International Trade and Finance: Chapter 1

Zero-Sum Game

(A misconception that) If one trading partner benefits, the other must suffer.

Protectionism

A futile attempt to enact tariffs on imports to shift demand into their domestic markets, thus promoting sales for domestic companies and jobs for domestic workers.

Agglomeration Economies

A rich country specializes its manufacturing niches and gains productivity through groups of firms clustered together, some producing the same product and others connected by vertical linkages.

Economic Interdependence

All aspects of a nation's economy are linked to the economies of its trading partners. Occurs through trade, labor migration, and capital (investment) flows such as corporation stocks and government securities.

Specialization

Comparative advantage of tasks that countries complete at specific steps along the global value chain.

Globalization

The process of greater interdependence among countries and their citizens.

Openness

The ratio of a nation's exports and imports as a percentage of its GDP. (Exports + imports)/GDP

Law of Comparative Advantage

When each nation specializes in the production of that good in which it has a relative advantage, the total output of each good increases; thus, all countries can realize welfare gains.