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SMG345 QUIZ 1

Terms

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globalization
refers to the shift toward a more integrated and interdependent world economy
globalization of markets
merging of historically distinct and sep natl markets into one huge global marketplace
globalization of production
sourcing of goods and sservices from locations around the globe to take advantage of national differences in the cost and quality of factors of production
WTO
police the world trading system and make sure nation states adhere to the rules laid down in trade treaties signed by wto member states
IMF
maintain order in the intl mondetary system
world bank
promote econ dev
UN
preserve peace through intl cooperation and collective sec
Intl trade
occurs when a firm exports goods or serv to consumers in another country
foreign direct investment
occurs when a firm invests resources in business activities outside its home country
drivers of globalization
declining trade and investment barriers, tech change,
multinational enterprise
any business that has productive activities in two or more countries
pol econ
stress that the pol, econ, and legal systems of a country are not ind of each other
pol system
system of gov of a nation
collectivism
pol system that stresses the primacy of collective goals over individual goals
communist
socialism could be achieved only through violent revolution and totalitarian dictatorship
social democrats
achieve socialism by democratic means and turned their backs on violent rev and dictatorships
privatization
selling state owned enterprised to private investors
individualism
philosophy that an individual should have freedom in his or her econ and pol pursuits
democracy
pol system in which gov is by the people exercised either directly or through elected reps
totalitarianism
one person or pol party exercises absolute control over all spheres of human life and opposing pol parties are prohibited
rep democracy
citizens periodically elect individuals to rep them
communist, theocratic, tribal, and right wing totalitarianism
1. communism 2. govern according to religious principles 3. ie africa 4. generally permits some econ freedom
legal system
regulate behavior along with the processes by which the laws are enforced and through which redress for grievences is obtained
common law
based on tradition, precedent and custom
civil law
based on a very detailed set of laws organized into codes
theocratic law
law based on religious teachings
contract
doc that specifies the conditions under which and exchange is to occur and detailes the rights and obl of parties involved
CISG
un convention on contracts for the intl sale of goods-est a uniform set of rules governing certain aspects of the making and perf of commercial contracts between sellers and buyers who have their places of business in diff nations
property rights
bundles of legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource
foreign corrupt services act
prohibits bribing a for gov official in order to obtain or maintain business over which that for official has authority and the law requires all publicly trades comp to keep records
patent
grants the inventor of a new product or process exclusive rights for a defined period to the manu, use, or sale of that invetion
copyrights
exclusive legal rights of authors composers playwrites arties and publishers to publish and disperse their work as they see fit
trademarks
designs and names often off registeered by which merchants or manu designate and diff their products
Paris convention
imp intl agreement to preotect intellectual prop
trade related aspects of intellectual property rights
TRIPS- oversees enforcement of much stricter intellectual property regulations
PPP
purchasing power parity-allows for a more dir comparison of living standards in dif countries
HDI
human development index-measure the quality of life
deregulation
removing legal restrictions to the ree play of markets the est of priv enterprises and the manner in which private enterprises operate
factor endowments
A nation's position in factors of production such as skilled labor or infrastructure necessary to compete in a given industry can be critical. These factors can be either basic (natural resources, climate, location) or advanced (skilled labor, infrastructure, technological know-how). While either can be important, advanced factors are more likely to lead to competitive advantage.
Demand Conditions
The nature of home demand for the industries product or service influences the development of capabilities. Sophisticated and demanding customers pressure firms to be competitive.
Relating and Supporting Industries:
The presence in a nation of supplier industries and related industries that are internationally competitive can spill over and contribute to other industries. Successful industries tend to be grouped in clusters in countries - having world class manufacturers of semi-conductor processing equipment can lead to (and be a result of having) a competitive semi-conductor industry.
Firm Strategy, Structure, and Rivalry:
The conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry impacts firms' competitiveness. Firms that face strong domestic competition will be better able to face competitors from other firms.
How can government policies and chance impact any of the four Porter's laws?
Government policy can affect demand through product standards, influence rivalry through regulation and antitrust laws, and impact the availability of highly educated workers and advanced transportation infrastructure.
Using the theory of comparative advantage to support your arguments, outline the case for free trade.
If each country specializes in the production of goods in which it has a comparative advantage relative to its trading partners, and then trades these goods for those produced by trading partners that have a comparative advantage in other goods, all countries can end up increasing their utility and consuming higher quantities (or at least the same) of all goods than if they only consumed what they produced.
Using the new trade theory and Porter's theory of national competitive advantage, outline the case for government policies designed to build a national competitive advantage in a particular industry. What kind of policies would you recommend the governme
The new trade theory suggests that government can have a role in helping industries "get a head start" and obtain first mover advantages in international markets, especially if it is an industry where there are likely to be economies of scale, increasing returns to specialization, and barriers to entry. Porter's theory suggests that government policy can either assist or detract from a country's ability to develop a "diamond" that can lead to a competitive advantage in an industry or industries. While new trade theories may suggest direct government support and subsidization of specific industries, Porter's theory would imply that more underlying factors like education, a transportation infrastructure, or competitive domestic markets should be supported by a government in order to promote the creation of competitive industries. These sorts of investments in factors that underlie basic competitiveness are not at variance with a basic free trade philosophy, while subsidization of specific industries is at odds with free trade, especially if these industries are or become major exporters.
What were the main elements of an import substitution policy?
The key to an import substitution policy is being able to produce a good that can be heavily taxed upon export in order to fund the development of other industries. In the case of Ghana, this was cocoa. Government tax revenues from the export of cocoa were used to subsidize the development of other industries that would replace imported goods (e.g., radios, household items). It was felt that once these industries got going, not only would they be able to supply the domestic market and lead to self-sufficiency in manufactured goods, the country would be able to export these goods and develop the capability for making ever more sophisticated manufactured goods.
Why was the import substitution policy such a failure?
The import substitution policy caused Ghana to shift productive resources away from goods in which it had an absolute advantage (cocoa), and into goods where its costs of production were much higher than that of other nations. Consumers were forced to pay higher prices for generally inferior goods, and productive resources were used in relatively unproductive pursuits. These inefficiencies put a brake on economic development.
tariff
tax levied on imports
specific tariffs
levied as a fixed charge for each unit of a good imported
ad valorem tariffs
levied as a proportion of the value of the imported good
subsidy
government payment to a domestic producer
import quota
direct restriction on the quantity of some good that may be imported into a country
voluntary export restraint
quota on trade imposed by the exporting country typically at the request of the importing country's gov
quota rent
extra profit that producers make when supply is artifically limited by an import quota
local content requirement
requirement that some specific fraction of a good be produced domestically
adm trade policies
bureaucratic rules that are designed to make it difficult for imports to enter a country
dumping
selling goods in a foreign market at below their costs of production
countervailing duties
aka antidumping duties, rep a special tariff, can stay in place for up to five years
political arguments for intervention
protecting jobs and industries, national security, retaliation, protecting consumers, furthering foreign policy obj, prot human rights
economic arguments for intervention
infant industry argument, strategic trade policy,
tariffs good or bad?
benefit the government due to the revenue raised, benefit domestic producers since they can charge higher prices, and hurt domestic consumers. Tariffs are unambiguously pro-producer and anti-consumer. They reduce the overall efficiency of the world economy - a protective tariff encourages domestic firms to produce products at home that in theory could be produced more efficiently abroad.
subsidies good or bad?
Subsidies take many forms including cash grants, low interest rate loans, tax breaks, and government equity participation in domestic firms. Subsidies help domestic producers in two ways. 1) Subsidies help domestic producers compete against low cost foreign imports, and 2) Subsidies help domestic producers gain export markets. Subsidies clearly benefit domestic producers, and damage foreign producers. Domestic consumers, however, must pay for subsidies, usually through taxes. When subsidies are in the form of price supports (i.e. often in agriculture), domestic consumers may also pay directly. Subsidies generally help support inefficient industries and keep productive assets employed in industries that do not make most effective use of these assets

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