Global Economics Vocab

Free Trade

Trade between countries without protective customs or tariffs

Opportunity Cost

What is given up by choosing one alternative over another

Multinational Corporation (MNC)

A corporation that operates in two or more countries. Also known as trans-national corporations (TNCs). A firm becomes a MNC by undertaking foreign direct investment (see below).

Less Developed Country (LDC)

A country with a low living standard, underdeveloped industrial base or low Human Development Index (HDI). There is no universal definition for an LDC but generally it can be agreed upon based on the country

Subsidies

A grant of money by a government to assist an enterprise thought to be advantageous to the public

Fair Trade

A movement that promotes international labor, environmental, and social standards for the production or traded goods and services. It works against sweat shop labor, slave labor, and environmental degradation.

North American Trade Agreement (NATA)

A regional trade agreement between the United States, Mexico, and Canada. One of the first regional free-trade treaties, NAFTA went into effect on 1/1/1994.

Comparative Advantage

A trading nation's ability to produce something at a lower opportunity cost than another nation.

Race To The Bottom

A way of criticizing how competition shapes the incentives facing the competitors; when each individual competitor acts in their immediate self-interest in an effort to "win" the competition, the effect, particularly in the longer term, can be negative. Competition leads to innovation, but what kind of innovation?

Outsourcing

Allowing a third party to take on a function in your organization. Outsourcing allows companies to specialize in their core business and hire other specialists to make parts or provide for other aspects of their business.

World Bank

An agency of the United Nations whose purpose is to fight world poverty by promoting economic development though loans, policy advice, and technical assistance

World Trade Organization (WTO)

An international organization established to promote international free trade; most nation-states are members, and by being members agree to WTO rules about tariffs and trade. States in a conflict over trade matters can take their case to the WTO, which is supposed to act as a neutral judge. Some thought the US should have required China to conform to stronger labor and environmental laws before allowing them to join the WTO.

Foreign Direct Investment

Is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. (Wikipedia)

Offshoring

Moving any business process to a foreign location

Developing Nations

Nations with less industrial development and a relatively low standard of living

Tariff

Taxes paid on goods and products that are shipped into a country

Factors of Production

That which are needed to create goods or services

Absolute Advantage

The ability of one trading nation to make a product more efficiently than another trading nation. Some regions or nations have absolute advantage in producing certain products because of the uneven distribution of production factors.

Externalities

The costs or benefits of an economic decision that go to those that did not make the decision. Pollution is a negative externality; the polluter made the choice to pollute because the polluter was not going to be the one to pay the cost of that choice.

Globalization

The development of an increasing integrated world economy

Foreign Aid

The funds, goods and services given by governments and private organizations to help other nations

Voluntary Exchange

The idea that both parties see benefit from trade and therefor agree to develop that connection

International Monetary Fund (IMF)

an agency of the United Nations that promotes world trade by encouraging countries to adopt sound policies affecting exchange rates and currency values. The IMF also provides emergency loans to states facing economic turmoil, and has been criticized for placing conditions on the loans that create greater inequality in the name of higher GDP growth.