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117 Cards in this Set
- Front
- Back
globalization
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the shift towards a more integrated and interdependent world economy
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globalization of markets
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the merging of historically distinct and separate national markets into one huge global marketplace
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globalization of production
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sourcing goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production
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factors of production
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labor, energy, land, and capital
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General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO)
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primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states
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International Monetary Fund and World Bank
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created in 1944 by 44 nations to promote economic development
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United Nations
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established Oct. 24, 1945 by 51 countries committed to preserving peace through international cooperation and collective security
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G20
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comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the EU and European Central Bank
established to formulate a coordinated policy response to financial crises in developing nations, it became the forum through which major nations attempted to launch a coordinated policy response to the global financial crisis |
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International Trade
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when a firm exports goods or services to customers in another country
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Foreign direct investment (FDI)
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when a firm invests resources in business activities outside its home country
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Moore's Law
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predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months
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stock of FDI
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total cumulative value of foreign investments
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multinational expertise (MNE)
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any business that has productive activities in two or more countries
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international business
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any firm that engages in international trade or investment
does not have to become a multinational enterprise, investing directly in operations in other countries, to engage in international business, although multinational enterprises are international businesses |
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Two factors seem to underlie the trend toward globalization:
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1. declining trade barriers
2. changes in communication, information, and transportation technologies |
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political economy
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refers to how the political, economic, and legal systems or a country are interdependent; they interact and influence each other, and in doing so they affect the level of economic well-being
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political system
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the system of a government in a nation, which is assessed according to:
- the degree to which the country emphasizes collectivism/individualism - the degree to which the country is democratic/totalitarian |
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collectivism
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a political system that stresses the primacy of collective goals over individual goals
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socialism
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advocates state ownership of the basic means of production, distribution, and exchange to benefit society as a whole, rather than individual capitalists
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communist
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believes that socialism would be achieved through VIOLENT revolution and totalitarian dictatorship
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social democrats
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committed to achieving socialism by democratic means
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privatization
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selling state-owned enterprises to private investors
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individualism
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refers to philosophy that an individual should have freedom in his own economic and political pursuits
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democracy
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refers to a political system in which government is by the people, exercised either directly or through elected representatives
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representative democracy
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where citizens periodically elect individuals to represent them
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totalitarianism
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a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties
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communist totalitarianism
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found in states where the communist party monopolizes power (e.g. cuba)
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theocratic totalitarianism
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found in states where political power is monopolized by a party, group, or individual that governs according to religious principles (e.g. saudi arabia, iran, iraq)
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tribal totalitarianism
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found in states where a political party that represents the interests of a particular tribe monopolizes power (e.g. zimbabwe)
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right-wing totalitarianism
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permits some individual economic freedom,but restricts individual political freedom (e.g. China to some extent, Germany and Italy before WWI)
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market economy
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all productive activities are privately owned and production is determined by the interaction of supply and demand
government encourages free and fair competition between private producers (individualistic) |
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command economy
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government plans the goods and services that a country produces, the quantity that is produced, and the prices at which they are sold
businesses are state-owned and resources allocated for "the good of society" (collectivistic), tend to stagnate this assumes that the gov't knows the optimum value to sell at and that it is HONEST |
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mixed economy
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certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning
gov't tends to own firms that are considered important to national security (e.g. weapons mkt) |
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legal system
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the rules that regulate behavior along with the processes by which the laws are enforced and through whih redress for grievances is obtained
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Three types of legal systems
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1. common law: based on tradition, precedent, and custom
2. civic law: based on detailed set of laws organized into codes 3. theocratic law: law is based on religious teachings |
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contract
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a document that specifies the conditions under which an exchange is to occur and details the rights an obligations of the parties involved
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contract laws
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the body of law that governs contract enforcement
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United Nations Convention on Contracts for the International Sale of Goods (CIGS)
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establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between buyers and sellers who have their places of business in different nations
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property rights
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the legal rights over the use to which a resources is put and over the use of made of any income that may be derived from that resource
intellectual property is hard to claim rights to, there is no incentive to make something if there is poor protection of property rights (e.g. AIDS medicine) |
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private action
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theft, piracy, blackmail, and the like by private individuals or groups
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public action
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when public officials, such as politicians and bureaucrats, extort income, resources, or the property itself from property holders
high level of corruptions reduce FDI, the level of intl trade, and the economic growth rate in the country |
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Foreign Corrupt Practices Act
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makes it illegal for U.S. companies to bribe foreign government officials to obtain or maintain business over which that foreign official has authority
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Intellectual Property
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property that is the product of intellectual activity
-world intellectual property organization -paris convention for the protection of industrial property |
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Intellectual Property can be protected using:
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1. Patents: exclusive rights for a defined period to the manufacture, use, or sale of that invention
2. copyrights - the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit 3. trademarks: design and names by which merchants or manufacturers designate and differentiate their products |
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product safety laws
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set certain standards to which a product must adhere
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product liability
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holding a firm and its officers responsible when a product causes injury, death, or damage
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Two ways to measure levels of economic development:
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1. Gross national income (GNI) per head of population: measures the total annual income received by residents of a nation
2. Purchasing power parity (PPP): involves adjusting GNI by purchasing power, allows for a more direct comparison of living standards in different countries, with the base for the adjustment being the cost of living in the US should also consider currency exchange |
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How does political economy influence economic progress?
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For long-run economic growth:
- innovation and entrepreneurship - market economy and strong property rights - democratic is good so you can innovate and compete - economic growth leads to the establishment of democratic regimes |
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How is the political economy changing? Two trends:
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1. democratic revolution
2. a move away from centrally planned and mixed economies |
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The shift toward market-based system involves:
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1. deregulation: removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate
2. privatization: transfers the ownership of state property into hands of private investors 3. the creation of a legal system to safeguard property rights |
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first mover advantages
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advantages that accrue to early entrants into a market
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political risk
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the likelihood that political forces will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a business enterprise
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economic risk
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the likelihood that economic mismanagement will cause drastic change in a country's business environment that adversely affects the profit and other goals of a business enterprise
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legal risk
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the likelihood that a trading partner will opportunistically break a contract or expropriate property rights
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culture
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a system of values and norms that are shared among a group of people and that when taken together constitute a design for living
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values
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abstract ideas about what a group believes to be good, right, and desirable
provide the context within which a society's norms are established and justified and form the bedrock of a culture |
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norms
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the social rules and guidelines that prescribe appropriate behavior in particular situations
Include -folkways: the routine conventions of everyday life -mores: norms that are seen as central to the functioning of a society and to its social life |
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society
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a group of people who share a common set of values and norms
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Determinants of culture:
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-religion
-political and economic philosophies -education -language -social culture |
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social structure
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a society's basic social organization
The degree to which -the basic unit of social organization is the individual, as opposed to the group -a society is stratified into classes or castes |
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group
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an association of two or more people who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other's behavior
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social mobility
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the extent to which individuals can move out of the strata into which they are born
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caste system
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closed system of stratification in which social position is determined by the family into which a person is born
change is usually not possible during an individual's lifetime |
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class system
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form of open social stratification
position a person has by birth can be change through achievement or luck |
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class consciousness
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a condition where people tend to perceive themselves in terms of their class background, and this shapes their relationships with others
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religion
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a system of shared beliefs and rituals that are concerned with the realm of the sacred
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Four religions dominate society:
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Christianity
Islam Hinduism Buddhism Judaism? |
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Language
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the spoken and unspoken (nonverbal such as facial expressions, personal space, and hand gestures) means of communication
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Four dimensions of culture in the workplace:
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1. power distance: how a society deal with the fact that people are unequal in physical and intellectual capabilities
2. uncertainty avoidance: the relationship between the individual and his fellows 3. individualism vs. collectivism: the extent to which different cultures socialize their members into accepting ambiguous situations and tolerating ambiguity 4. masculinity vs. femininity: the relationship between gender and work roles |
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Does culture change?
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-culture evovles over time
changes in value systems can be slow and painful for a society - social turmoil: an inevitable outcome of cultural change as countries become economically stronger, cultural change is particularly common |
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What do cultural differences mean for managers?
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1. It is important to develop cross-cultural literacy
- must be aware of ethnocentric behavior (belief in superiority of one's own culture) 2. There is a connection between culture and the national competitive advantage |
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The benefits of doing business in a country are:
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- a function of the size of the market (population)
- its present wealth (purchasing power) - its future growth prospects |
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free trade
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a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country
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International trade allows a country to:
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- specialize in the manufacture and export of products that it can produce efficiently
-import products that can be produced more efficiently in other countries |
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mercantilism
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-suggests that it is in a country's best interest to maintain a trade surplus (to export more than it imports)
-advocates govt intervention to achieve a surplus in the balance of trade -views trade as a zero-sum game (one in which a gain by one country results in a loss by another) |
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Smith's Theory of Absolute Advantage
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- suggests that countries differ in their ability to produce goods efficiently
- also suggests that a country should specialize in producing goods in areas where it has an absolute advantage and import goods in areas where other countries have absolute advantages - this assumes that no country has absolute advantage in everything |
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Ricardo's Theory of Comparative Advantage
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-suggests that countries should specialize in the production of those goods they produce most efficiently and buy goods that they produce less efficiently from other countries
-even if this means buying goods from other countries that they could produce more efficiently at home -provides a strong rationale for encouraging free trade |
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constant returns to specialization
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the units of resources required to produce a good (cocoa or rice) are assumed to remain constant no matter where one is on acountries production possibility frontier (PPF)
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diminishing returns to specialization
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occurs when more units of resources are required to produce each additional unit
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Heckscher-Ohlin Theory:
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-comparative advantage arises from differences in national FACTOR ENDOWMENTS: the extent to which a country is endowed with resources like land, labor, and capital
-predict that countries will export goods that make intensive use of those factors that are locally abundant, and import goods that make intensive use of factors that are locally scarce |
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Leontief Paradox
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-theorized that since the US was relatively abundant in capital compared to other nations, the US would be an exporter of capital intensive goods and an importer of labor-intensive goods
-but instead, found that US exports were less capital intensive than US imports |
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Vernon's product life-cycle theory
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-as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade
- production became concentrated in lower-cost foreign locations, and the US became an importer of the result of the production |
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Diamond of Competitive Advantage (four attributes that promote or impede the creation of competitive advantage)
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1. Factor endowments
2. Demand Conditions 3. Relating and supporting industries 4. Firm strategy, structure, and rivalry |
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Implications of Trade Theory
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1. Location Implications: a firm should disperse its various productive activities to those countries where they can be performed most efficiently
2. First-mover implications: a first-move advantage can help a firm dominate global trade in that product 3. Policy implications: firms should work to encourage governmental policies that support free trade |
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current account
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pertains to goods, services, and income, receipts and payments
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capital account
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records one time changes in the stock of assets
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financial account
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records transactions that involve the purchase or sale of assets
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tariffs
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taxes levied on imports that effectively raise the cost of imported products relative to domestic products
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specific tariffs
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levied as a fixed charge for each unit of a good imported
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ad valorem tariffs
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levied as a proportion of the value of the imported good
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subsidies
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government payments to domestic producers
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import quotas
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restrict the quantity of some good that may be imported into a country
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Voluntary Export Restraints
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quotas on trade imposed by the exporting country, typically at the request of the importing country's government
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Local Content Requirements
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demand that some specific fraction of a good be produced domestically
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Administrative Policies
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bureaucratic rules designed to make it difficult for imports to enter a country
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Antidumping Policies (aka countervailing duties)
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designed to punish foreign firms that engage in dumping and protect domestic producers from "unfair" foreign competition
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Two main arguments for government intervention in the market:
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1. political arguments
2. economic arguments |
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What are the political arguments for government intervention?
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1. Protecting jobs
2. Protecting industries deemed important for national security 3. Retaliating to unfair foreign competition 4. Protecting consumers from "dangerous" products 5. Furthering the goals of foreign policy 6. Protecting the human rights of individuals in exporting countries |
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What are the economic arguments for government intervention?
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1. the infant industry argument
2. strategic trade policy |
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What do trade barriers mean for managers?
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1. Trade barriers raise the cost of exporting products to a country
2. Voluntary export restraints (VERs) may limit a firm's outside ability to serve a country from locations outside that country 3. To conform to local content requirements, a firm may have to locate more production activities in a given market than it would otherwise |
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Foreign direct investment (FDI)
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when a firm invests directly in new facilities to produce and/or market in a foreign country (firm then becomes a multinational enterprise)
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greenfield investments
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the establishment of wholly new operation in a foreign country
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stock of FDI
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refers to the total accumulated value of foreign-owned assets at a given time
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gross fixed capital formation
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the total amount of capital invested in factories, stores, office buildings, and the like
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exporting
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producing goods at home then shipping them to the receiving country for sale
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licensing
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granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit that the foreign entity sells
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internalization theory (aka market imperfections theory)
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suggests that licensing has three major drawbacks compared to FDI
-firms could give away valuable technological know-how to a potential foreign competitor -does not give a firm the control over manufacturing, marketing, and strategy in the foreign country - the firm's competitive advantage maybe be based on its management, marketing, and manufacturing capabilities |
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multipoint competition
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when two or more enterprises encounter each other in different regional markets, national markets, or industries
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How does FDI benefit the host country?
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1. Resource transfer effects
2. Employment effects 3. Balance of payments effects 4. Effect on competition and economic growth |
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Inward FDI has three main costs:
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1. Adverse effects of FDI on competition within the host nation
2. Adverse effects on the balance of payments 3. Perceived loss of national sovereignty and autonomy |
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Benefits of FDI for the home country include:
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1. The effect on the capital account of the home country's balance of payments from the inward flow of foreign earnings
2. the employment effects 3. the gains from learning valuable skills from foreign markets that can be subsequently transferred back to the home country |
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regional economic integration
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agreements between countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other
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free trade area
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eliminates all barriers to the trade of goods and services among member countries
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customs union
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eliminates trade barriers between member countries and adopts a common external trade policy
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common market
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has no barriers to trade between members countries, a common external trade policy, and the free movement of the factors of production
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economic union
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has the free flow of products and factors of production between members, a common external trade policy, a common currency, a harmonized tax rate, and a common monetary and fiscal policy
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political union
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involves a central political apparatus that coordinates the economic, social, and foreign policy of member states
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