GBDA 102 Chapter Notes - Chapter 6: Mercantilism, Corporate Welfare, New Trade Theory

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Chapter 6: International Trade and Investment
International Trade: purchase, sale, or exchange of goods and services across national
Free Trade: pattern of imports and exports that occurs in the absence of trade borders
Subsidy: financial assistance to domestic producers in the form of cash payments, low-
interest loans, tax, break, product price supports, or other forms
Foreign Trade Zone (FTZ): designated geographic region through which merchandise is
allowed to pass with lower customs duties (taxes) and/or fewer customs procedures
Tariff: government tax levied on a product as it enters or leaves a country
Ad valorem tariff: a tariff levied as a percentage of the stated price of an imported
Specific tariff: tariff levied as a specific fee for each unit (number, weight, etc.) of an
imported product
Compound tariff: tariff levied on an imported product and calculated partly as a
percentage of its stated price and partly as a specific fee for each unit
Quota: restriction on the amount of a good that can enter or leave a country during a
certain period of time
Voluntary export restraint (VER): unique version of export quota that a nation imposes
on its own exports, usually at the request of an importing nation
Tariff-quota: lower tariff rate for a certain quantity of imports and a higher rate for
quantities that exceed the quota
Embargo: complete ban on trade in one of more products with a particular country
Administrative delays: regulatory controls or bureaucratic rules designed to impair the
flow of imports into a country
Currency controls: restrictions on the convertibility of a currency into other currencies
Mercantilism: trade theory that nations should accumulate financial wealth, usually in
the form of gold, by encouraging exports and discouraging imports
Trade surplus: condition that results when the value of a nation’s exports are greater
than the value of its imports
Factor proportions theory: trade theory stating that countries produce and export
goods that require resources that are abundant and import good that require resources
that are in short supply
International product life cycle theory: theory stating that a company will begin by
exporting its product and later undertake foreign direct investment as the product
moves through its life cycle
New trade theory: states the 1) there are gains to be made from specialization and
increasing economies of scale, 2) the companies first to market can create barriers to
entry, and 3) government may play a role in assisting its home companies
First mover advantage: economic and strategic advantage gained by being the first
company to enter an industry
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