INTB - Ch. 5

theory of national competitive advantage of industries ("diamond"

1) Country factor endowments 2) Domestic demand conditions 3) Firm strategy, structure, & rivalry 4) Related and supporting industries

Political Arguments Against Free Trade

1) National security 2) Consumer protection 3) Foreign policy 4) Environmental & social responsibility

product life cycle theory

a theory that accounts for changes in the patterns of trade over time by focusing on product life cycles

theory of comparative advantage

a theory that focuses on the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations

factor endowment theory (Heckscher-Ohlin theory

a theory that suggests that nations will develop comparative advantages based on their locally abundant factors

strategic trade theory

a theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success

theory of national competitive advantage of industries ("diamond" theory)

a theory that suggests that the competitive advantage of certain industries in different nations depends on four aspects that form a "diamond"

theory of mercantilism

a theory that suggests that the wealth of the world is fixed and that a nation that exports more and imports less will be richer

theory of absolute advantage

a theory that suggests that under free trade, a nation gains by specializing in economic activities in which it has an absolute advantage

trade surplus

an economic condition in which a nation exports more than it imports

trade deficit

an economic condition in which a nation imports more than it exports

infant industry argument

argument that if domestic firms are as young as "infants," in the absence of government intervention, they stand no chance of surviving and will be crushed by mature foreign rivals

first-mover advantage

benefit that accrues to firms that enter the market first and that late entrants do not enjoy

administrative policy

bureaucratic rules that make it harder to import foreign goods

opportunity cost

cost of pursuing one activity at the expense of another activity, given the alternatives (other opportunities)

subsidy

government payments to domestic firms

strategic trade policy

government policy that provides companies a strategic advantage in international trade through subsidies and other supports

voluntary export restraint (VER)

international agreement that shows that exporting countries voluntarily agree to restrict their exports

deadweight cost

net losses that occur in an economy as a result of tariffs

trade embargo

politically motivated trade sanction against foreign countries to signal displeasure

comparative advantage

relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations

local content requirement

requirement stipulating that a certain proportion of the value of the goods made in one country must originate from that country

import quota

restrictions on the quantity of imports

antidumping duty

tariff levied on imports that have been "dumped" (selling below costs to "unfairly" drive domestic firms out of business)

balance of trade

the aggregation of importing and exporting that leads to the country-level trade surplus or deficit

absolute advantage

the economic advantage one nation enjoys that is absolutely superior to other nations

factor endowment

the extent to which different countries possess various factors of production such as labor, land, and technology

free trade

the idea that free market forces should determine how much to trade with little or no government intervention

protectionism

the idea that governments should actively protect domestic industries from imports and vigorously promote exports

nontariff barrier (NTB)

trade barriers that rely on nontariff means to discourage imports

classical trade theories

which consist of (1) mercantilism, (2) absolute advantage, and (3) comparative advantage

modern trade theories

which consist of (1) product life cycle, (2) strategic trade, and (3) national competitive advantage of industries