Subgame perfect

Said of a Nash equilibrium if the portions of the strategies of that equilibrium that pertain to each subgame are also Nash for their subgame. This is a useful refinement of Nash equilibrium in that it rules out strategies that are not credible for subgames.

Economics

Sub-normal profit

Sub-normal profit - is any profit less than normal profit (where price < average total cost).

Economics

Subsidiary

A firm that is owned and ultimately controlled by another firm. Thus a multinational corporation has a parent in once country and one or more subsidiaries in others.

Economics

Subsidy

A payment by government, perhaps implicit, to the private sector in return for some activity that it wants to reward, encourage, or assist. Under WTO rules, subsidies may be prohibited, actionable, or non-actionable.

Economics

Substitute goods

Substitutes are goods in competitive demand and act as replacements for another product. For example, a rise in the price of Esso petrol (other factors held constant) should cause a substitution effect away from Esso towards competing brands. A fall in the monthly rental charges of cable companies or Vodafone mobile phones might cause a decrease in the demand for British Telecom services. Consumers will tend over time to switch to the cheaper brand or service provider. When it is easy to switch, consumer demand will be sensitive to price changes (see the section on price elasticity of demand).

Economics

Substitute in production

A substitute in production is a product that could have been produced using the same resources. Take the example of barley. An increase in the price of wheat makes wheat growing more attractive. The pursuit of the profit motive may cause farmers to use land to grow wheat rather than barley.

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Economics

Substitution effect

That portion of the effect of price on quantity demanded that reflects the changed tradeoff between the good and other alternatives. Contrasts with income effect.

Economics

Sunk costs

Sunk costs cannot be recovered if a business decides to leave an industry.

Economics

Sunset clause

A provision within a piece of legislation providing for its expiration on a specified date unless it is deliberately renewed.

Economics

Sunset industry argument

The argument, in contrast to the infant industry argument, that a mature industry should be provided protection, either to help it restore its competitiveness, or to cushion its exit from the economy.

Economics

Super 301

A U.S. law authorizing USTR to identify the most significant unfair trade practices confronting U.S. exports and to seek to eliminate them. In contrast to Section 301, this does not require a private party to initiate the action.

Economics

Superior good

A good the demand for which is income elastic.

Economics

Supernatural trading bloc

A trading bloc among countries that are natural trading partners but that, because its tariff preferences are too extreme or transport costs with the outside world are too low, reduces world welfare. Due to Frankel (1997).

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Economics

Supply

Supply is the quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period. The basic law of supply is that as the market price of a commodity rises, so producers expand their supply onto the market.

Economics

Supply chain

The sequence of steps, often done in different firms and/or locations, needed to produce a final good from primary factors, starting with processing of raw materials, continuing with production of perhaps a series of intermediate inputs, and ending with final assembly and distribution.

Economics

Supply curve

A supply curve shows a relationship between price and quantity a firm is willing and able to sell. If the price of the good varies, we move along a supply curve. A price rise will usually cause an expansion of supply. If the market price falls there would be a contraction of supply in the market. Producers are responding to price signals when making their output decisions.

Economics

Supply elasticity

The elasticity of a supply function, usually with respect to price.

Economics

Supply function

The mathematical function explaining the quantity supplied in terms of its various determinants, including price; thus the algebraic representation of the supply curve.

Economics

Supply price

The price at which a given quantity is supplied; the supply curve viewed from the perspective of price as a function of quantity.

Economics

Supply shocks

Aggregate supply shocks might occur when there is a sudden rise in oil prices or other essential inputs or the invention and diffusion of a new technology.

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Economics

Supply side

Anything that contributes to supply, as opposed to demand, in a market or, especially, in the aggregate economy; aggregate supply.

Economics

Supply-side policies

Supply-side economic policies are mainly micro-economic policies designed to improve the supply-side potential of an economy, make markets and industries operate more efficiently and thereby contribute to a faster rate of growth of real national output. Most governments now accept that an improved supply-side performance is the key to achieving sustained economic growth without a rise in inflation. But supply-side reform on its own is not enough to achieve this growth. There must also be a high enough level of aggregate demand so that the productive capacity of an economy is actually brought into play.

Economics

Supranational

Transcending nations, especially through organizations that encompass more than one nation, such as the European Union

Economics

Surplus

In the balance of payments, or in any category of international transactions within it, the surplus is the sum of credits minus the sum of debits. Also called simply the "balance" for that category. Thus the balance of trade is the same as the surplus on trade, or the trade surplus, and similarly for merchandise trade, current account, and capital account.

Economics

Sustainable development

Sustainable development means not using up resources faster than the Earth can replenish them. "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs." Brundtland Report and also involves the elimination of poverty in ways that do not damage the environment for future generations.

Economics

Sustainable investment rule

One of the two main fiscal rules introduced by Gordon Brown as Labour Chancellor. The sustainable investment rule is that public sector debt as a percentage of GDP should be maintained at a stable and prudent level over the course of the economic cycle. The target is for a debt ratio of 40% of GDP (or less).

Economics

Swan diagram

A diagram illustrating the conflict between internal balance and external balance as they respond to its fiscal deficit and its costs relative to the world (and thus its exchange rate.) Due to Swan (1955).

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Economics

Swap

In exchange markets, this is a simultaneous sale of a currency on the spot market together with a purchase of the same amount on the forward market. By combining these two transactions into a single one, transactions costs may be reduced.

Economics

Swap rate

The difference between the spot and forward exchange rates. Thus the price of a swap.

Economics

Sweatshop

A manufacturing workplace that treats its workers inhumanely, paying low wages, imposing harsh and unsafe working conditions, and demanding levels of performance that are harmful to the workers.

Economics

Swiss formula

A formula devised during the Tokyo Round for reducing tariffs in a manner that would harmonize them. The formula is t new =(t old ´M )/(t old +M ), where the t 's are the new and old tariffs, in percent, and M is a number that turns out to be the maximum possible new tariff. Somebody, presumably Swiss, was very clever!

Economics

TAA

Trade adjustment assistance

Economics

Tacit collusion

Tacit collusion occurs where firms undertake actions that are likely to minimise a competitive response, e.g. avoiding price cutting or not attacking each other‘s market.

Economics

Takeover

The acquisition by one firm of another.

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Target

Any objective of economic policy.

Economics

Tariff

A tariff is a tax on the value of imports and remains the most common form of trade protection in the world economy today despite numerous attempts by the World Trade Organization (WTO) to encourage a reduction in average tariff levels between countries.

Economics

Tariff Act of 1930

Smoot-Hawley Tariff.

Economics

Tariff binding

A commitment, under the GATT, by a country not to raise the tariff on an item above a specified level, called the bound rate or bound tariff.

Economics

Tariff classification

See tariff heading.

Economics

Tariff Commission

The name of what is today the International Trade Commission as of its founding in 1916, until it was renamed the ITC in 1975.

Economics

Tariff equivalent

The level of tariff that would be the same, in terms of its effect, usually on the quantity of imports, as a given NTB.

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Economics

Tariff escalation

In a country's tariff schedule, the tendency for tariffs to be higher on processed goods than on the raw materials from which they are produced. This causes the effective rate of protection on these goods to be higher than the nominal rate and puts LDC producers of primary products at a disadvantage.

Economics

Tariff factory

A production facility established by a foreign firm through FDI in a country in spite of its higher production costs, in order to serve its market without paying a tariff.

Economics

Tariff heading

The descriptive name attached to a tariff line, indicating the product to which it applies. Same as tariff classification.

Economics

Tariff items 806 & 807

Lines 806.30 and 807.00 of the U.S. tariff schedule, which permit goods that have been sent abroad for processing or assembly to be admitted subject to duty only on the value added abroad.

Economics

Tariff jumping

The establishment of a production facility within a foreign country, through FDI or licensing, in order to avoid a tariff.

Economics

Tariff line

A single item in a country's tariff schedule.

Economics

Tariff peak

In a tariff schedule, a single tariff or a small group of tariffs that are particularly high, often defined as greater than three times the average nominal tariff.

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Economics

Tariff preference

A lower (or zero) tariff on a product from one country than is applied to imports from most countries. This violation of the MFN principle is permitted in special cases, including some preferential trade arrangements and the GSP.

Economics

Tariff protection

Protection provided by a tariff.

Economics

Tariff quota

A tariff rate quota.

Economics

Tariff rate quota

A combination of an import tariff and an import quota in which imports below a specified quantity enter at a low (or zero) tariff and imports above that quantity enter at a higher tariff. Also called a tariff quota.

Economics

Tariff redundancy

See redundant tariff.

Economics

Tariff revenue

See revenue.

Economics

Tariff schedule

The list of all of a country's tariffs, organized by product.

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Economics

Tariff Schedule of the The official product nomenclature for specifying tariffs in the United States used until 1988, when it was replaced with the harmonized system. United States

Economics

Tariff wall

A tariff, presumably a high one, perhaps in lots of industries. The term is used to highlight the difficulty foreign sellers have in getting their products past the tariff, often in the context of the incentive therefore provided for FDI. See foreign investment argument for protection.

Economics

Tariff-and-retaliation game

The game of countries setting tariffs knowing that by doing so they alter the terms of trade to their own advantage. This is one very specific form of trade war.

Economics

Tariffication

Conversion of NTBs to tariffs at the level of their tariff equivalents. In the Uruguay Round, agricultural NTBs were tariffied and bound, the purpose being to replace unwieldy NTBs with tariffs that can then become the subject of negotiation.

Economics

Tariffs and retaliation

The process of one country raising its tariff to secure some advantage, to which another country responds by raising its tariff, the first raises its tariff still further, etc. See retaliation, trade war. Classic treatment is Johnson (1954).

Economics

Tax base

The amount on which a taxpayer pays taxes, as for example their taxable income in the case of an income tax, or the taxable value of their property in the case of a property tax.

Economics

Tax break

Any provision of the tax code, such as a tax credit or tax deduction, that reduces the amount of tax that a firm or individual will pay, perhaps in return for behavior that the government wishes to encourage.

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Economics

Tax buoyancy

A measure of how rapidly the actual revenue from a tax rises (including that due to any change in the tax law) as the tax base rises. It is defined, like an elasticity, as %DR / %DB where R is the real revenue from the tax, B is the real tax base, and %D is percent change. It differs from tax elasticity in not holding the tax law constant.

Economics

Tax credit

A provision of the tax code that specifies an amount by which a taxpayer's taxes will be reduced in return for some behavior.

Economics

Tax deduction

A provision of the tax code that specifies an amount by which a taxpayer's tax base will be reduced in return for some behavior, resulting in a lowering of the amount of tax paid that depends on their tax rate.

Economics

Tax elasticity

The elasticity of the real revenue from a tax with respect to the real tax base, for a given tax law.

Economics

Tax rebate

The refund of a tax that has been overpaid. Some countries rebate certain taxes that have been paid on goods that are then exported.

Economics

Taxable income

Taxable income is that part of earned income on which income tax is levied. For an individual taxable income = gross income (minus) the tax-free personal tax allowance. The government normally increases the value of income tax free allowances each year to avoid the effects of inflation in dragging people into paying higher taxes.

Economics

TBT

Technical barrier to trade

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Technical barrier to trade

A technical regulation or other requirement (for testing, labeling, packaging, marketing, certification, etc.) applied to imports in a way that restricts trade.

Economics

Technical efficiency

Technical Efficiency = production of goods and services using the minimum amount of resources.

Economics

Technical inefficiency See X-efficiency.

Economics

Technical progress

Same as technological progress.

Economics

Technical regulation

A requirement of characteristics (such as dimensions, quality, performance, or safety) that a product must meet in order to be sold on a country's market. See standards.

Economics

Technique

A specific method of production, using a particular combination of inputs.

Economics

Technique of analysis A method used for displaying or manipulating economic models.

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A change in a production function that alters the relationship between inputs and outputs. Normally it is understood to be an

Economics

Technological change improvement in technology, or technological progress, and it is of interest in international economics for its implications for trade and economic welfare.

Economics

Technological difference

A difference in production functions, usually for the same industry compared between two countries, such that one country has higher output for any given input than the other.

Economics

Technological progress

A technological change that increases output for any given input.

Economics

Technology

The complete set of knowledge about how to produce in an economy at a point in time, including techniques of production that are available but not economically viable.

Economics

Technology gap

The presence in a country of a technology that other countries do not have, so that it can produce and export a good whose cost might otherwise be higher than abroad.

Economics

Technology spillover Same as technology transfer, though usually not done intentionally by the transferor.

Economics

Technology transfer

The communication or transmission of a technology from one country to another. This may be accomplished in a variety of ways, ranging from deliberate licensing to reverse engineering.

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Economics

Temporary admission Permission to import a good duty free for use as an input in producing for export. See drawback, export processing zone.

Economics

Temporary producer movement

A mode of supplying a traded service through the temporary movement of persons employed by the supplier into the buyer's country.

Economics

Tender

To offer a product for sale at a specified price, usually in response to a specific request from a potential purchaser. Government procurement, for example, that is not open to international tendering is a form of nontariff barrier.

Economics

Tequila Crisis

Refers to the economic and financial crisis that began in late 1994 when the Mexican peso devalued, causing disruption in the Mexican economy that then spread through other countries of Latin America.

Economics

Terms of trade

The relative price, on world markets, of a country's exports compared to its imports. See improve the terms of trade.*

Economics

Terms of trade argument

Same as the optimal tariff argument, which works by restricting the quantity of trade in order to improve the terms of trade.

Economics

Terms of trade effect

The effect of a tariff on the terms of trade. By reducing the demand for imports, a tariff levied by a large country causes the prices of those imported goods to fall on the world market relative to the country's exports, improving its terms of trade.

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Economics

Tertiary Sector

Economics

Textbook HeckscherThe 2x2x2 model. Ohlin Model

Economics

Textiles

Cloth. The textile sector is important for trade, along with apparel, because with some exceptions (synthetics) it is a very labor intensive sector, and it is therefore a likely source of comparative advantage for developing countries. See textiles and apparel.

Economics

Textiles and apparel

These largely labor intensive sectors are often the first manufactured exports of developing countries. Because of the threat to employment in developed countries, however, they have long been protected there. This is only now changing under the WTO's ATC.

Economics

TFP

Total Factor Productivity

Economics

Theoretical proposition

A property of an economic model that is derived (deduced) from its assumptions. It usually takes the form of a prediction about something that would be true in the world if the world conformed to the model's assumptions, and perhaps also to additional assumptions specified in the proposition.

Economics

Theory of second best

See second best.

The tertiary sector provided services such as banking, finance, insurance, retail, education and travel and tourism.

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Third World

Refers to all less developed countries as a group. Term originated during the Cold War, when the "first world" was the developed capitalist countries and the "second world" was the communist countries, although these terms were seldom used.

Economics

Tied aid

Aid that is given under the condition that part or all of it must be used to purchase goods from the country providing the aid.

Economics

Tiger economy

Any one of several economies that have developed extremely rapidly over a period of years. Especially the Four Tigers, but also a number of others who began to grow more recently.

Economics

Time lags

Changes to government policy (e.g. changes in direct taxation, a cut in interest rates or a rise in investment tax allowances) operate with uncertain time lags. They take time to work their way through the circular flow of income and spending and through to final objectives such as GDP growth and inflation.

Economics

TLC

Tratado de Libre Comercio (Spanish for Free Trade Agreement)

Economics

TNC

Transnational corporation.

Economics

Tobin tax

A small tax on international currency transactions, proposed by James Tobin in 1978 to discourage destabilizing short-term international capital movements. Advocates suggest a tax of 0.1-0.25% with revenue used for urgent global priorities. Others question enforceability.

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Economics

Tokyo Round

The 7th round of multilateral trade negotiations that took place under GATT auspices, commencing 1973 and completed in 1979. This was the first trade round to deal with NTBs, by negotiating the Tokyo Round Codes.

Economics

Tokyo Round Codes

The codes of behavior negotiated in the Tokyo Round covering several NTBs, arising from customs valuation, standards, government procurement, etc. Participation was optional, each code covering only those countries that chose to sign.

Economics

TOT

Terms of trade

Economics

Total cost

Total cost = total fixed cost + total variable cost.

Economics

Total factor productivity

A measure of the output of an industry or economy relative to the size of all of its primary factor inputs. The term, and its acronym TFP, often refers to the growth of this measure, as measured by the Solow residual. See also Hicks-neutral technical progress.

Economics

Total Revenue

Total Revenue (TR) refers to the amount of money received by a firm from selling a given level of output and is found by multiplying price (P) by output i.e. number of units sold (TR).

Economics

TPA

Trade Promotion Authority

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Economics

TPRM

Trade Policy Review Mechanism

Economics

Tradable

Capable of being traded among countries.

Economics

Trade

Trade is the exchange of goods or services. Trade improves consumer choice and total welfare. Individual have different skills. Regions or countries have different factor endowments egg climate, skilled labour force, and natural resources vary between nations. Therefore individuals, regions and countries are better placed in the production of certain goods than others.

Economics

Trade Act of 1974

Actually signed on Jan. 3, 1975, this major piece of trade legislation not only renewed and revised the authority to negotiate trade agreements, it also dealt with an expanded list of issues including tariff preferences, unfair trade, the escape clause, and adjustment assistance, and it introduced fast track authority.

Economics

Trade adjustment assistance

A program of adjustment assistance for workers and firms in industries that have suffered from competition with imports. In the U.S., TAA began with the Trade Expansion Act of 1962, and it has been renewed and expanded since then, including as part of the NAFTA.

Economics

Trade and investment

The interactions between, and the rules and policies governing, international trade and foreign direct investment. One of the Singapore Issues.

Economics

Trade and Wages Debate

The debate between and among trade economists and labor economists as to the reason for the increase in the relative wages of skilled labor, compared to unskilled labor, in the U.S. starting in the 1980s. A central issue was the importance of "trade" as a contributing cause.

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Economics

Trade balance

Balance of trade.

Economics

Trade barrier

An artificial disincentive to export and/or import, such as a tariff, quota, or other NTB.

Economics

Trade bias

See bias of a trade regime.

Economics

Trade bloc

Trading bloc.

Economics

Trade cost

Any cost incurred in order to engage in international trade, including transport cost, insurance, etc.

Economics

Trade creation

Trade that occurs between members of a preferential trading arrangement that replaces what would have been production in the importing country were it not for the PTA. Associated with welfare improvement for the importing country since it reduces the cost of the imported good. Concept due to Viner (1950).

Economics

Trade credit

An amount that is loaned to an exporter to be repaid when the exports are paid for by the foreign importer.

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Economics

Trade deficit

Imports minus exports of goods and services. See deficit.

Economics

Trade deflection

Entry, into a low-tariff member of a free trade area, of imports intended for a purchaser in its higher-tariff partner.

Economics

Trade dispute

Any disagreement between nations involving their international trade or trade policies. Today, most such disputes appear as cases before the WTO dispute settlement mechanism, but prior to the WTO, some were handled by the GATT while others were dealt with bilaterally, sometimes precipitating trade wars.

Economics

Trade diversion

Trade that occurs between members of a preferential trading arrangement that replaces what would have been imports from a country outside in the PTA. Associated with welfare reduction for the importing country since it increases the cost of the imported good. Concept due to Viner (1950).

Economics

Trade Expansion Act The legislation authorizing US participation in the Kennedy Round, replacing the Reciprocal Trade Agreements Act of 1934. It also established Trade Adjustment Assistance. of 1962

Economics

Trade facilitation

One of the Singapore Issues, this refers in the Doha Declaration to "expediting the movement, release and clearance of goods, including goods in transit." This includes customs procedures and other practices that may add to the cost or time requirements of trade.

Economics

Trade flow

The quantity or value of a country's bilateral trade with another country.

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Economics

Trade imbalance

A trade surplus or trade deficit.

Trade in goods

Trade in goods includes exports and imports of oil and other energy products, manufactured goods, foodstuffs, raw materials and components. Until recently this was known as visible trade – i.e. exporting and importing of tangible products. Since 1986 the net balance of trade in goods has been in deficit. And as the following chart shows, the trade deficit in goods has increased enormously in the last few years, breaking £47 billion in 2003 and forecast to surge over £50 billion in 2004.

Economics

Trade in services

Trade in services includes the exporting and importing of intangible products – for example, Banking and Finance, Insurance, Shipping, Air Travel, Tourism and Consultancy. Britain has a strong trade base in services with over thirty per cent of total export earnings come from services.

Economics

Trade indifference curve

In a diagram measuring quantities of exports and imports, a curve representing amounts of trade among which a freely trading country is indifferent, based on its community indifference curves and its transformation curve. Due to Meade (1952).

Economics

Trade integration

The process of increasing a country's participation in world markets through trade, accomplished by trade liberalization.

Economics

Trade intensity index trade. If greater than one, this is said to suggest that the bloc displays trade diversion. Index seems to be due to Frankel

For a group or bloc of countries, usually in a PTA, the ratio of the bloc's share of intra-bloc trade to the bloc's share in world (1997).

Economics

Trade liberalization

Reduction of tariffs and removal or relaxation of NTBs.

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Economics

Trade minister

The government official, at the ministerial or cabinet level, primarily responsible for issues of international trade policy; the minister of international trade. In the U.S. that is the USTR.

Economics

Trade mission

An office or other facility maintained in one country by the government of another to help residents of both to engage in international trade between them.

Economics

Trade negotiation

A negotiation between pairs of governments, or among groups of governments, exchanging commitments to alter their trade policies, usually involving reductions in tariffs and sometimes nontariff barriers.

Economics

Trade Off

Economic choices almost always involve deciding between more of one product for less of another. A trade off involves a sacrifice, an exchange, a giving up X for Y.

Economics

Trade pattern

What goods and services a country trades, with whom, and in what direction. Explaining the trade pattern is one of the major purposes of trade theory, especially which goods a country will export and which it will import. This may be done directly, as the commodity pattern of trade, in indirectly as the factor content pattern of trade.

Economics

Trade policy

Any policy affecting international trade, including especially tariffs and nontariff barriers.

Economics

Trade Policy Review The periodic review of the trade policies and practices of the member countries of the WTO, conducted and published by the WTO. Mechanism

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Economics

Trade Promotion Authority

New (in 2000) name being used for Fast Track.

Economics

Trade regime

The rules and practices prevailing in a country's international trade relationships.

Economics

Trade remedy

Protection provided by any of the following: anti-dumping duties, countervailing duties, or safeguards protection.

Economics

Trade restriction

Any policy that reduces the amount of exports or imports, such as a tariff, quota, or other nontariff barrier.

Economics

Trade Restrictiveness A theoretically consistent index of the restrictiveness of trade policy -- both tariffs and NTBs -- developed by Anderson and Neary (1996). Index

Economics

Trade round

A set of multilateral negotiations, held under the auspices of the GATT and WTO, in which countries exchange commitments to reduce tariffs and agree to extensions of the GATT rules. Most recent were the Kennedy, Tokyo, Uruguay, and Doha Rounds.

Economics

Trade sanction

Use of a trade policy as a sanction, most commonly an embargo imposed against a country for violating human rights.

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Economics

Trade share

This can mean a variety of things, but most commonly it refers either to imports or exports as a percentage of GDP.

Economics

Trade surplus

Exports minus imports of goods and services, or balance of trade. See surplus.

Economics

Trade theory

The body of economic thought that seeks to explain why and how countries engage in international trade and the welfare implication of that trade, encompassing especially the Ricardian Model, the Heckscher-Ohlin Model, and the New Trade Theory.

Economics

Trade triangle

In the trade-and-transformation-curve diagram, the right triangle formed by the world price line and the production and consumption points, the sides of which represent the quantities exported and imported.

Economics

Trade unions

Trade unions are organisations of workers that seek through collective bargaining with employers to protect and improve the real incomes of their members, provide job security, protect workers against unfair dismissal and provide a range of other workrelated services including support for people claiming compensation for injuries sustained in a job.

Economics

Trade war

Generally, a period in which each of two countries alternate in further restricting trade from the other. More specifically, the process of tariffs and retaliation.

Economics

Traded good

A good that is exported or imported or -- sometimes -- a good that could be exported or imported if it weren't for those pesky tariffs.

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Economics

Trademark

A symbol and/or name representing a commercial enterprise, whose right to the exclusive use of that symbol is, along with patents and copyrights, one of the fundamental intellectual property rights that are the subject of the WTO TRIPS agreement.

Economics

Trade-related intellectual property rights

This was the term used for bringing intellectual property protection into the Uruguay Round of trade negotiations under the pretense that only trade-related aspects of the issue would be included. In practice, that did not constrain the coverage of the resulting agreement.

Economics

Trade-related investment measure

Any policy applied to foreign direct investment that has an impact on international trade, such as an export requirement. The Uruguay Round included negotiations on TRIMs.

Economics

Trade-weighted average tariff

The average of a country's tariffs, weighted by value of imports. This is easily calculated as the ratio of total tariff revenue to total value of imports.

Economics

Trade-weighted exchange rate

The weighted average of a country's bilateral exchange rates using bilateral trade -- exports plus imports -- as weights. Also called an effective exchange rate.

Economics

Trading arrangement

An agreement between two or more countries concerning the rules under which trade among them will be conducted, either in a particular industry or more broadly.

Economics

Trading bloc

A group of countries that are somehow closely associated in international trade, usually in some sort of PTA.

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Economics

Transaction cost

On the foreign exchange markets, this includes broker's fees and/or the bid/ask spread.

Economics

Transaction value

The actual price of a product, paid or payable, used for customs valuation purposes.

Economics

Transfer payments

Transfer payments are best described as government welfare payments made available through the social security system including the Jobseekers‘ Allowance, Child Benefit, the basic State Pension, Housing Benefit, Income Support and the Working Families Tax Credit. These transfer payments are not included in the national income accounts because they are not a payment for output produced directly by a factor of production.

Economics

Transfer price

Literally this only refers to the price charged on goods and services that are traded between subsidiaries of a multinational corporation. However, the term usually connotes the setting of such prices high or low so as to minimize the total taxes paid to different governments, in response to differences in corporate tax rates.

Economics

Transfers

Transfer payments.

Economics

Transformation curve

Same as production possibility frontier. The name comes from the idea that, by devoting resources to producing one good instead of another, it is as though one good is being transformed into another.

Economics

Transition

The process of converting from a centrally planned, non-market economy to a market economy.

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Economics

Translog function

The transcendental logarithmic production function, a flexible functional form due to Christensen et al. (1973). With output Y and inputs Xi, it takes the form ln Y = α0 + Si αi ln Xi + 1/2 Si Sj βij ln Xi ln Xj.

Economics

Transnational corporation

Same as multinational corporation, though for some reason this term seems to be preferred by those who don't like them.

Economics

Transparency

The clarity with which a regulation, policy, or institution can be understood and anticipated. Depends on openness, predictability, and comprehensibility. Lack of transparency can itself be a NTB

Economics

Transport cost

The cost of transporting a good, especially in international trade.

Economics

Transportation cost

See transport cost.

Economics

Treaty of Rome

The 1957 agreement among six countries of Western Europe to form the European Economic Community, which went into effect January 1, 1958.

Economics

Trend

The long-term movement of an economic variable, such as its average rate of increase or decrease over enough years to encompass several business cycles.

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Economics

Trend growth

The trend rate of growth is the long run average growth rate for a country over a period of time. Measuring the trend requires a long-run series of macroeconomic data in order to identify the different stages of the economic cycle and then calculate average growth rates from peak to peak or trough to trough.

Economics

TRI

Trade Restrictiveness Index

Economics

Triad

Europe, North America, and Japan.

Economics

Triangular arbitrage

Arbitrage among three currencies. For example (letting x/y be the currency x per unit of currency y exchange rate), if $/¥ > ($/£)(£/¥), then an arbitrager can make a profit buying £ with $; buying ¥ with those £; and then selling those ¥ for $.

Economics

Triffin's Dilemma

A flaw in the dollar-based international monetary standard created by the IMF: To provide the growing reserves that other central banks needed to sustain growing economies, the U.S. needed to run balance of payments deficits that would undermine confidence in the dollar as a reserve asset. Due to testimony before Congress by Robert Triffin in 1960.

Economics

Trigger price

See minimum price system.

Economics

TRIMs

Trade-Related Investment Measures

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Economics

TRIPs

Trade-Related Intellectual Property Rights

Economics

TRIPs Agreement

The agreement negotiated in the Uruguay Round that incorporated issues of intellectual property into the WTO. It provides a set of minimum standards for intellectual property protection to which all but the poorest member countries of the WTO must conform.

Economics

Trough

The point in the business cycle when an economic contraction reaches its lowest level before turning up. Contrasts with peak.

Economics

TRQ

Tariff rate quota

Economics

TSUS

Tariff Schedule of the United States

Economics

Tuna-dolphin case

Actually a pair of cases, resulting from the U.S. ban on imports of tuna, under the Marine Mammal Protection Act, from countries that did not effectively prohibit tuna fishers from killing dolphins by catching them together with whole schools of tuna in large ("purse seine") nets. Cases filed under GATT in 1991 and 1994 led to panel decisions against the U.S.

Economics

Tunnel

See snake in the tunnel.

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Refers to the budget deficit and trade deficit of a country (in spite of the fact that, although they are related, they are far from being the same or necessarily equal).

Economics

Twin deficits

Economics

Two cone equilibrium single country, and instead there are two diversification cones. This, or a multi-cone equilibrium, will arise if countries' factor

Economics

Two gap model

A model of economic development that focuses on two constraints: the need for savings to finance investment, and the need for foreign exchange to finance imports.

Economics

Two part pricing tariffs

A fixed fee is charged (often with the justification of it contributing to the fixed costs of supply) and then a supplementary ―variable‖ charge based on the number of units consumed.

Economics

Two-ness

The property of simple versions of many trade models that they have two of everything: goods, factors, and countries especially. An important issue, addressed by Jones (1977), who coined the term, and by Jones and Scheinkman (1977) is the extent to which the results of these models depend on this two-ness.

Economics

United Nations

Economics

Unanticipated inflation

Unanticipated inflation occurs when actual and anticipated inflation diverge causing a misallocation of resources.

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Economics

Uncertainty

Failure to know anything that may be relevant for an economic decision, such as future variables, details of a technology, or sales. In models, uncertainty usually appears as a random variable and corresponding probability density function. But in practice, most international models, especially of trade, assume certainty.

Economics

UNCITRAL

United Nations Commission on International Trade Law

Economics

Uncovered interest arbitrage

The act of borrowing one currency and lending another without using the forward market to protect against change in the exchange rate. Because of the risk of exchange-rate change, this can result in a loss and is therefore not truly a form of arbitrage. Sometimes called the carry trade.

Economics

Uncovered interest parity

Equality of expected returns on otherwise comparable financial assets denominated in two currencies, without any cover against exchange risk. Uncovered interest parity requires approximately that i = i* + a where i is the domestic interest rate, i* the foreign interest rate, and a the expected appreciation of foreign currency at an annualized percentage rate.

Economics

UNCTAD

United Nations Conference on Trade and Development

Economics

Underdeveloped country

A synonym, not usually used today, for less developed country.

Economics

Underemployment

The employment of workers for fewer hours or in less desirable jobs than they would prefer and are qualified for.

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Economics

Under-invoicing

The provision of an invoice that states price as less than is actually being paid. This might be done on an import in order to reduce the amount that will be collected by an ad valorem tariff. Or it might be done on an export to reduce apparent profit and thus taxes.

Economics

Undertaking

See price undertaking.

Economics

Under-valued currency

The situation of a currency whose value on the exchange market is lower than is believed to be sustainable. This may be due to a pegged or managed rate that is below the market-clearing rate, or, under a floating rate, it may be due to speculative capital outflows. Contrasts with over-valued currency.

Economics

UNDP

United Nations Development Program

Economics

Unemployment

Officially the unemployed are people who are registered with the government as willing and able to work at the going wage rate but who cannot find suitable employment despite an active search for work.

Economics

Unemployment rate

The ratio of unemployment to the labor force of a country.

Economics

Unemployment trap

The unemployment trap occurs when workers calculate that because of lost benefits and extra tax they are no better off working than if remain outside the employed labour force.

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Economics

Unequal exchange

Trade in which the labor used to produce a country's exports is more than the labor used to produce its imports, as in the exchange between low-wage developing countries and high-wage developed countries.

Economics

Unfair trade

Under the GATT this refers only to exports that are subsidized or dumped

Economics

Unilateral transfer

Transfer payment.

Economics

Unit elastic

Having an elasticity equal to one. For a price elasticity of demand, this means that expenditure remains constant as price changes. For an income elasticity it means that expenditure share is constant. Homothetic preferences imply unit income elasticities. Contrasts with elastic and inelastic.

Economics

Unit isocost line

An isocost line along which cost is equal to one unit of the numeraire, such as one dollar.

Economics

Unit isoquant

The isoquant for a quantity equal to one unit of a good. The unit isoquant is useful for relating the price of a good to the prices of factors employed in its production.

Economics

Unit labor requirement

The amount of labor used per unit of output in an industry; the ratio of labor to output. In a Heckscher-Ohlin Model this varies along an isoquant as different techniques are chosen in response to different factor prices. But in a Ricardian model, these are the constant building blocks for defining comparative advantage and determining behavior.

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Economics

Unit labour costs

Unit labour costs are defined as wage costs adjusted for the level of productivity. For example a rise in unit labour costs might be brought about by firms agreeing to pay higher wages or a fall in the level of worker productivity. If unit wage costs rise, this will eventually feed through into higher prices (this is known as an example of ―cost-push inflation‖).

Economics

Unit of account

A basic function of money, providing a unit of measurement for defining, recording, and comparing value. I.e., one dollar signifies not only a one dollar bill, but also a dollar's worth of money in other forms (deposits), of wealth in other forms than money, and of any good or service with a market value.

Economics

Unit tariff

Specific tariff.

Economics

United Nations

An organization of countries established in 1945 with 51 members, expanded to 192 countries as of June 2007. Its purpose is "to preserve peace through international cooperation and collective security."

Economics

United Nations Commission on International Trade Law

A legal body created in 1966 to formulate and harmonize national rules on international commercial transactions. It includes 36 member states elected by the UN General Assembly, representing various geographic regions and economic and legal systems. It differs from the WTO in its more technical focus and its broad representation.

Economics

United Nations An intergovernmental body established in 1964 within the United Nations, responsible for trade and development. Historically it Conference on Trade has often been the international voice of developing countries. and Development

Economics

United Nations Development Programme

The "development network" of the United Nations, operating in 166 countries (as of June 2007) "advocating for change and connecting countries to knowledge, experience and resources to help people build a better life."

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Economics

United Nations Organizations

Economics

United States Court The U.S. court in which matters involving international trade are adjudicated. These include determinations of the customs of International Trade service and findings of the ITC.

Economics

United States Customs Service

The agency of the U.S. government that monitors the border to prevent illegal goods from crossing it and to collect tariffs -customs duties -- on legal goods that are subject to them.

Economics

United States Trade Representative

The cabinet-level official of the U.S. government "responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and leading or directing negotiations with other countries on such matters."

Economics

Unit-value isoquant

The isoquant for a quantity of a good worth one unit of value. This is meaningful only if the nominal price of the good is given, for some specified currency or numeraire. Unit-value isoquants are central to the Lerner diagram for analyzing the HeckscherOhlin Model.

Economics

Unity

One. For example, "an elasticity greater than unity" means an elasticity (defined so as to be a positive number) greater than 1.00.

Economics

Unnatural trading bloc

A trading bloc among countries that are not natural trading partners.

The complex and extensive system of organizations that exist under the umbrella of the United Nations. Several of these, like the WTO and the IMF, play critical roles in the international economy.

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Economics

Unregistered exports See registered exports and imports. and imports

Economics

Unskilled labor

Labor with a low level of skill or human capital. Identified empirically as labor earning a low wage, with a low level of education, or in an occupational category associated with these; sometimes crudely proxied as production workers.

Economics

UPF

Utility possibility frontier

Economics

Upstream subsidization

Export of a good one of whose inputs has been subsidized.

Economics

Uruguay Round

The round of multilateral trade negotiations under the GATT that commenced in 1986 and was completed in 1994 with the creation of the WTO. In addition it broke new ground by negotiating over agriculture, textiles and apparel, services, and intellectual property.

Economics

US-Central American A free trade agreement signed in 2004 between the United States, the Dominican Republic, and a number of countries in Free Trade Central America. As of January 2006, the agreement had been ratified by all but Costa Rica. Agreement.

Economics

USTR

United States Trade Representative

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Economics

Utility function

A function that specifies the utility (well being) of a consumer for all combinations goods consumed (and sometimes other considerations). Represents both their welfare and their preferences.

Economics

Utility possibility frontier

In a diagram with levels of individual utility on the axes, a curve showing the maximum attainable levels of utility in a given situation, such as free trade or autarky. Used by Samuelson (1962) to demonstrate the gains from trade.

Economics

Value added

Value added is the difference between inputs and outputs egg if a firm spends £500 making a good (inputs) and sells its product (output) for £750, then value added is £250.

Economics

Value added tax

A tax that is levied only on the value added of a firm. A VAT is usually subject to border tax adjustment.

Economics

Value marginal product

Marginal value product.

Economics

Value of money

The value of money refers to the amount of goods and services £1 can buy and is inversely proportionate to the rate of inflation. Inflation reduces the value of money. When prices rise, the value of money falls.

Economics

Value quota

A quota specifying value -- price times quantity -- of a good.

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Economics

Variable cost

Variable costs are business costs that vary directly with output since more variable inputs are required to increase output.

Economics

Variable costs

Variable costs vary directly with output. I.e. as production rises, a firm will face higher total variable costs because it needs to purchase extra resources to achieve an expansion of supply. Common examples of variable costs for a business include the costs of raw materials, labour costs and consumables.

Economics

Variable levy

A tax on imports that varies over time so as to stabilize the domestic price of the imported good. Essentially, the tax is set equal to the difference between the target domestic price and the world price.

Economics

Variable returns to scale

The property of a production function that returns to scale may be increasing or decreasing, at different rates, at different levels of output.

Economics

Variance

A measure of how much an economic or statistical variable varies across values or observations. Its calculation is the same as that of the covariance, being the covariance of the variable with itself.

Economics

Variety

Refers to the multiplicity of differentiated products that are available in some industries, a multiplicity that tends to become larger with trade.

Economics

VAT

Value added tax

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Economics

Vehicle currency

The currency used to invoice an international trade transaction, especially when it is not the national currency of either the importer or the exporter.

Economics

Velocity of money

The rate at which money changes hands in an economy, usually defined by the equation of exchange.

Economics

Vent for surplus

The concept that a country -- especially a developing country -- may be able to gain by exporting the products of factors that would not be employed at all without trade. This "vent for surplus" theory of trade was developed especially by Myint (1958), who attributed the term to Williams (1929) and before that to Mill (1848) and the idea to Smith (1776).

Economics

VER

Voluntary export restraint

Economics

Vertical equity

Vertical equity requires unequal treatment of unequals to promote greater fairness e.g. higher income groups taxed at higher rates.

Economics

Vertical integration

Vertical Integration involves acquiring a business in the same industry but at different stages of the supply chain.

Economics

Vertical intraindustry trade

Intraindustry trade in which the exports and imports are at different stages of processing. Contrasts with horizontal IIT.

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In the long run we assume that aggregate supply is independent of the price level. As a result we draw the long run aggregate supply curve as vertical. In drawing the LRAS as vertical, we are saying that there is a maximum level of physical output that the economy can produce. Neo-classical economists view the LRAS curve as being perfectly inelastic at a level of output where actual GDP has achieved its potential.

Economics

Vertical long run aggregate supply curve

Economics

Vertical specialization Another term for fragmentation. Used by Hummels, Rapoport, and Yi (1998).

Economics

VIE

Voluntary import expansion.

Economics

Vinerian

Associated with the work of economist Jacob Viner, as in the Vinerian concept of trade diversion.

Economics

Visible

In referring to international trade, used as a synonym for "good." "Visibles trade" is trade in goods. Contrasts with invisible.

Economics

Volatility

The extent to which an economic variable, such as a price or an exchange rate, moves up and down over time.

Economics

Voluntary export restraint

A restriction on a country's imports that is achieved by negotiating with the foreign exporting country for it to restrict its exports.

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Economics

Voluntary import expansion

The use of policies to encourage imports, in response to pressure from trading partners. Due to Bhagwati (1987).

Economics

Voluntary restraint agreement

Same as a VER.

Economics

VRA

Voluntary restraint agreement, same as a VER.

Economics

Wage

The payment for the service of a unit of labor, per unit time. In trade theory, it is the only payment to labor, usually unskilled labor. In empirical work, wage data may exclude other compensation, which must be added to get the total cost of employment.

Economics

Wage insurance

A program to pay displaced workers, when they become re-employed and for a limited period of time, a specified fraction of the difference between their old wage and their lower new wage. As of 2002, the US provides wage insurance to a limited number of workers as part of Alternative Trade Adjustment Assistance.

Economics

Wage price spiral

Demand-pull inflation can lead to cost-push inflation if wages follow prices higher. For example a booming economy might see a rise in inflation from 3% to 5% due to an excess of AD. Workers will seek to negotiate higher wages to protect their real incomes – there is a danger that this will trigger a wage-price spiral that then requires deflationary economic policies such as higher interest rates or an increase in direct taxation.

Economics

Wage-rental ratio

The ratio of the wage of labor to the rental price of either capital or land, whichever is the other factor in a two-factor HeckscherOhlin model. The ratio plays a critical role in this model since it determines the ratios of factors employed in both industries.

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Economics

Waiver

An authorized deviation from the terms of a previously negotiated and legally binding agreement. Many countries have sought and obtained waivers from particular obligations of the GATT and WTO.

Economics

Walras' Law

The property of a general equilibrium that if all but one of the markets are in equilibrium, then the remaining market is also in equilibrium, automatically. This follows from the budget constraints of the market participants, and it implies that any one market-clearing condition is redundant and can be ignored.

Economics

A market adjustment mechanism in which price rises when there is excess demand and falls when there is excess supply. Walrasian adjustment Strictly speaking, these excess supplies and demands are those that would obtain without any history of disequilibrium, as with a Walrasian auctioneer.

Economics

Walrasian auctioneer

A hypothetical entity that facilitates market adjustment in disequilibrium by announcing prices and collecting information about supply and demand at those prices without any disequilibrium transactions actually taking place.

Economics

WARP

Weak axiom of revealed preference.

Economics

Warsaw Pact

A "treaty of friendship, co-operation, and mutual assistance" including the Soviet Union and its satellite states in Central Europe. Signed in 1955, it included eight countries.

Economics

Washington Consensus

A set of economic practices and reforms deemed by international financial institutions (located in Washington, D.C.) to be helpful for financial stability and economic development; often imposed as conditions for economic assistance by these institutions. Phrase coined by John Williamson (1990).

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Economics

Water in the tariff

The extent to which a tariff is higher than necessary to be prohibitive.

Economics

Weak axiom of revealed preference

The assumption that a consumer who reveals strict preference for one bundle of goods over another will not, in other circumstances, reveal their preference for the second over the first. That is, if qi, qj are the vectors of goods purchased at prices pi, pj respectively, then piqi>piqj Þ pjqi>pjqj. Used in proving correlation results.

Economics

Wealth

Wealth is a stock of assets that generates a flow of income and can be held in a variety of forms by individuals, firms and also the nation as a whole.

Economics

Wealth effect

A rise in house prices or the value of shares increases consumers‘ wealth and allow an increase in borrowing to finance consumption increasing AD. In contrast, a fall in the value of share prices will lead to a decline in household financial wealth and a fall in consumer demand.

Economics

Welfare

Refers to the economic well being of an individual, group, or economy. For individuals, it is conceptualized by a utility function. For groups, including countries and the world, it is a tricky philosophical concept, since individuals fare differently. In trade theory, an improvement in welfare is often inferred from an increase in real national income.

Economics

Welfare criterion

A basis, usually quantitative, for judging whether one state of the world or of an economy is better than another, for use in welfare economics and in evaluation of policies.

Economics

Welfare economics

The branch of economic thought that deals with economic welfare, including especially various propositions relating competitive general equilibrium to the efficiency and desirability of an allocation. See the first and second theorems of welfare economics.

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Economics

Welfare proposition

In trade theory, this usually refers to any of several gains from trade theorems.

Economics

Welfare state

A set of government programs that attempt to provide economic security for the population by providing for people when they are unemployed, ill, or elderly.

Economics

Welfare to work

Welfare to Work is the Labour government's flagship programme for getting people off state benefits and into work. The programme includes the New Deal scheme targeted at increasing the employment prospects for the long-term unemployed.

Economics

Welfare triangle

In a partial equilibrium market diagram, a triangle representing the net welfare benefit or loss from a policy or other change. In trade theory it often means the triangle or triangles representing the deadweight loss due to a tariff.

Economics

Western Hemisphere Name sometimes proposed for a preferential trading arrangement including most or all of the countries of the western hemisphere. Now called FTAA. Free Trade Area

Economics

WHFTA

Western Hemisphere Free Trade Area

Economics

Willingness to pay

Willingness to pay is the maximum price a consumer is prepared pay to obtain a product rather than forego consumption and is shown by the demand curve.

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Economics

WIPO

World Intellectual Property Organization

Economics

Withholding tax

A tax on income that is levied at the source, thus diverted to the government before the recipient of the income ever sees it. Used in international tax treaties to assist tax collection.

Economics

Work leisure trade off The choice labour makes between working more hours and taking more leisure when the rate of income tax changes.

Economics

Workforce

The workforce is sometimes called the whole economy labour supply i.e. the total number of people able available and willing to participate in paid employment: the employed labour force plus those registered as unemployed and actively looking for new work.

Economics

Working Capital

Working capital refers to stocks of finished and semi-finished goods (or components) that will be either consumed in the near or will be made into finished consumer goods. Another term for stocks is inventories.

Economics

Working party

A group that is delegated to study an issue. Used by the WTO as a first step in considering a new issue that may later become the subject of negotiations.

Economics

World Bank

A group of five closely associated international institutions providing loans and other development assistance to developing countries. The five institutions are IBRD, IDA, IFC, MIGA, and ICSID. As of June 2007, the largest of these, IBRD, had 185 member countries.

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Economics

World Fact Book

Economics

World Intellectual The United Nations organization that establishes and coordinates standards for intellectual property protection. Property Organization

An excellent source of information about the countries of the world, including basic economic data.

Economics

World price

The price of a good on the "world market," meaning the price outside of any country's borders and therefore exclusive of any trade taxes or subsidies that might apply crossing a border into a country but inclusive of any that might apply crossing out of a country.

Economics

World production possibility frontier

The aggregate production possibility frontier for all of the countries of the world. Usually depicted for a two-good, two-country model.

Economics

World Trade Organization

A global international organization that specifies and enforces rules for the conduct of international trade policies and serves as a forum for negotiations to reduce barriers to trade. Formed in 1995 as the successor to the GATT, it had 150 member countries as of June 2007.

Economics

World transformation The world production possibility frontier. curve

Economics

WTO

World Trade Organization

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Economics

X inefficiency

The lack of real competition may give a monopolist less of an incentive to invest in new ideas or consider consumer welfare.

Economics

X-efficiency

The ability of a firm to get maximum output from its inputs. Failure to do so, called X-inefficiency or technical inefficiency, may be due to lack of incentives provided by competition. Improvement in X-efficiency is one hypothesized source of gain from trade. Term is due to Leibenstein (1966).

Economics

Yield

The amount of return on an investment; the interest rate.

Economics

Zero degree homogeneous

Homogeneous of degree zero.

Economics

Zero profit

A situation in which profit in an industry is zero, usually as a result of free entry and exit. It may, if firms are not identical, refer only to the marginal firm. And it always means zero excess profit, not that all returns to capital invested in the industry are zero.

Economics

Zero substitution

An elasticity of substitution of zero. In a production function, this means a Leontief technology.

Economics

Zero sum game

A game in which the payoffs to the players add up to zero, so that a gain for one is necessarily equaled by loss to others. Contrasts with positive sum game.

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