intl fin

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intl fin
2013-04-29 15:44:55
intl fin

intl fin
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  1. Subverting a Tariff
    When a an exporter facing a tariff lowers the  price by the amount of the tariff
  2. Reasons for subsidy
    • best way to protect jobs (absolute comparative adantage)
    • Speciticity rule base of the problem
  3. Reasons for no subsidy
    Home gov't making $ w. tariff and losing money w/ subsidy
  4. Arguements against a tariff
    • Income repercussion and retaliation
    • Redistribution of income away from other competing exporters
    • Slows tenchologial progress- other companies forced to innovate
    • Creates bureaucracy
    • Promotes lower wealth among consumers
  5. Vernon int'l product life cycle
    • Create process w/ specialized workers while warranty costs eventualy settle, product is accepted by the mkts
    • Turn over to less specialized workers (part time) that are cheaper
    • Send it overseas
  6. Immiserizing growth theory
    • Large country producers determine world price and therefore should not subsidize their goods because. Price drops and country goes backwards
    • Works w/ small country producers (Good for FX, job growth etc.
  7. Rybchynkzy Theory
    Increasing the stock of the factor of production will lower and the profit margin will rise will move capital from other industries into the subsidized industry
  8. Artificially increasing a factor of production to increase fiscal stimulation has unexpected consequences. Capital flows out of one industry and into another
    Dutch disease
  9. Linders Representative Demand Curve
    Going from autarky to free trade you will export according to your taste of consumption
  10. Stolper-Samuelson
    Who wins and who loses when eliminating tariffs and going to free trade- those who own factors of production (w/ comparative advantage) win becuase labor for example becomes relatively scarce and price goes up for labor (LABORERS ARE THE WINNERS- THE OWNERS OF FACTORS OF PRODUCTION)
  11. When going from autarky to free trade, factor prices tend to equalize across countries and they will equalize over free trade.
    Factor price equalization
  12. When tariffs rise for job protection, importing countries have less income relatively and can't buy imports
    income repercussions
  13. retaliation
    Their export country may put up a tariff against our export industry in retaliation to our tariff
  14. Heschler Ohlen
    If you take down trade tariffs going from autarky to free trade, factor endowments determine what you import and export
  15. Arguments for free trade
    Countries have comparative advantages and can be low cost producers, making market basket for consumer at a cheap price. Greater consumption wealth per consumer.
  16. Arguements against autarky
    Less consumption wealth per consumer.  No low cost producers
  17. 1st best and 2nd best
    • 1st is a subsidy because it is a direct effect on the core problem of an industry import competitor (operating expense) this is the specificity rule
    • 2nd is a tariff
  18. Subversion of a tariff
    Foreign exporter lowers price equal to the size of the tariff
  19. The direct government subsidy is the best way to help face the core problem of high operating costs
    specificity rule
  20. Argument for a subsidy
    Creates an enhanced comparative advantage vs. tariffs that can be subverted
  21. Arguement against a tariff
    Can be subverted
  22. Arguement for tariff
    Makes money for the government versus an outflow of money
  23. great way to protect jobs while making revenue, that cannot be subverted
    quotas and licensing, absolute import limits
  24. Ad valorem tariff
    the higher the value of the import, the larger the tariff price (More than import licenses and quotas)
  25. World Bank
    • Economic lender for developing countries
    • Original purpose was after bombing in W Europe so US sold them all these goods during reconstruction- consumer was supplied during this time by Bank of Reconstruction and Economic Development
    • 1954-1957 Europeans diverted US imports in treaty of Rome as they then produced and used their own goods
  26. Treaty of Rome
    • 1954-1957
    • Form a European common market within continental W Europe
    • Common tariff around outside of W european countries keeping out American exports so Europeans could accept Euro products and brands could be re-established
  27. LAFTA
    Latin American Free Trade Agreement
  28. Condition for Customs Unions to work
    • Diverting trade from America and Europe has to be less than the trade creation
    • Trade created > trade diverted
  29. Why would you constrain exporting w a duty?
    • Egyptian farmer can produce cheaper than world price
    • If they exported uninterrupted the street price would be at the world price- and egyptian peasant would starve
    • Duty is so expensive they'd rather sell on streets (keeps supply within egypt at local prices)
  30. countervailing Tariff
    If the exporter subsidized under fair trade and other country put a tariff to counter
  31. Dumping
    • Exporting goods abroad at a price below cost to gain mkt share and when you gain mkt share you've driven out local market leaders you raise price
    • Have to have inelastic demand curve domestically so that you can raise domestic prices and still not lose sales value
    • High prices paid for by the domestic population subsidized the dumping and makes it work
  32. East west trade
    Communists said you can't trade w/ West because capitalists are manipulative so you must barter
  33. OPEC
    Organization of Oil Producing Economic Countries
  34. Cartel theory of OPEC
    • Few large monopsonistic buyers
    • Allot of small exporters (producers)
    • Controls quantity at a point where supply and demand don't meet
  35. Reason Cartels fail
    Suppliers cheat and sell more than they are supposed to
  36. Food Security argument
    • Trade is rationalized only for non-critical items like electronics.  Critical items like food are produced in all countries because countries want to maintain self-sufficiency of food
    • Dept of agriculture i.e. supports wheat price through LARGE TARIFFS
  37. North-South Dialogue
    • periodic diplomatic meetings
    • Purpose is for South to try to get N. to the south part of its riches (Cut subsidies to N. American farms)
    • N. won't do anything
  38. Disputes btw rich and poor
    World Trade Organization and predecessor the General Agreement of Tariffs and Trade (GATT)
  39. GATT
    • 30s and 40s to protect job during the depression they put up tariffs (A period of almost autarky) could not have any more jobs destribed by imports
    • Europe would trade its way out of the destruction of the war
    • Rounds of reducing tariffs by 3% etc.
    • Reinvented itself into the WTO (World Trade Organization)
    • G-8 abandoned  WTO w/ peace talk ideas
  40. 2 aspects of political risk
    • 1. Probability of plant being expropriated
    • 2. Probability of FX controls because of BoP defecits, where you can't get dividend out, and subsidiary is not paying a dividend
  41. Political risk indicators
    • # of murders/1,000 population
    • Population heterogeneity
    • GDP/capita