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POL 202: Exam 2+
Comparative Advantage |
Producing a good at a lower opportunity cost than any other country |
Absolute Advantage |
Producing a good more efficiently than any other country |
Opportunity cost |
What a country forgoes in order to produce a particular good
Example:
England must forgo 2 bolts of cloth to make a barrel of wine (30÷15).
Portugal must forgo 11⁄2 bolts of cloth to produce a barrel of wine, or it can give up 2⁄3 of a barrel of wine to produce a bolt of cloth.
The opportunity cost of producing cloth is lower
in England, and the opportunity cost of
producing wine is lower in Portugal. |
Factor endowments (factors of production) |
The material and human resources a country possesses
Land (essential for agricultural production)
Labor (unskilled labor)
Capital for investment (machinery, equipment and financial assets)
Human capital (skilled labor) |
Protectionism |
use of specific measures to shield domestic producers from imports. |
use of specific measures to shield domestic producers from imports. |
Impediments to the import of foreign goods. |
Tariff |
A tax on imports levied at the border and paid by the importer |
Quota |
limits the quantity of a foreign good that can be sold domestically |
Redistributive effect |
income is redistributed from domestic consumers to the protected domestic industry |
Trade liberalization |
Dismantling of trade barriers, creates winners and losers
promotes liberalization: America 1945 Post-WWII
Institution that promotes liberalization: GATT |
Dumping |
selling goods below the true cost of production in order to drive out competitors and gain market share |
How the WTO enforces dispute settlements |
retaliatory tariffs |
Foreign Portfolio Investment |
give the investor a claim on some income, but no role in managing the investment
Interest: rate of return |
Foreign Direct Investment (FDI) |
Carried out by corporations that maintain control over the facilities they establish overseas |
Why can't geographic location fully explain why some countries are poor and others are rich? |
Take into account:
Domestic interests/institutions |
Infrastructure |
Public goods that increase development
Physical infrastructure (roads, airports, ports, etc.)
Economic institutions (financial systems, etc.)
Social infrastructure (public health, education, etc.) |
Primary Products |
agricultural and raw materials |
Import-substitution industrialization (ISI) |
A set of policies that reduced imports and encouraged domestic manufacturing
Outlines:
Trade barriers to protect domestic manufacturers
Government incentives to draw investors into the modern industrial sector
Government provision of industrial services (such as electric power, finance and transport) |
Export-oriented industrialization (EOI) |
A set of policies that encourage manufacturers to produce for foreign consumers
Techniques:
tax breaks to exporters
low-cost loans
weak currency helped make their products artificially cheap |
Washington Consensus |
Transformation towards a general acceptance of trade liberalization, privatization, Fiscal and Monetary policies
|
Privatization |
The selling off of many government enterprises to private investors who would presumably run them more efficiently |
Fiscal and Monetary policies |
were executed to avoid deficits and high inflation. |