Summary International Economics Chapters 1-6

International Economics Chapters 1-6 deep integration - economic integration beyond removal of barriers at each country's border foreign direct investment (FDI) - the purchase of physical assets such as real estate or businesses by a foreign company or individual. It can be outward or inward. gross domestic product (GDP) - the market value of all final goods and services produced in a year inside a nation index of openness - a measure of the importance of trade to a national economy, consisting of exports plus imports divided by GDP quota - a numerical limit on the volume of imports regional trade agreement (RTA) - agreements between two or more countries, each offering the others preferential access to its markets. RTAs provide varying degrees of access and variable amounts of deep integration shallow integration - the elimination or reduction of tariffs, quotas, and other border-related barriers (such as customs procedures) that restrict the flow of goods across borders tariffs - taxes imposed on imports. Tariffs raise the price to the domestic consumer to reduce the quantity demanded. transaction costs - the costs of gathering market information, arranging a market agreement, and enforcing the agreement. Transaction costs include legal, marketing, and insurance costs, as well as quality checks, advertising, distribution, and after-sales service costs. Bretton Woods conference - a small town in NH that was, in July 1944, the site of talks establishing the international financial and economic order after WWII. The IMF and the World Bank emerged from the Bretton Woods conference. common external tariff - the policy of customs unions in which the members adopt the same tariffs toward nonmembers common market - a regional trade agreement whose member nations allow the free movement of inputs as well as outputs, and who share a common external tariff toward nonmembers customs union - an agreement among two or more member countries to engage in free trade with each other and to share a common external tariff toward nonmembers Doha Development Agenda - the name for the trade negotiations that began in 2000 under the auspices of the WTO Doha Round - the current WTO round of trade negotiations economic union - the most complete form of economic integration, these unions are common markets that also harmonize many standards while having the same substantially similar fiscal and monetary policies. Economic unions may include a common currency. foreign exchange reserves - assets held by the national monetary authority that can be used to settle international payments. Dollars, euros, yen, and monetary gold are examples of reserves. free riding - occurs when a person lets others pay for a good or service, or lets them do the work when he or she knows that he or she cannot be excluded from consumption of the good or from the benefits of the work free-trade area - a preferential trade agreement in which countries permit the free movement of outputs across their borders as long as the outputs originate in one of the member countries General Agreement on Tariffs and Trade (GATT) - the main international agreement covering the rules of trade in most, but not all, goods. The GATTs origins can be traced to negotiations that took place in 1946, after WWII. IMF conditionality - the changes in economic policy that borrowing nations are required to make in order to receive IMF loans. The changes usually involve policies that reduce or eliminate a severe trade deficit and/or a central government budget deficit. In practical terms, they involve reduced expenditures by the government and by the private sector and increased taxes. institution - a set of rules of behavior. Institutions set limits, or constraints, on social, political, and economic interaction. An institution may be informal or formal. International Monetary Fund (IMF) - one of the original Bretton Woods institutions, IMF responsibilities include helping member countries that suffer from instability or problems with their balance of payments. It also provides technical expertise in international financial relations. lender of last resort - in international economics, a place where nations can borrow after all sources of commercial lending have dried up. Today, the IMF fills this role. most-favored nation (MFN) status - the idea that every member of the WTO is required to treat each of its trading partners as well as it treats its most favored trading partner. In effect, MFN prohibits one country from discriminating against another. national treatment - the idea that foreign firms operating inside a nation should not be treated differently than domestic firms non-diminishable - a good or service that is not reduced by consumption. For example, listening to a radio broadcast does not reduce its availability to others nondiscrimination - the notion that national laws should not treat foreign firms differently than domestic firms nonexcludable - when people wo do not pay for a good or service cannot be excluded form its consumptions. National defense is an example