A comprehensive dictionary of economics (gnv64)

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A comprehensive dictionary of economics, for understanding economics basic terminology...............

A comprehensive dictionary of economics, for understanding economics basic terminology...............

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  • 1. _axL_(OMPREHENJIVE[)ICTI()~Al2"~~~~(Jf~~~~ECONOMICS Chief Editor & Compiler: Nelson Brian ~ ABHISHEK
  • 2. All rights reserved. No part of this book may be reproduced in anyform, electronically or otherwise, in print, photoprint, micro film orby any other means without written permission from the publisher.ISBN : 978-81-8247-031-6ISBN 8/ -8247-03 /-5Copyright PublisherFirst Edition 2009 2004Published byABHISHEK PUBLICATIONS,S.C.O. 57-59, Sector 17-C,CHANDIGARH-1600 17 (India)Ph.-2707562,Fax-OI72-2704668Email: abhpub@yahoo.comConcept & Design byXact Ad N Art Studio, DelhiPri1lted at : Balaji Offset, Naveen Shadra, Delhi-32
  • 3. PrefaceEconomics is the science that deals with the production,distribution and consumption of wealth. It studies thevarious problems oflabour, finance, taxation, etc. and triesto find a solution or the best possible way to tackle theseproblems. The subject not only deals with the present andfuture growth of a countrys economy at the micro level,like the consumption of a household or an individual [trm,but also studies the same at a bigger and more complexlevel or the macro level, like the national income or theproduction of an industry. The job of the economists is toidentify the economic problems of a countrys economyand find solutions for the same, thereby promoting a healthyand smooth economic growth.There are two schools of thoughts in economics, viz. theClassical and the Modern. The economists belonging tothese two schools have contributed a lot in the field ofeconomics through a number of theories. But, as the hu-man wants are endless, so are the economic problems un-ending and therefore, economists are continuously work-ing towards finding solutions for these new problems.The dictionary is made with the intent of providing thereaders with a handy referral for the terminology used in
  • 4. the subject. The dictionary covers almost all the termsthat form a part and parcel of economics in simple andeasily comprehensible language. In order to enhance thereaders knowledge and bring about more relevance, manyexamples and pictures have been used along with the defi-nitions of the terms.
  • 5. II a foir trader / foir traders I accelera~ t:lepreciation 5- a fair trader / fair traders ~ and government) of a country,contrasted with free trader, a ; in contrast to the total demandfair trader is a holder of the ~ for that countrys output.point of view that ones countrys : _ absorption approachgovernment must prevent ~or- ~ a way of understanding the fac-eign companies from havmg ; tors of the balance of trade,artificial advantages over do- : noting that it is equal to themestic ones. l b : earnings less a sorptIon.- abilene principle ~ _ abstinencea description of a groups inabil- ~ the giving up of the current con-ity to solve their disagreement. ; sumption in order to increaseNobody wants to reach a par- : the future consumption. It isticular destination (Abilene), ~ often characterised by directingfor fear of offending or contra- ; the available resources towardsdicting each other. : the production of capital goods.- absolute advantage ~ Due to this, the future produc-1. a term used in the interna- ; tion of the consumer ..., goods willtional trade theory, as per which ~ increase.a country specialises in produc- : _ abundant factoring such goods and services that ~ the factor which is available init is able to produce more ~ffi- ~ abundant supply in a countryciently (more output per urut of ; relative to other countries. Caninput) than any other country : be defmed both with respect to2. the ability of a country to pr?- ~ quantity and price.duce a good at lower cost, m i l d d . . tionterms of real resources, than : - acce ~ra~e epreclaano ther cuntry In a Ricardian . depreCIatlOn d h new asset o. I . of a hmodel, cost is in term of only ; over a peno t at ISalmTuchIa bour. . the norm. I e . shorter than . th d I firms operatIng m e eve op-- absorption : ing areas usually. follow this I .the sum-total of demands for : method of depreCIatIOn.goods and services by all resi- Idents (consumers, producersEconomics======= II
  • 6. ",,6===========~tinginJlatUm I accepting house II• accelerating inflation I • accelerator co-efficienta sudden inflation rate increase. I states that any increase in theIt is the result of the output is always accompaniedgovernments efforts to hold the by a corresponding increase inemployment level below its I the capital, like machinery etc.,natural rate. that is used to produce it. The incremented capital output ra- I tio depicts the amount of capi- tal that should be increased in order to raise an additional unit I of output. I • accelerator principle • acceleration principle; I states that the aggregate net accelerator investment level is dependent indicative of a relationship be- on the expected change in out- I put ..tween income and output and the investment effects associ- I • acceptance credit ated with the changing output. a way of payment in interna- The size of the accelerator de- tional trade. In case the accept- pends on the marginal capital/ I ing house finds the credit of a output (C/O) ratio (i.e. how I foreign import merchant satis- much new investment is needed factory, it may open an accep- in response to the changing de- I tance credit for him in say New mand for output) and on a va- I York. riety of other factors influenc- ing investment decisions. I • accepting house the establishments whose busi-• accelerator ness is to accept or guaranteethe process in which demand I bills of exchange. Such establish-change for the consumer goods ments may also be involved ·inleads to an even larger demand several other services and func-change for the capital equip~ I tions.ment used to produce them.II ========E&onomics
  • 7. IIIICUSS / accessibility I accounts receiV:============7• access / accessibility ~ cepted or endorsed to maketerm expressing the ease with ; some cash available for a shortwhich a location can be reached : term, without receiving anyand interacted with from other ~ goods in return. The sole pur-locations. ~ pose of this is of discounting• acc~sion rate ; • accommodation endorse-also known as the hiring rate, I menti.e. the total number of employ- : the endorsing of a note or anyees added to the payroll in a ~ other bill of credit by one indi-given period of time. It acts as ; vidual to another in order toan important indicator of the : grant him the right to obtain afuture business conditions. I loan. ~ • accounts payable I the amount that a business : owes to its suppliers and other ~ parties, generally a period of 10 I to 90 days is taken as standard . to pay for the goods already transported . ... ---_ ... _- ...... ..... ~ ~ _1Aow. ..... c.- ___ Il" "" ..... ,..- ...... __ " : .: ~ ....• accessions taxthe tax on the receiver of gifts Iand inherited property, it is lev-ied by the government.• accommodating move- mentsthe transferring of gold and con- I • accounts receivablevertible currency aboard by a ; the amount that a business iscountry in order to meet its bal- : entitled to receive from its cus-ance of payment deficits. ~ tomers, generally a period of• accommodation bill ; 10 to 90 days is taken as stan-that bill, which is drawn, ac- I: dard to receive payments forE&onomics======= I
  • 8. 8 accounts ;eiVIJble (finance) I active circulation "the goods already transported. I and Pacific less developed coun- I tries that were included in the• accounts receivable (fi- Lome Convention and now the nance) I Cotonou Agreement.the entitlement of a firm to re-ceive application of money I • across-the-board tarifffrom its debtors for obtaining I changesfunds to fincnce the current op- a change of all tariffs in a coun-erating expenses or some other try. They are raised or loweredexpense. I by an equal percentage.• accrual basis I • action laga method of accounting in I the delay between the formula-which the income and expenses tion of a policy decision and itsare not charged until the time execution.they are actually earned or in- I • actionable subsidycurred. I a subsidy which is not prohib-• accrued ited by the World Tradethe earnings, sales, expenses or Organisation (WTO), but thatother items of income or expen- I member countries are permit-diture, which are already made ted to levy compensating dutiesor incurred and are outstand- agamst.mg. • active balance• accrued expenses a term to indicate a balance ofan accounting entry ,,,herein a I payments that is favourable forliability is recorded when the a country, when the revenuecost of a service used but not earned from exports is higherpaid for is observed. I than the expenditure incurred on tl1e import of goods and ser-• accumulation VICes.the acquisition of an increasing Iquantity of something. • active circulation I at any given time, the part of• ACP countries I the RBIs issue which is in cir-a group of Mrican, Caribbean culation.II ========Eetmomies
  • 9. 1 actiPe tnllritet I addition rule 9 *================- active market ~ of its effects on trade, price ormarket for a specific set of stock ; some other measure, to a nonor shares traded quite fre- : tariff barrier. Iquently and regularly. : - ad valorem tariff_ activity rate : tariff defined as the percentagethe percentage of people in a I of the value of an importedgiven population age group that ~ good.are employed, but not in the ~ - ad valorem taxdefence forces of the country. a t<LX or duty calculated on the- actual protection rate I basis of the value of a transac-implicit tariff. I tion. It is taken as a percentage of price at the selling or produc-_ actuals tion stage.the items that are bought withthe intention of immediate de- ~ - adaption & adoptionlivery in a stock exchange. . dichotomy a constituent of A.A. Alchians- ad valorem and Charles M . Tiebouts1. in proportion to the value. A I rationalisation of classical eco-term used to refer to the taxes nomic theory. The argument isand duties levied on goods, etc. that active, deliberately optimalas a percentage of their value. I (adaptive) behaviours are not I needed for the viability of .- A. V.a--.Per Capita Ass. . . . . • LN<f"""" : optimising theories, since eco- ._""""" ;~ adopted by the competitive 0 80 l"MTc:. eLtOt 0""""""" nomic actors would be either .000000Y-...ot .W5lPAUIIIItACH 0 ......... : environment or would fail. I2. per unit of value i.e. divided : - addition rule Iby the price. a rule for the determination of I the derivative of a function with- ad valorem equivalent respect to a variable, where thethe ad valorem tariff which function constitutes the linearwould be equivalent, in terms I sum of two or more differentEeonomics======== II
  • 10. peg""l=O=========ad=rjust;le I ad71ancedepositrequirement 1/functions of the variable. I • adjustment lags• adjustable peg I the time taken by a variable, likean exchange rate which is I ccpital stock to adjust to tjepegged, but for which it is lID- changes in its determinants.derstood that the par value will • adjustment mechanismbe changed occasionally. Such I the theoretical process throughsystem can be subject to ex- which a market changes in dis-treme speculative attack and fi- equilibria, moving toward equi-nancial crisis, as speculators I librium if the process is stable.may easily anticipate thesechanges. I • administered protection I protection resulting from the• adjustment assistance application of anyone of sev-a government program to as- eral provisions that respond tosist those workers and/or firms I specified market circwnstanceswhose industry has declined, or events, usually as determined l·r""~ """ ._ tlar f..mw¥ TJlMAnm"JoY<2 by an administrative agency. (HR. "oo~. f~0¥.1Yw.IO • administrative lag I a delay between the time of I implementation and the effect of a monetary policy. It refers I to the elapsed time between the recognition by the authoritieseither because of competition that action is necessary and thefrom imports (trade adjust- actual implementation of thement assistance) or from other I action. The duration of this timecauses. Such programs usually depends upon how efficient thehave two (conflicting) goals, authorities are in implementingwhich include, to lessen hard- I the policies formulated.ship for those affected and tohelp them change their I • advance deposit require-behaviour. ment a requirement where a percent- age of the value of imports orII = = = = = = = E & o n o m i & s
  • 11. II tulT1l1ncerefunding I Rtl!flomerlltWn ec:;m~:Y~~~~~~~~~~l~lof import duties should be de- ~ of the view that the employeesposited prior to the payment, ; should be free to decide aboutwithout competitive interest : joining a union or not and thosebeing paid. ~ who state that the employees ; should not be allowed to enjoy- advance refunding : the benefits of a union withoutto exchange those bonds whose ~ paying for them.expiry date is approaching for Inew bonds on advantageous : - agenda 21terms. ~ a plan of action adopted at the,_ adverse selection ; Rio Summit for promoting sus- : tainable development.the tendency for insurance to be Ipurchased only by those per- : - agglomerationsons who are most likely to I 1. geographical concentrationneed it, thus raising its cost and I of people and/or activities.reducing its benefits. 2. a phenomenon of economic_ adverse terms of trade activity congregating in or closea term of trade which is consid- I to a single location, rather thanered unfavourable relative to I being spread out uniformlysome benchmark or to past ex- I over space.penence. : - agglomeration economies I (of Scale or Scope)- advicenote sent by one merchant to I benefits, savings or drop in av-another, requesting him to de- : erage cost resulting from theliver the ordered goods. ~ clustering of activities. Gener- ~ ally, the concept of agglomera-- agency shop ; tion economies refers to savingsthe mandatory requirement for : or benefits derived from thea prospective employee joining ~ clustering of activities externala firm to pay the union dues ; to the firm and are therefore awithout being a part of the trade : part of external economjes.union. T~is kind of arrange- I : - agglomeration economyment is generally found in theUS between the ones who are I any benefit which accrues toEeonomics======= II
  • 12. =12==========WfYiJ==a;concentration I"IJ8"t94tetxpmditun IIeconomic agents as a result of ~ aggregate demand curve relateshaving large numbers of other .agents geographically close tothem, thus tending to lead to Iagglomeration.• aggregate concentrationthe state in which the goodsproduced in one sector of theeconomy or the whole is con- Icentrated around a few large the level of real national incomecorpora tions. (GDP) demanded (the total I quantity of goods and services• aggregate demand demanded) to the price level (asthe total demand In the measured by the GDP defla-economy. It takes into account I tor).the total of all the desired ex-penditure at any time by all I • aggregate expendituregroups in the economy. The I in macroeconomic theory, ag-main groups who spend are gregate expenditure is sum-to Aggregateconsumers (consumption), Expenditure (AE)firms (who spend on invest- I Ement), government (govern-ment expenditure) and over-seas (exports). A t A. Price level (P) ADzPyR o Yo Y1 RGDP =C+ 1+ G + NX I tal of the amount of desired spending by consumers, gov- ernments, private investors and AD .---+: I foreign buyers (net of spending o VOR vf Reallncome on imports) at each level of real ((II.. RGDp) national income (GDP).• aggregate demand curvein macroeconomic theory, theII ========B&onomks
  • 13. II tI9!J1VJRte meRSUn ofsupport I RllocRted cost 13 *==============~• aggregate measure of ~ ing the same. support . 1 • aggregationt h e measure of subsidy to ag- .riculture used by the WTO as ~ 1. the puttmg together of the pri-the basis for commitments to 1 mary data. For example, the ag-reduce the subsidisation of : ~egate demand is an aggregate,agricultural products . It in- ~ m ~on~~t with the demand ofeludes the value of price sup- ~ an mdiVldual. .ports and direct subsidies to . 2. the amalgatlon of two or morespecific products, as well as ~ ki~ds of an economic entity intopayments which are not prod- ~ a sm~le category. For macroeco-uct specific. ; no~c purposes, all goods and : ~ervI~es are usually aggregated• aggregate supply 1 mto Just one.it is the total quantity supplied ~ • aggregative modelat every price level, i.e. the to Price Lovel (P) ; a model used in econometrics AS O : where the creation of variables ~ is. done by using groups of indi- 1 VIdual variables. ; • agio : it refers to the fee that is paid Real Income 1 • (YR. RGDp) : for exchangmg one currency fortal of ~ goods and services pro- ~ another, or for a foreign bill ofduced m an economy in a given ; exchange.time period. ; • agistment• aggregcte supply curve : to feed or take care of the cattlein macroeconomic theory, the ~ with the intention of getting ashort run aggregate supply 1 reward.c~rve relates the total quan- ; • allocated costmy of goods and services sup- . thpiled and the price level (as; e.allocation of expenditures to : vanous accounts.measure d by the GDP defla- 1tor) and with all else remain-E&onomics======= II
  • 14. 14 alloctJrion I angel inPUtor II=================*• allocationan assignment of economic ;resources to uses. In general :equilibrium, an assignment of ~factors to industries produc- Iing goods and services, to- ~gether with the assignment of : distort production and trade.resulting final goods and ser- I • American Depositoryvices to consumers, within a Receipt (ADR)country or throughout the I a document given to a share-world economy. holder and issued by the US• allocative efficiency . Bank in response to the depositthe best possible allocation of ; of shares by the shareholder.resources. I • amortisation• allonge this term is U5ed in relation toa sheet of paper to provide an the payment of a loan in ad-additional space for endorse- I vance, over a specified time pe-ments, usually attached to a bill riod. Such fund can also be cre-of exchange. ated when equated instalments I are deposited at regular inter-• all-or-none order (US) I vals of time, so as to accumu-a limited price order for buy- late an amount equivalent to theing or selling of shares and I amount of debt including inter-stocks, with the condition of : I est.being executed entirely or none :at all. I • AMS Aggregate Measure of Support.• amber boxthe category of subsidies in the I • angel investorWTO Agriculture Agreement, a venture capitalist with a so-the total value of which is to be I cial conscience. They are likereduced. It includes most do- I other venture capitalists~ in themestic support measures that sense that angels are looking for higq.growth potential withII = = = = = = = ; ; ; ; : ; : ; ; ; : : ; : ; E & o n o m i c s
  • 15. 15 *================a five-to-ten-year cash-out. An- ~ - anticipationgel investors often look for psy- , in accounting parlance is, tochic income beyond just bal- : record the earnings or profitance sheet and income state- ~ before they are actually realised.ment- the chance to help otherentrepreneurs, assist with inner ~ - antitrust legislationcity problems ... for example. ~ a law that targets healthy com- ; petition amongst all the players- anglo-saxon bias : in a particular industry and thusWalter Isards characterisation ~ restricts monopolistic practicesof the 19th century in a spatial ; followed by a private b~iness.economic theory in Britain, incontrast to the Germanic Bias ; - anti-trust policyin the development of the clas- : the U.S. term for competition , li : po cy.sical location theory. ,- annuity : -ANZCERTAis a type of life insurance con- ~ Australia-New Zealand Closertract that gives periodic pay ; Economic Relations Trade --- : Agreement. ··· ··1 , : _APM ~- , I_" " . .. ~ Average Propensity to Import. -- .. .- . ft : - appellate body I ~ the standing committee of the . . . . .. .. .. ill I. ca. A .... .. .T_ .. _II .. Q II .. . . • .. • .... .. .. - • ~~m~ ······:1 ,.. " ··ments to the insured at some , :::.:::?,/ .~-=.future time, usually retirement. ""-:~~r"·; S;· !(···· l- antedateearlier dating of a document, fi~~F~such as a life insurance policy, , -~!.l.than what is current, so that it ~~~~1~;~:matures or takes effect sooner. ~ WTO which reviews decisions&tmomit:s======= II
  • 16. 16 applied economics I arbitration II=================*of dispute settlement panels. Can You Keep It?• applied economicsa branch of economics that stud- Iies practical problems and usesthe principles and tools of eco-nomic analysis. Is It a Buslaes.?• applied tariff ratethe effective actual tariff rate at • appropriationa countrys border. in accounting, money or tnate- I rials set aside or spent for a spe-• appreciation cific purpose or allocating thea rise in the value of a countrys resources between the numer-currency on the exchange mar- I ous uses.ket, relative to a particular othercurrency or to a weighted aver-age of other currencies. The Icurrency is said to appreciate.• appreciative theory (Nelson)attempts to structure qualitative Inotions about the nature of a Ifirm and its activities, in a man-ner that is less straining but I • ar bO Itragericher at the formal level. I the simultaneous buying of cur- rency, securities or goods from• appropriability problem one market for the purpose ofproblems associated with the I selling in another market at aability of the firm to capture higher price.acceptable levels of benefits, Iassociated with the exploitation • arbitrationof its own technological inno- is a way of settling a disputevations through confidentiality, I between two parties, by a thirdpatents, etc. I person who has interest in that matter.II = = = = = = = = E c o n o m i c s
  • 17. 1 argumentforprotection I asymmetric;fo"","","tI."",""",tion========"",1"",7 ~ A has given a loan to Mr. B, ; then he can authorise another : person to recover loan from ~ Mr. B. ~ • assignment problem I this is aimed at using macroeco- nomic policies to achieve both internal balance and external• argument for protection I balance, specifically, with onlythe reason given for restricting monetary and fiscal policiesimports by tariffs. available under fixed exchange .• armington assumption rates.the assumption in which inter- ~ • assimilative capacitynationally traded products are I the ambit to which the environ-differentiated by the country of : ment carl accommodate or tol-ongm. I : erate pollutants.• articles of association . • asslsted areas I •an official document legally re- ~ those relatively backward areasquired to be filed with the reg- ; which are recognised by the con-istrar by the promoters of a cerned administration or thepublic limited company. ~ government as being eligible to• ar~baito ; receive special assistance.part-time work. ; • associated company• asset stripping : the connection or relation of anthe selling of those assets by a ~ independent company with an-company that are not required I other independent company.in its day to day functioning. ~ • asymmetric information• assignment ; the failure of two parties to athe right of transference of : transaction to have the samebenefit of loan that a person I relevant information.is entitled to receive from an- Iother person, for instance Mr.Economus======= II
  • 18. =1",,8=========== ;:mPtotic distribution I autarkyprice "• asymptotic distribution I • at sightthe probability distribution to- I the payment of a bill of eX-Iwards which a statistic moves change or promissory note asor inclines at the point when and when demanded.the sample size reaches infin- I • at the marketity. Generally used in econo-metrics in assessing the large I an instruction given by a clientsample properties of its esti- I to his stockbroker for buying ormators. selling stocks or shares, and I permitting the broker to buy or• at best I sell at a price that is around thein relation to the stock market, market price prevailing at thean abbreviation used to indicate time.the lowest possible price in re- I • ATespect of a buying order, and thehighest possible price in respect I Agreement on Textiles andof a selling order. Clothing. • atomistic competition• at discretionan instruction given by a client market structure characterised byto his stockbroker for buying or I a large number of firms, whoselling stocks or shares and I compete independently.granting the broker to exercise I • autarkyhis own judgement for the price 1. self-sufficiency and indepen-at which to buy. dence of a nation in economic• at limit I terms.an instruc tion given by a cli- I 2. the situation of disengage-ent to his stockbroker for buy- ment in international trade, self-ing or selling stocks or shares, sufficiency.but placing a limit on the high- I • autarky priceest price that may be paid or I price in autarky, i.e. the price ofthe lowest price for making a something within a countrysale. when it is not traded by that I country.II ========Eeonomics
  • 19. II"uthorised cllpitlllillutoregnssion * ==========1=9• authorised capital I lined or can be avoided withoutthe maximum amount of capi- I any specific effon of the govern-tal that can be raised by a pub- I ment.lic limited company through the : • autonomous expenditurespublic issue of shares. This ~ those expenditures which re-amount is also stated in the I main unaffected by the level ofmemorandum of association, ~I~I)which is filed along with the Iarticles of association with theregistrar.• authority constraintsas and when individual orjoint activities occur and who I c:JJ-~Bcan participate in such activi- t:-"- ~(7ties is constrained by author- t ~- - - I ~J -8.7 Iity constraints, which are re- Ilated to who controls the par-ticular piece of time-space:working hours, land owners Iproperty rights, zoning, cur- income, in the income expendi-few, public transportation ture model. For example, gov-schedules and routes, office I ernment expenditure, mvest-hours of governments and I ment expenditure, etc.organisations, etc. I • autoregression• automatic stabiliser a set of data wherein the value1. government spending pro- I of each observation is partiallygrams that respond to changes Iin the level of national income insuch a way as to offset those - --..... ==-- _ . . . . . . 01_changes.2. are the ways through whichthe fluctuations in the different " . lie til ...... fit I " ulleconomic variables are stream-&onomics======= II
  • 20. 20 A11er;e Fixed Cost (APC) Ibackbonefirms " dependendent on the value of ~ ing, average revenue product is the observation that immedi- ; the total revenue divided by the ately precedes it. number of units of the factor • Average Fixed Cost (AFC) I employed. 1. The average flxed cost is in- I • average tariff versely proportional to the out- I an average of a countrys tar- put. This is because as output iff rates. It can be calculated increases the fixed costs are in several ways, none of which spread further and further. I are ideal for representing how 2. in the theory of the flrm, I protective the countrys tariffs flxed costs are the costs of pro- are. duction that are constant, what- • Average Total Cost (ATC) ever the level of output. Aver- I the amount spent for produc- age flxed costs are total flxed ing each unit of output. The costs divided by the number of ~ average cost is calculated by di- units of output, that is, flxed I viding the total cost by the num- cost per unit of output. I ber of units produced. The av- erage total cost comprises of lBB two elements, the average flxed I cost and the average variable cost . • Average Variable Cost-- 0 5aa8 (AVC) • average propensity to I the variable cost per unit of out- import I put. It is obtained by dividing is the ratio of the aggregate I the average variable cost by the value of goods and services that number of units of output pro- a country impons in a year to I duced. the national income. I • backbone firms • average revenue product Japanese concept to describe as per the theory of factor pric- medium-sized flrms which ex- / II = = = = = = = = & _ I & S
  • 21. II backhaul transportation I balance of;~h.=IJ=nd=ue=·=trtule========2=1hibit the effects of strong entre- I • backward linkagespreneurial leadership and vital- I linkages to suppliers of inputs. Airy. In such firms, strategies are : useful concept to differentiateshaped by technological innova- ~ direction of flows in complextion, marketing and attention I economies.given to skilled and participa- ._.~_. __ ... __ _tory workforces .• backhaul transportationutilisation of otherwise empty Icargo space on the return trip,after a primary transport ac-tivity has taken place. Since Ithe primary transport function Imay have paid for the partialor full cost of return transpor- Itation, the price of backhaul I • balance of merchandiseutilisation may be relatively tradelow. the value of a countrys mer-• backward bending chandise exports minus thea curve which reverses direc- I value of its merchandise im-tion, usually if, after moving I ports.out away from an origin oraxis, it then turns back to- Iwards it. The term is used I 81Bion. of u.s. daHII,. OO~---- ____________ ~most frequently to describe 50 ------ ~~-~-~--- . .----_ o . -~.-------,.-----.--.--,-----._-======_supply curves for which the Iquantity supplied declines asprice rises above some point,as may happen in a labour sup- 1190 1911 19112 19113 9114 __997 1_ply curve, the supply curve for Iforeign exchange, or an offercurve.Economics======= II
  • 22. ""22=====b""I1a=1IU=ofJ""paymen==""tS=tuijustmen==t",,mec=h="n=ism==,=bl=11=nced==budo==et= II• balance of payments *. I • balance on current ac- adjustment mechanism countany proceSs, especially (any au- a countrys receipts minus pay-tomatic one, by which a coun- ments for current accounttry with a payments imbalance I transactions. It is equal to themoves towards balance of pay- balance of trade plus net in-ments equilibrium. flows of transfer payments.• balance of payments kl.-a on o..n-ftIt Account. <Itlliorw or DoU .. :r) argument for protectiona common reason for restrict- Iing imports, particularly underfixed exchange rates, when acountry is losing internationalreserves due to a trade deficit. I • balanced budget• balance of payments I such budget rises where the surplus government receives the samea number summansmg the I amoum of money from ta.xationstate of a colmtrys international I as it is spending. Classicaltransactions, usually equal tothe balance on current account I Balanced Budget Plan ~plus the balance on capital ac- I COMPOSrroNOfFMNCI&.LASSETScount.• bal~nce on capital accounta countrys receipts minus pay 1_ 2000 lIOCI2 200l 201M 3JCII 2010 CAPITAl. ACCOUNT BAlANCE (lJ " , 0 _ C-1IIodYe) economists argued that this I should always be the aim of I government policy. Keynesians on the other hand said that in - ..... - ..... -.- I times of low economic activity,ments for capital account trans- I the government should run aactions. deficit (spending more than itsII ========Economics
  • 23. II balancedgrowth I Bayesiananalysis . . ==========",,2=3revenue) to boost the economy ~ which acts as a bank for centrciland when the economy is I banks, fostering cooperationbooming, they can run a surplus among them and with other(spending less than revenue). In I agenCies.this wa); they can balance the l b • arrters to entrybudget in the long-run. I factors that prevent firms from• balanced growth entering a market, such as gov-a macroeconomics model that ernment rules or patentsexhibits balanced growth if con- I • base moneysumption, investment and capi-t·al grow at a constant rate while I monetary base.hours of work per time period I • basic balancestays constant. lone of the more frequently used• balanced trade measures of the balance of pay-1. a balance of trade equal to ments surplus or deficit under I pegged exchange rates, the basiczero. balance is equal to the current2. the assumption that the bal- I account balance plus the balanceance of trade must be zero in I of long-term capital flows.equilibrium, as would be the casewith a floating exchange rate and I • basing-point pricingno capital flows. I a pricing method in which• Bank for International prices arc quoted to include Settlements transportation from one (or I more) given point(s), regard-an international organisation less of the location from which actual shipment IS I made. I • Bayesian analysis developed to provide a subjec- tively- rational framework for I decision-making under uncer- I tainty.Economi.s====================== II
  • 24. ,;,,24=========== ;w ar thy neighbqur I bill ofe:x:change II I • bid price (or rent) func- Bayesian Analysis tion poster1or IkeIhood pIIor a set of combinations of land P(9,A.ix,I) = P(xI9,A.,I)P(9, A.II) " J P(xI9,A.,I)P(9,A.II) prices and distances, among 8.A I which the individual (or firm) mwglnllliza10n is indifferent. It describes P( ~ x,l) =JP( 9, A.I x,l) prices which the household 1 is the prior Infennalon A I (firm) would be willing to pay at varying locations and for• beggar thy neighbour varying amounts of land, infor a country to use a policy for I order to achieve a given levelits own benefit which harms I of satisfaction (utility/ prof-other countries. Examples are its) .optimal tariffs and, in a reces- Ision, tariffs and/or devaluation • bid/ask spreadto create employment. the difference between the I price which a buyer must pay• benign neglect on a market and the price thatdoing nothing about a problem, I a seller will receive for thehoping that it will not be seri- I same thing. The differenceous or will be solved by others. covers the cost of and provides• bequest savings motive profit for the broker or otherpeople save so that they can I intermediary, such as a bankleave an inheritance to their chil- I on the foreign exchange mar-dren. ket.• bicycle theory I • bill of exchangewith regard to the process of : a contract entitling an exportermultilateral trade liberalisation, I to receive immediate paymentthe theory which if ceases to I in the local currency for goodsmove forward (i.e., achieve fur- that would be shipped else-ther liberalisation), will collapse I where.(i.e., past liberalisation will be Ireversed)."II = = = = = = = = E & o n o m i c s
  • 25. II Bts Iinuleet surplus 25 *================ ~ such as a bank in a foreign-ex- ; change transaction. ; • bubble economy ~ term for an economy where : the presence of one or more I bubbles in its asset markets is : a dominant feature of its per- formance. Japan was said to .• BIS -- _ _ _ c.. .... ro.......nc ~ be a bubble economy in the ; late 1980s .Bank for International Settle- ; • budget deficitments. : the negative of the budget sur- I : plus, thus the excess of expen-• blue box I diture over income.a special category of subsidiespermitted under the WTO I ~ ..~-.­Agriculture Agreement. It in- I .., ..eludes payments which arelinked to production but with Iprovisions to limit productionthrough production quotas orrequirements to set aside landfrom production.• border tax adjustment ; • budget surplusrebate on indirect taxes (taxes : in general, an excess of income I dOon other than direct income, : over expen lture, but usuallysuch as a sales tax or VAT) on ~ refers specifically to the govern-exported goods and levying of ; ment budget, where it is thethem on imported goods. : excess of tax revenue over ex- ~ penditure (including transfer• brokers fee ; payments).the fee for a transaction chargedby an intermediary in a market,E&tmomics===================== II
  • 26. ",,26============*businesscycle I capability constraints II I cable or telegraph rather than BillionNOK through mail. The payee is then 120 120 80 80 notified about the arrival of the .0 .0 I payment by the correspondent I bank. -40 -40 -80 a4 88 sa liM) 82 8.C eEl 88 00 02 -80 • CACM ..... MII... Central American Common• business cycle Market. Founded in 1960, pre-the pattern followed by macro- I ceded by Organisation of Cen-economic variables, such as GDP I tra! American States.and unemployment that rise and • cain rulefall irregularly over time, relative a rule used to determine theto trend. I derivative of a function in rela- Boom I tion to a variable, where the function consists of another C,VP u~swing / . Dovnswing function. • call I in the stock exchange terminol- ogy, an option to purchase a• business services specific amount of some stockservices that are forwardly I at a quoted price, known as thelinked to other business activi- I striking price, within a specifiedties. Such services tend to per- period of time.form functions, which are more Iefficiently externalised by the I • call loandient firms, i.e. cannot be effi- a loan that can be concluded orciently performed in-house. I called at any point of time byFor example banking, lfiSur- I the creditor or the debtor.ance, etc. • capability constraints• cable transfer constraints on human activitiesin the context of foreign trade, I in time and space, imposed bya bank draft which is sent by I nature or available tools. Part of Hagerstrands time-geo-II = = = = = = = = E c o n o m i c s
  • 27. II capital I capital structure 27 *================graphic conceptualisation. I tion than in labour.• capital ~ • capital intensity1. monetary capital: the money I the amount of capital per unitused for investment purposes. of labour input.2. real or invested capital: the A._... l_~"_eo.kII"""-""" ,......-......capital goods needed for the Iproduction of goods and ser-vlCes.• capital account , .... ~ . . . .. . . . - - . . . . . . . . . . A •• . . . . . . . _.. •• .,a part of the balance of pay-ments where flows of savings, Iinvestment and currency arerecorded.• capital consumption I • capital marketin national accounts, capital con- I the market in which savings aresumption is the amount by I made available to investors.which gross investment exceeds • capital ratiothe net investment. It is the I a measure of a banks capitalsame as replacement lllvest- I strength used by the U.S. regu-ment. latory agencies.• capital deepening Banks core capital ratioan addition in capital intensity, 14 • Dc __ rcW . . . . . . 1M1. . ..... " "normally in a macro context, I " Iwhere it is measured by some- Ithing analogous to the capital Istock available per labour hour I :I " " 85 " .7 •• H H 1.spent. In a micro context, it I ..... _ ...could mean the amount of capi-tal available for a worker to use, I • capital structurebut this use is rare. Capital I of a firm is broadly made up ofdeepening is a macroeconomic its amounts of equity and debt.concept, of a faster-growingmagnitude of capital in produc- I&onomics======= II
  • 28. 28 capi-tatUm I chaebol II=================*• capitation I early 1970s by Eugene Famaa system of payment for each I among others. The data therecustomer served, rather than by was so much more convenientthe service performed. I than alternatives that it drove I the study of security prices for• causation decades afterward. It did notrelationship which results when I have volume data, which meanta change in one variable is not I that volume/volatility tests wereonly correlated with, but actu- rarely done.ally causes the change in an- Iother one. • certainty equivalent the amount of payoff (e.g .• CBI I money or utility) which anConfederation of British indus- agent would have to receive, totry. be indifferent between that pay-.CD I off and a given gamble is calledCertificate of Deposit I that gambles certainty equiva- lent. For a risk averse agent (as most are assumed to be), the I certainty equivalent is less than --- - the expected value of the -- - - --- I gamble because the agent pre- fers to reduce uncertainty. --- --- ---- I • ceteris paribus --- ~ ~........ all other things remaining the same. • chaebol• Center for Research in one of a small number of very Security Prices (CRSP) I large, highly diversified anda standard database of finance I centralised Korean firms,information at the University of : owned and controlled by theChicago. It has daily informa- I founding patriarchs family bytion of NYSE, AMEX, and a central holding company.NASDAQ stocks. Started inII ========E&tmomics
  • 29. II chained I eIF 29 *================ Still go rging ".. " . ~ tions or customs can or should ", , ,,,,, ~ :" .. t· ; maintain the value of money, : not intrinsic content of valuable ~ metal. ~ • chi-square distribution ; a continuous distribution, with• chained : natural number parameter r. Itan index number which is fre- Iquently reweighted . An ex- , .ample is an inflation index . . . . ~ .:made up of prices weighted bythe frequency with which they Iare paid and the frequent re- • computation of weights makesit a chained index. . --- is the distribution of sums of• chaotic ~ squares of r standard normala description of a dynamic sys- I variables. Mean is r, variance istem which is very sensitive to ~ 2r, and moment-generatinginitial conditions and may : function (mgt) is (1-2 t) -r/2 .evolve in wildly different ways, I .from slightly different initial : • chOIceconditions. ~ economic choices involving the ; alternative uses of scarce re-• characteristic equations : sources.a polynomial whose roots are Ieigenvalues. : • choke price ~ the rock bottom price where the• characteristic roots ~ quantity demanded is zero.is a synonym for eigenvalues. l.elF• chartalism ~ Cost, Insurance and Freight. Aalso known as state theory of : price quotation which covers themoney - 19th century mon- ~ merchandise cost, the shippingetary theory, formulated more ; insurance and the freighton the idea that legal restric- : charges to a particular landing IE&unomu:s=~=~=~~ II
  • 30. 30 circuit I cluster II=================*place. I • Clayton Act I a 1914 U .S. law on the subject• circuit of antitrust and price discrimi-description of a network with I nation.one or more loops, creating al-ternative paths between nodesand thus creating network re- Idundancy. • clears in this context it is a verb. A I market clears if the vector of• circular flow I prices for goods is such that thethe manner in which funds excess demand at those pricesmove through the capital, is zero. That is, the quantitylabour and product markets I demanded of every good atbetween households, firms, the those prices is met.government and the foreignsector. • cliometrics the study of economic history. · Houu·· holds - The Circular Flow ·.................... . In(:omes . I • closed I/O model an input-output model is ei- ther open or closed with re- spect to certain sectors or ac- •• classical - ·....................... . [Kpend i1ur~$"according to Lucas (1998), a I tivities. • cluster a concept associated with Michael Porters work, a clus-classical theory would have no I ter is a geographically proxi-explicit reference to prefer- I mate group or geographic con-ences.II = = = = = = = = & o n o m i c s
  • 31. II coase theorem Icoefficient ofspecialisa; 31centration of interconnected I tion and outputs from produc-companies, specialised suppli- I tion will be chosen by agents,ers and service providers, firms regardless of how propertyin related industries and as- I rights over the inputs were as-sociated institutions linked I signed to the agents.by commonalities and I • Cobb-Douglas Productioncomplementarities . The geo- Functiongraphic scope of a cluster can Irange from a single city or relate s the productivity ofstate to a country or even a I labour to the capital intensitygroup of neighbouring coun- I (capital-labour ratio) under thetnes . condition of a constant profit wage ratio. ti- - .... - _ ~ ---• coase theorem • Cochrane-Orcutt Estima-informally, the theorem says tionthat in the presence of complete I an algorithm aimed at estimat- I ing a time series linear regres- sion in the presence of auto cor- related errors. The implicit ci- I tation is to Cochrane-Orcutt (1949) . • coefficient of specialisation this coefficient is calculated just I like the coefficient ofcompetitive markets and the I localisation, except that regionsabsence of transactions costs, an become industries and indus-efficient set of inputs to produc- I tries become regions.Econornics====================== II
  • 32. .ient ojllamtWn I concentratWn ratio""3""2==========""C,,,,oeffic= II• coefficient of variation I • collusionan attribute of a clistribution, I an agreement between partiesi.e. its standard deviation di- to refrain in participating in anvided by its mean. activity which they normally Coefficient of Variation I would in order to reduce com- %CV Definition = Sl.Dc x 100 petition and gain higher prof- MEAN its. /CV=l O ( • com~act sets I CV=.l.O !;.~ a closed and bounded set. : LM~N J" "- I Crucial in establishing: I • competitive equilibrium • Ahgmnent • AUldic st.1 bility price • SlalOmJ! of cell, the price at which the quantity• cohort supplied and the quantity de-a group of persons experienc- I manded are equal to each other.ing the Sartle event during the I • complement I a good for which demand de- creases when the price of a I closely related good increases. I • concavity of distribution functions a property of a distribution fimc-same period of time. Cohort I tion-utility function pair. Theanalysis traces those persons I assumption is to hold in someborn during the same time pe- principal-agent models so as toriod, as they age and live make certain conclusions pos-through common time-specific I sible.experiences and life stages. Themost important experiences of ~ • concentration ratioan aging cohort are the cohort I a way of measuring the concen-birth rates and cohort death tration of market share held byrates. particular suppliers in a market. I It is the percentage of total market sales accounted for byII = = = = = = = = = E & o n o m i & s
  • 33. II conceptual framework for economicge:;aphy I conditional foetor demands 33a given number of leading I the smallest characteristicfirms. I root is S (both being pre-• conceptual framework for sumed to be positive here, that I is, the matrix being diagnosed economic geography I is presumed to be positivethe structure that serves to hold definite), then the conditionthe conceptual parts (concepts) I number is:together and within which the I gamma = (L/S)·sideas, facts, principles, insightsand circumstances of Economic ; Values larger than 20, accordingGeography exist and are related : to Greene (93), are observed ifto each other. ~ and only if the matrix is nearly I singular .• condition numbera measure of how close a ma- I • conditionaltrix is to being singular. Rel ; it has a special use in finance, ,-------- v •--------, : when used without other Condition It., . S Ize f.r 1ul.u • .,1. HUla ~ modifiers. Often means con- ; ditional on time and previous : asset returns. In that context, ~ one might read returns are ; conditionally normally distrib- 1_.,•. 110000 10000 1000 100 10 I : uted. L===========~Ievant in estimation if the ma- : • conditional factor de- Itrix of regressors is nearly sin- mandsgular, the data are nearly col- I a collection of functions whichlinear and (a) it will be hard to ; give the optimal demands formake an accurate or precise in- : each of the several inputs as averse (b) a linear regression will ~ function of the output expectedhave large standard errors. ; and the prices of inputs. OftenThe condition number is cal- : the prices are taken as given andculated from the characteris- ~ incorporated into the functionstic roots or eigenvalues of the ; and so they are only functionsmatrix. If the largest charac- : of the output. Iteristic root is denoted LandEconomiel========= II
  • 34. ",,34===========* conformable I consumer strPereignty II • conformable I and local opinion indicates that generally used in conjunction I there is support for the compo- with matrices . A matrix may nent areas. not have the right dimension or shape to fit into some particu- lar operation with another ma- I I trix. Take matrix addition - the matrices are supposed to have I _N --. the same dimensions to be summed. If they dont, we can - • • - * - - - - - - - - - @!!!!!!.... I say that they are not conform- I • Constant Relative Risk able for addition. The most I Aversion (CRRA) common application of this : term comes in the context of ~ a property of some utility func- tions, also said to have isoelastic multiplication. form. CRRA is a synonym for • consistent estimators ICES. an estimator for a parameter is I • constant returns to scale consistent if the estimator con- when all inputs are increased verges in probability to the true I value of the parameter. by a certain proportion, out- I put increases by the same pro- • Consolidated Metropoli- I portion. tan Statistical Area Capital an(:~:~hiCh meets the re- 1 quirements for recognition as a ;: ". :t ~r~: 300 _. -~-~400 : ~::H Metropolitan Statistical Area 200 _~. : B. _~ __ :_ : _.: , , " X - JOO (MSA) and also has a popula- I 100 . A :. __ , . -~ . . : .. : : X-l , X-200 tion of one million or more can I 0 100 200 400 600 LUor be recognised as a CMSA if : • consumer sovereignty separate component areas can I when resources are allocated as be identified within the entire I per the wishes · of consumers, area by meeting statistical cri- i.e. in a perfectly free market. teria specified in the standards, I II ========Economics
  • 35. II consumer surplus I contractionary7=ry""P""OI""ic""=======,,,,3=5• consumer surplus ~ • contingent valuationsthe difference between what a ; the use of questionnaires aboutperson would be willing to pay : valuation, to estimate the will-and what he actually ha,s to pay ~ ingness of respondents to payfor buying a certain amount of I for public projects.a good. I • contract curve• consumption the same as the Pareto set, withthe individuals and corporations the implication that it is drawnwhich buy products and ser- I in an Edgeworth box.vices. In economics, consump- I • contractionary fiscal policytion refers only to consumingthat involves a monetary trans- I a government policy of reduc-actIon. ing the spending and raising taxes.• consumption function Visual Contractlonary Fiscal Polleythe relationship between dis-posable income and consump- LRAS SRAStion. Q --.. - : : : . . : : : . : -:- ..... ~~":.~_ 0,,_ .......... ..., .... CI .. ::..";.!"~ <--- ................... ~- ........ - ""~--- r.~:!.~=--- AD, AD, Real NatloNl OUtput (GOP)• contingency theory US!.nd describe ,Iv. . .clion"he government could take in order Co decrease aggregate denWldregards the design of an effec _ I from AD, AD, 1.0tive organisation, as necessarily • contractionary monetaryhaving to be adapted to cope policywith the contingencies that ~ a government policy of raisingderive from the circumstances I interest rates charged by theof environment, technology, : central bank. In the texts ofscale, resources, work task and I some ftrst courses in macroeco-other factors. I nornics, it shifts the LM curve II
  • 36. ~3~6===========. controlvariabJes I corporatewelfon II(liquidity/money curve) to the I for each data point, how far itleft. I is from the means of the in- dependent variables and the -::::"l-.. ~---- Jk~ A ~ I dependent ·variable. If it is far . I." I.~· _ ~. I from the means of the inde- -.. .. &M;" ~ _ pendent variables, it may be :~~ very influential and one can I consider whether the regres- . sion results are similar with- out it.• control variablesa variable in a model controlledby an agent in order to optimise Isomething.• convergence in quadratic meana kind of convergence of randomvariables. If Xc converges in qua- I 12 3 - 458789101112 • cCHJperative game a structure where the playersdratic mean, it converges in prob- I have the option of planning asability but it does not necessarily a group, in advance of choos-converge. ing their actions.• convolution • corporate welfarethe convolution of two functions I when a government givesU(x) and V(x) is the function: I money or a monetary breakU*V(x) = (integral from 0 to X (like tax cuts or subsidies) to aof) U(t)V(x-t) dt. I business. Governments give• ~CHJks I>istance I money to businesses which area metric for determining very profitable to keep themwhether a particular point from moving to other provincesalone affects regression esti- I or countries.mates much. After a regres-sion is run, one can consider,II = = = = = = = &__us
  • 37. 11 CostAndFmght(CAF) Icountenrad:~~~~=~~~~~3~7_ Cost And Freight (CAF) ~ _ costate variablesa price quotation that includes I a Lagrangian multiplier orboth the merchandise cost and ~ Hamiltonian multiplier.the freight charges- for its ship-ment to a given destination. : , - cost-of-living index : measures the changing cost of- cost curve ~ a constant standard of living.a graph of total COStS of produc- ; The index is a scalar measuretion as a function of total quan- : for each time period. Usually,tity produced. ~ it is a positive number, that Toral Cost Curves ; rises over time to indicate that : I there was inflation. Two in- . : comes can be compared across I time by seeing whether the in- ; comes changed as much as the ~ index did. oMlCMc.e. ............. _ , ___ __ . ______ :I!"_~~ ------- .. ---- cost functiona function of input prices and Ioutput quantity. Its value is the Icost of making that output,given those input prices. ~ - cost-push inflation ; inflation whose initial cause is : a rise in production costs. C = ")X I : - countable additivity ~ property 0, . ~ the third of the properties of a ; measure. ~ - countertrading : the bilateral international trad- y, l> y, Y. Y ~ ing relationships between com- I parnes.Eeonomics======= II
  • 38. 38 countrrvailing power I Cowles CommissUm II=================,*================• countervailing power I functions are assumed to be theJ.K.Galbraith thesis of the ten- I same for all firms.dency of market (monopoly) I • covariance stationarypower to be reduced by the a stochastic process is covari-emergence of countervailing I ance stationary, if neither itsgroups and forces. mean nor its autocovariances• coupling constraints I depend on the index t.the need to join with other .: Covariance Stationary I . Class of processes X(t}, t .. o. 1, 2 • .. _. that have::people, organisations or capital .: .•. ;.~:::::~::, . I~~: .ur]investments (as bundles) to I .. ""~"".".."jkl · ElIX,·",(X..• ·"}J·F.I,,~, · ,,rJ (11.11 ;.I,.!:~ud • .-rJly 011 I.:accomplish an objective. . We mume the oulocorrel.tion ho, the form ,k l - It; f l!ti.;:)us I. - .,,~ ,• Cournot Duopolya pair of firms which split a • Cowles Commissionmarket, modelled as in the I a: 1950s panel on econometrics,Cournot Game. that focused attention on the Coumot Duopoly • In the Coumolmodd each of the two finnspick Ihe quantities i and Q2 to ~ pro.tJced • Each finn laIC .. the other linn s oUlpul as giva! and choo ... the ootput Ulf rriaxidtizes its profits • The price lhat emerges clears the market (demand =supply) •• Cournot Modelsa generalisation of the CournotGame, for describing the indus- IlIlulfllarthcSo..,oIls..:"-fft.eRuIJdinllh:• . IQ4" rtlprvw: J ....nbColKft.try structure. Each of the N I ~::;;:., K",1oIY "","" row ..... ""~ Kkm.""" f<"". I.e"firms will choose a quantity of ; problem of simultaneous equa-output. Price is a commonly- : tions. In some tellings of theknown decreasing function of ~ history, this had an impact ontotal output. All firms know N ; the field - other problems suchand take the output of the oth- as errors-in-variables (mea-ers as given. Each firm has a cost surement errors in the indepen-function cj(q} Usually, the cost I dent variables), were set asidefunctions are treated as com- or given lower priority else-mon knowledge. Often the cost where too because of the pres-II-==========&onomics
  • 39. II CronbachsAJpha I currmtaccount;~nc=e==========3~9tige and influence of the Cowles I errors made in predicting eachCommission. I data point, by using a kernel : regression on the others.• Cronbachs Alpha Ia test for a model or surveys : .CSOinternal consistency. It is some- ~ Central Statistical Office.times called .a scale reliability I .• CTTcoefficient. Cronbachs alphaassesses the reliability of a rat- ~ Capital Transfer Tax.ing, summarising a group of I • current accounttest or survey answers, which I a part of balance of payments,measure some underlying fac- where payments for the pur-tor (e.g., some attribute of the I chase and sale of goods and ser-test-taker). A score is computed I vices are recorded.from each test item and theoverall rating called a scale is I • current account balancedefined by the sum of these I the difference between ascores over all the test items. countrys savings and its in-Then reliability is defined to be I vestment. If the current ac-the square of the correlation I count balance is positive, itbetween the measured scale measures the portion of aand the underlying factor that I countrys saving investedthe scale was supposed to mea- I abroad and if it is negative, itsure. measures the portion of the domestic investment financed• cross-section data I by foreigners savings.is the parallel data on manyunits such as individuals, house- Iholds, firms or governments. Developmenta in the CUITODt IIOOOOII1t belance,• cross-validation .. I overnment net lending and real dispooable income g _ c..ntflllk"COl.... ~. pefttnl.1gl"GOPa way of choosing the window ElJ ",,*MC!Of . ~~ d GCP t. t. 14 t.width for a kernel estimation.The method is, to select, from a Iset of possible window widths, t ... 2000one that minimises the sum of&onomit:s======= II
  • 40. 40 current balance I deductive II=================*• current ba1anc~ I decision or choice.difference between total exports I 2. a mapping from the ex-and total imports. pressed preferences of each of• CWO a group of agents to a group I decision.Cash With Order. The first is more relevant to• de minimis decision theory and dynamica legal term for an amount I optimisation, while the secondwhich is small enough to be ig- I is relevant to game theory.nored, too small to be taken I • decoupleseriously. Used to restrict legalprovisions, including laws re- I provision of support to an en-garding international trade, to terprise, usually a farm, in aamounts of activity or trade that I manner that does not provide "are not tflVlally sm all . an incentive to increase produc- tion . Farm subsidies that are• deadweight loss I decoupled are included in thethe net loss in economic welfare I green box and are thereforewhich is caused by a tariff or permitted by the WTo.other source of distortion, de- I • deductionfmed as the total losses to those I also known as deductive reason-who lose, minus the total gainsto those who gain. Usually iden- I ing. A process of inference, which leads from general prin-tified in a supply-and-demand Idiagram in terms of change in ciples or universal premises via I logical reasoning to expecta-consumer and producer sur- tions or conclusions about par-plus, together with government Irevenue. The net of these ap- ticular cases.pears as one or two welfare tri- • deductiveangles. I characterises a reasoning pro-• decision rules I cess of logical reasoning from1. a function which maps from I the stated propositions.the current state to the agentsII ========&onomics
  • 41. II deep itltror4tUm I de-itulustrialisatUm.. ==========",,4=1- deep integration ~ - deficit ,economic integration which I in the balance of payments orgoes well beyond the removal : in any category of internationalof formal barriers to trade and ~ transactions within it, the defi-includes various ways of reduc- I cit is the sum of debits minusing the international burden of ~ the sum of credits or the nega-differing national regulations, tive of the surplus.such as mutual recognition and Iharmonisation. Contrasts with I 2DO r--------------------IL--- I _ ..- -. . . . . . . " . .. . . . . . . . :f==~~!:~~~~~=~====!~shallow integration.- deep markets 400 -4r---r--r--,- 1_ _11 _ _1 1 7 1 _ 11111_ _ -i--" Il-;---r-r ! i a capital market may be said tobe deep if it has great depth. I I = I::::. Ci . . . . .May less formally be used to : - degressivedescribe a market with a large ~ going down with income ortotal market capitalisation. lover time. A degressive income ~ tax takes a smaller fraction of- default : higher incomes. Degressivity infailure to repay a loan. Interna- ~ trade policy might be a tariff,tional loans by governments ; the ad valorem size of which isand private agents lack mecha- : scheduled to decline over time,nisms to deal with default, com- ~ or a quota that is scheduled toparable to the legal mecha- ; expand faster than demand fornisms that exist within coun- : lmports.tries. I : - de-industrialisation- deficiency payment : a decrease, over time, .in thepayment to a producer of an I share of the manufacturing inamount equal to the difference : an economy, usually accompa-between a guaranteed price and : nied by growth in the share of I .the market price, with the lat- ~ services. Typically, accompaniedter often determined on the ; by an increase in manufacturedworld market. A form of sub- : imports.sidy to production. IE&tmOmics======= II
  • 42. ""4,,,,2=========== :i17eredprice I demographic transition II• delivered price I • demand elasticitythe price which includes freight I normally, the price elasticity ofcharges to the location of the demand.buyer. • demand price• delta the price at which a given quan-is used with respect to options. I tity is demanded. The demandThe rate of change of a finan- I curve viewed from the perspec-cial derivatives price with re- tive of price as a function ofspect to changes in the price of ~ quanuty.the underlying asset. Formally, ;this is a partial derivative. A • demand schedulederivative is perfectly delta- I a list of prices and correspond-hedged if it is in a portfolio with ing quantities demanded or thea delta of zero. Financial firms graph of that information.make some effort to construct I Thus, a demand curve.delta-hedged portfolios. I • demand set I in a model, the set of the most-• demand curvethe graph of quantity de- preferred bundles of goods thatmanded, as a function of price, an agent can afford. This set is I a function of the preference re-normally downward sloping,straight or curved and drawn lation for this agent, the priceswith the quantity on the hori- of goods and the agents en- I dowment.wntal axis and price on the ver-tical axis. I • demographic transition• demand deposit model of population changea bank deposit which can be based on European experi-withdrawn on demand. The I ences. The model describesterm usually refers only to I the effects of changes in fer-checking accounts, even though tility and mortality, associateddepositors in many other kinds I with industrialisation,of accounts may be able to write I urbanisation and health carecheques and regard their depos- lmprovements.its as readily available.II = = = = = = = E e o n o m i c s
  • 43. II dependency theory I deriveddematul .. =========4~3 The Demographic Transition ~Thus, the relationship is often ; expressed as: a dependent vari- .. Rata_ ,er 1101 I. ........... : able is a function of one or more ~ independent variable(s). . ~ ~MFt... , DnthRak ......... ~ ~ • depth SOote SOote 2 SOot·, an attribute of a market. In se- SOote I curities markets, depth is mea-• dependency theory sured by the size of an order ~ flow innovation, required tothe theory that states that theless developed countries are ; change prices by a given : amount.poor because they allow them- Iselves to be exploited by the : • derivativesdeveloped countries through ~ securities whose value is de-international trade and invest- I rived from the some otherment. " •" DependenclI Theorv ~. .. : time-varying quantity. Usually, ~ that other quantity is the price I of some other asset such as ~ -. . Blami"« Ille sYSlem bonds, stocks, currencies or ,110. • Glullal cconomv la~ors rIch COUlilfles ... "" • G10hal economu cKPloils 11001 natIOns commodities. It could also be ~ ~ • RIch nahons mlclillonalfy keep lIoor I an index or the temperature. ~ 113110ns llOor ~ . RIch lIallOlIS eKlllolfS natural resources I • derived demand .. and labor to tloor coUnltteS .. - . . Core· SeIDl pentl/wry·· Periphery the demand that arises or IS ActIvIty• dependent variablethe variable to be explainedwith the help of independentvariables. These independent Ivariables serve as the explana- Itory variables, however, theextent to which this relationship Ior explanation actually implies Icausality varies. It may merely defined indirectly from somerefer to a statistical relationship. I other demand or underlyingEconomics======= II
  • 44. ",,44===========* de-skilling I digital nervous system IIbehaviour. I ics specialising in the processes I of long term growth and• de-skilling change, especially in the case ofa decrease in the level and scope Iof skills within a local/regionallabour market, resulting from I. the less developed economies. DFS Modelmainly two corporate strate- lone of the continuum-of-goodsgies: (1) mechanisation and models of Dornbusch, Fischer,computerisation of production and Samuelson (1977, 1980).and office activities (2) trunca- I • differentiated producttion of corporate acti vi ties I 1. a firms product which is notwithin the region. I identical to the products of• destabilising speculation other firms in the same indus-speculation which increases the try. Contrasts with homoge-movements of the price in the I neous product.market where the speculation 2. sometimes applied to prod-occurs. Movement may be de- ucts produced by a country, evenfined by amplitude, frequency I though there are many firmsor some other measure. within the country whose prod-• deterioration ucts are the same, if buyers dis- I tinguish products based on thethe process or occurrence of anassets declining productivity as ~ country of origin. This is calledit ages. This is a component of ; the Armington assumption.depreciation. . • digital nervous system• deterministic functions the digital processes which en and variablesnot random. A deterministic Ifunction or variable oftenmeans one that is not random,in the context of other variables Iavailable.• development economicsa sub-discipline within econom-II ========&cmomics
  • 45. II directfoetor content I discrete choice l~r mmlels 45able a company to perceive and ~ the expiry date of the bond. Inreact to its environment, to : difference to coupon bonds, dis-sense competitive challenges . COWlt bonds only pay the bearerand customer needs, and to ~ once, when the bond expires.organise timely responses. ~ • discount factor• direct factor content I in a multi-period model, agentsa measure of factor content may have different utility func-which includes only the factors tions for consumption (or otherused in the last stage of produc- ~ experiences) in different timetion, ignoring factors used in ; periods. Usually, in these mod-producing intermediate inputs. : els they value future experi-• direct-plus-indirect factor ~ ences, but to a lesser degree content ; than present ones. For simplic- : ity, the factor by which they dis-a measure of factor content ~ count next periods utility mayWhich includes factors .used in ; be a constant between zero andproducing the intermediate in- : one and if so, it is called a dis-puts and so forth. That is, it in- ~ count factor.cludes all the primary factorsthat contributed, however indi- .• di scount rate Irectly, to the production of a the interest rate at which an Igood. ; agent discounts future events in : preferences, in a multi-period• discoUnt bonds ~ model. Often denoted as r. Aa bond perchased at a discount ; present-oriented agent dis-or at a price less than its face : counts the future heavily and so Bents Issued at a [lscomt ~ has a High discount rate. I:; ~. I CIIIII Ua _ _ _. U - t ",149 3,151 _PllJlltk 111,_ ~ • discrete choice linear 1<14 11llC,ooo o! .~~hd... N .lAg models ~ Pr(Yj=!) = F(Xjb) = ~b. fR.~to!bRi, $1",_ I.t.JV=_)ri&:. t"l:.c:a . . . . . : .u~at . ...JW! ~, ~. an econometric model in whichvalue. The face value is the ~ the actors are presumed to haveamount of money that the ; made a choice from a discreteholder of the bond receives at : set. Their decision is modelled I&onomi&s=====~= II
  • 46. ""46=~=======d""isC""rete,,,,r;es.rion mmiels Idispute settlement body = 11as endogenous. Often the 1 tion or economic activities.choice is denoted Yi. I • disembodied technological• discrete regression models changeeconometrics models in which alters the production functionthe dependent variables assume without requiring gross invest-discrete values. I ment to carry it into place.• discrete time I • disintermediationthe division of time into indi- the prevention of banks fromvisible units. In economic mod- flowing money from savers toels, these units represent peri- I borrowers as an effect of regu-ods, such as days, quarters or I lations.years . I • dismal science• diseconomies of scale refers to economics, which be-similar to economies of scale, cause it is so often used in ref-but with the implication that I erence totradeoffs, is widelythey are negative, so larger scale thought to be depressing towould increase the cost per unit. study. ATC I I I I • dispute settlement t-- Olseconomin occur f--- whon output gO" I I in the GAIT, the adjudication beyond the minimum I-- point of tho long run Imr.m. I of disputes among parties. In --r- t-- average cost curve i-"" the WTO this is done by the - V ,I t-,.. / dispute settlement mechanism. • dispute settlement body I the entity within the WTO Output which formally deals with dis-• diseconomies of scale, putes between members. It con- scope or agglomeration I sists of all WTO memberscost increases or other disadvan- I meeting together to considertages associated with ¢.e scale reports of panels and the Ap-or scope of operation or with I pellate Body.the agglomeration of popula - I" ========Economics
  • 47. II dissaving I dumestic 47 *================• dissaving I eludes taxes and subsidies, tar-when individuals or households I iffs and NTBs, externalities, in-spend more than their current complete information and im-income. I perfect competition.• dissipate rent I • Dixit-Stiglitz utilityto use up, in real resources, the I the Dixit-Stiglitz function usedfull value of the economic rents as a utility function.that are being sought by rent • dollar standardseeking. an international financial sys-• distance decay I tem in which the U.S. dollar isthe diminishing level of inter- I used by most countries as theaction or value of a variable, primary reserve asset, in con-with increasing distance, largely . trast to the gold standard mresulting from the effect ofvari- I which gold played this role.ous forms of distance-sensitive I • dollarisationtransaction costs on demand or official adoption by a countrycost patterns or functions. ou~er than the United States of• distance elasticity of I the U.S. dollar as its local cur- demand I rency.the relative response of effec- • Domar Aggregationtive demand to a change in the the principle where the growthdistance (or transport costs) I rate of an aggregate is thewhich a consumer (or consum- I weighted average of the growthers) has (have) to overcome, in rates of its components, whereorder to purchase a good or ser- I each component is weighted byvice at a given price. I the share of the aggregate it• distortion makes up. The idea comes upany departure from the ideal of in the context of national ac-perfect competition which in- I counts and national statistics.terferes with economic agents, I • domesticmaximising social welfare when ; within ones own country. Athey maximise their own. In- domestic producer is one that&onomics====================== II
  • 48. ""4""8=========,,,,dome.=:: content requirement I dual economy IIproduces inside the home coun- I ture of a product or processtry. A domestic price is the price I which becomes the acceptedinside the home country. Oppo- market standard. Dominantsite of foreign or world. I designs may not be better than I the alternatives nor can it be• domestic content require- ment promised that they will be in- novative. They have the bench-a requirement where goods sold I mark features to which subse-in a country contain a certain quent designs are compared.minimum of domestic value Iadded. • double coincidence of wants• domestic credit I a problem that is generally re-credit extended by a countrys I lated to the Barter System. Re-central bank to domestic bor- fers to a situation where therowers, including the govern- I supplier of good X wants goodment and commercial banks. In I Y and the supplier of good Ythe United States, the largest wants good X.component by far is the Feds Iholdings of U.S. government • drawbackbonds, but it also makes some rebate of import duties whenshort-term loans to banks to use I the imported good is re-ex-as their reserves. ported or used as input to the 3D production of an exported good. " ... --- ... 10 --_ ... --- --- ---- • dual economy ·1. -20 ...... _ ............ I an economy that is supposed to ... ·lD .,. I consist of two relatively distinct parts, in terms of specific dis- ... 1/01 4/01 7/01 10/01 tinguishing attributes. In the - eom.ucO"MlIt ___ • .. - - Non·~credtt NIt~tD~ I development literature, numer- ous theories use this proposed• dominant designs dualism to isolate relationshipsafter a technological innovation I between the two parts, whichand a subsequent era of ferment are suggested to reinforce thein an industry, a basic architec- I dualism.1/ ========&anomics
  • 49. II duallabourmarket I dynamicgainsfromtrade 49 *=============== DualF.ronomy fOO.I: RuralAgrladturalSeclor ~ implicit citation is to Durbin I (1 ~70). The h statistic is asymp- Q.-q.... utyora,product : toncally distributed normally, if ~ the hypothesis is that there is I no autocorrelation. I • Durbin-Watson statistic 1 1,."1 .10 ~ a test for first-order serial cor-• dual labour market : relation, in the residuals of aa segmented labour market in ~ time series regression. A value~vhich one part is, usually and ; of 2.0 for the Durbin-WatsonI~ broa~ terms, characterised by : statistic indicates that there ishigh skills and wages, job secu- ~ no serial correlation. This re-rity and desirable working and ; sult is biased towards the find-car~er development conditions, : ing that there is no serial corre-WhIle the other part has low ~ lation if lagged values of thewages, no or inferior benefits, ~ regressors are in regression.a temporary or unstable nature, ; • dynamic effectsno or little chance of advance- . ; certain effects of trade and tradement and otherwise poorer : I i beralisation that are poorlyworking conditions. ~ un d erstood, including both• dummy variables ; multilateral and preferentialIn an econometric model a : trade agreements, that extendvariable which marks or ~n- ~ beyond the static gains fromcodes a particular attribute. A I trade. Such dynamic effects aredummy variable has the value : thought to make the gains fromzero or one for each observa- ~ trade substantially larger thantion, e.g. 1 for pass and 0 for I in the static model.fail . ; • dynamic gains from trade• Durbins h test ~ the hoped-for benefits froman algorit~m ~or detecting : trade which accrue over timeautocorrelanon ill the errors of ~ in addition to the conventionala time series regression. The ; static gains from trade of tradeEconomiCS=======1I
  • 50. "",50======dyna="",m"",ic"",m"",ul=tiP"",I=ier~ Economic Overhead Capital (EOC) 1theory. Sources of these gains I methods to the empirical esti-are not well understood or I mati on of economic relation-documented, although there ships. Econometric analysis isexist a variety of possible theo- I used extensively in internationalretical reasons for them and I economics, to estimate thesome empirical evidence that causes and effects of interna-countries have benefited more tional trade, exchange rates andthan the static gains alone I international capital move-would suggest. ments .• dynamic multipliers • Economic and Monetarythe impulse responses in a dis- Union (EMU)tributed lag model. I a currency area formed in 1999, I as a result of the Maastricht• dynamic optimisations Treaty. Members of the EMUthe maximisation problems to I share the common currency, thewhich the solution is a function. I Euro.• dynamic programming I • economic freedomthe study of dynamic freedom to engage in economicoptimisation problems through I transactions, without govern-the analysis of functional equa- I ment interference, but with thetions like value equations. This support of the government in-phrase is normally used, analo- I stitutions necessary for thatgously to linear programming, I freedom, including rule of law,to describe the study of discrete I sound money and open mar-problems. kets.• early harvest • Economic Overheada term, in trade negotiations, I Capital (EOC)for agreeing to accept the re- I economic infrastructure, such assults of a portion of the nego- roads, railways, port facilities,tiations, before the rest of the I power facilities.negotiations are completed.• econometricsthe application of statistical" __====================Economics
  • 51. II economic rent I e.ffictive protection .. ============5=1• economic rent I diseconomies of scale, whichany rerum which a factor 0 f pro- I: occur when an increase in all theduction receives, in excess of its : inputs brings about a less thanopporrunity cost. ~ proportionate increase in out- Oscoa.. dUfldltota""bI.andbed tdIKCftClmfCrWpne.... I put. q,tot........ iDUI ...... o1qlfot. · I • economy, economIes . : two meanings of economies ~ need to be distinguished: I 1. the economies of regions (as "::.. %,,::v aggregates of interrelated eco-• economic union nomic activities).a common marke.t with the I 2. in the sense of economising,added feature that additional I savings, cost reductions, etc. aspolicies: monetary, fiscal, wel- used in agglomeration econo-fare, are also harmonised across : mies, scale economies,the member countries. ~ localisation economies.• economies of flexibility I • effect of tradethe advantages accruing to a ; the effect of a change in someproducer with many plants of : policy or other exogenous vari-different sizes, in allocating in- ~ able which will increase thecreases or decreases in opera- ; quantity of trade. Since in tradetions to that plant whose size is : models trade itself is endog-such as to handle the total out- ~· enous , the effects associatedput change of the producer I with a change in trade dependmost efficiently. ~ on what caused it.• economies of scale ~ • effective protectionif all the inputs in a production : the concept in which the protec-process are increased and the ~ tion provided to an industryoutput increases proportion- ; depends on the tariffs and otherately, by more amount than the : trade barriers on both its inputsincrease in the inputs, econo- ~ and its outputs, since a tariff onmies of scale are being realised. I inputs raises cost. Measured byThere may also be · the effective rate of protec-Economics======= II
  • 52. ",,52=========Effec=ti;Rate ofProteetion (ERP) I eltuticity IItion. I efficient, which in turn implies I that future exchange rates can-- Effective Rate of Protec- tion (ERP) not profitably be predicted.a measure of the protection - elasticprovided to an industry by the having an elasticity greater thanentire structure of tariffs, tak- lone. For price elasticity of de-ing into account the effects of ~ mand, this means that expen-tariffs on inputs, as well as on diture rises as price falls. Foroutputs. I income elasticity, it means that EtTectIVera!eofprotectJon.ERP expenditure share rises with in- VIII_..wcd(__ pn"").vaI...~dcd.w..n<lpneu) ..........._ _ -_ ....-........_......._ _......_ ····.M .. .. ........ vllluc-addcd: (world pncel) .. come, a supenor good . • EN jh:!!L:[}!,:2d ~ M~+.. ~:",,(1+~}-( 1,,-__ ., [,,,to:"!. "") ~- ~~ ~~ - elastic offer curve P4 p"" ....... 4Dmctflc _ _ldpm:coJGUtpul. <Ii:!, c", _abe UIlIf colt ofmt.-dullc luputr II """nclt,,: oDd I an offer curve along which im- -td pnM , .. ,cctndy. "" ~. t,........ t.nffr1k oarput Mid..,( mtermcdaatc II!pl,lls ,..pedavdl· o."lIIi"lbyp.. ",ddf*IIaomd.lntcm.etlll,n,h"lltpUlClldficwnti " I port demand is always elastic. ERP ~ !2!!::"-C.:!!!. = ~,: ~{J_~. It is therefore not backward Pw·C... l~a, bending.- effective tariffeffective rate of protection. - elasticity I 1. when used without a modi-- efficient allocation fier (such as cross or income),an allocation where it is impos- elasticity usually refers to pricesible unambiguously to im- I elasticity, that is the percentage.prove upon, in the sense of pro- I change in the quantity de-ducing more of one good with- manded of a good or service,out producing less of another. I divided by the percentage- efficient market I change in its (own) price.a market in which, at a mini- I 2. a measure of responsivenessmum, current price changes are of one economic variable to an-independent of past price I other. Usually, the responsive-changes or, more strongly, price I ness of quantity to price alongreflects all (publicly) available a supply or demand curve -information. Some believe the I comparing percentage changesforeign exchange markets to be I (%D) or changes in logarithms (d In).II = = = = = = = = E c o n o m i c s
  • 53. II elasticity ofdemandfor exports I emPl~t argumentfor protection 53• elasticity of demand for ~ ticity with respect to their price exports .1 ratio.the price elasticity of demand ; - elasticity of supplyfor exports of a country, either : the (price) elasticity of supplyfor a single industry or for the ~ is the percentage change in theaggregate of all imports. 1 quantity supplied of a good orEquals the rest of worlds elas- ~ service divided by the percent-ticity of demand for imports. : age change in its (own) price .• elasticity of demand for 1 : - embeddedness imports 1 the idea that economicthis is normally the price elas- 1 behaviour is influenced by theticity of demand for imports of dominant norms, institutionsa country, either for a single in- 1 and social practices which, industry or for the aggregate of 1 turn are culturally embedded.all imports. The latter plays acritical role in determining how ; - empirical findingthe countrys balance of trade ~ something which is observedresponds to the exchange rate. from real-world observation or 1 data, in contrast to something- elasticity of substitution that is deduced from theory.the elasticity of the ratio of two 1inputs to a production (or util 1 • employment argument for L protection the use of a tariff or other trade 1 restriction to promote employ- ment, either in the economy at large or in a particular indus- 1 try. This is a second best argu- ment, since other policies, such K as a fiscal stimulus or a produc-ity) function, with respect to the ~ tion subsidy, could achieve theratio of their marginal products ; same effect at lower economic(or utilities). With competitive cost.demands, this is also the elas-Economics======== II
  • 54. 54 enabling clause I mmplltmule 1/=================*• enabling clause I accumulated.the decision of the GAIT in I • Engels Curve1979 to give developii!lg coun- I a general reference to the linetries special and differential that shows the relationship be-treatment. tween various quantities of a• endogenous growth I good that a consumer is willingeconomic growth whose long- to purchase at varying incomenm rate depends on behaviour levels (ceteris paribus).and/or policy. I With rising incomes, the share I of expenditures for food prod-• endogenous protection ucts declines. The resulting shiftprotection which can be ex- I in expenditures affects demandplained as the outcome of eco- I patterns and employment struc-nomic and/or political forces. tures. It suggests that consum-• endogenous variable ers increase their expendituresan economic variable which is I for food products at a percent-determined within a model. It age rate, which is lower thanis therefore not subject to direct that of their increases in in-manipulation by the modeller, I come. Poorer families willsince that would override the I spend a larger share of theirmodel. In trade models, the total expenditures on food thanquantity of trade itself is almost I the wealthier families.always endogenous. I • engine of growth• endowment I sometimes used to describe thethe amount of something which role that exports may havea person or country simply has, played in economic develop-rather than their having some- I ment, both of some of the re-how to acquire it. In the H-O gions of recent settlement in theModel of trade theory, endow- nineteenth century and ofments refer to primary factors I todays NICs.of production, ignoring the fact I • entrepot tradethat some of them, especiallycapital and skill, are deliberately I the import and then export of a good without further process-II = = = = = = = & o n o m i c s
  • 55. II en:Pelope I etJ.uilibriutnlJuantity 55 *================ing, usually passing through an ~ a situation in which there is noentrep6t, which is a storage fa- I tendency for change. For ex-cility from which goods are dis- : ample, in the Keynesian expen-tributed. ~ diture model, the equilibrium ; condition is that planned spend-• envelope : ing just equals the current levelthe outermost points traced out ~ of national income. Once thatby a moving curve. I condition is satisfied, there is no• envelope eurve : tendency for the level of na-a curve enclosing, by just touch- ~ tional income to change.ing, a number of other curves. ~ • equilibrium price• environmental dumping I a price at which the quantityexport of a good from a coun- ; supplied equals the quantitytry with weak. or poorly enforced : demanded. At this price, thereenvironmental regulations, re- ~ is no excess of quantity de-flecting the idea that the ; manded or supplied, nor isexporters cost of production is : there any deficiency of eitherbelow the true cost to society, ~ and consequently, the price willproviding an unfair advantage I remain at this level.in international trade. Alsocalled eeo-dumping. I l • Environmental Kuznets L Curve ian inverse V-shaped relation- Iship hypothesised between percapita income and environmen-tal degradation. Named after Ithe Kuznets Curve dealing withinequality. ~ • equilibrium quantity• equilibrium condition ; the quantity of a good de-a condition that must be satis- : manded and supplied at thefied for the equilibrium to ex- ~ equilibrium price.ist, equilibrium being defmed as&onomit;s======= II
  • 56. 56 equivalent variation I Europeal1. Free TradeAssociation (EFTA) II~==============*===============- equivalent variation I country, denominated in athe amount of money which, I eurocurrency.paid to a person, group or _ Europe Agreementwhole economy, would make an agreement between the EUthem as well off as a specified I and each of the ten Easternchange in the economy. Provides I European countries (startinga monetary measure of the wel- with Hungary and Poland infare effect of that change, which I 1994), creating free trade areasis similar to, but not in general I and establishing additionalthe same as the compensating forms of political and economicvariation. cooperation in the preparation- escape clause I for these countries eventual1. the portion of a legal text ~ membership in the EU.which permits departure from ; _ European Economicits provisions in the event of: Community (EEC)specified adverse circum- I a customs union formed 111stances. I 1958 by the Treaty of Rome,2. the US statute (section 201, I . among six countries of Europe:1974 trade act) that permits Belgium, France, Germany,imports to be restricted, for. a I Italy, Luxembourg, and Neth-limited time and on a nondls- erlands.criminatory basis, if they havecaused injury to US firms or I _ European Free Tradeworkers. Association (EFTA) I a free trade area, comprising of- Euro Interbank Offered countries in Europe that did not Rate (EURIBOR) join the European Economica euro-denominated interest I Community. EFTA was estab-rate charged by large banks, I lished in 1960 among Austria,among themselves, on euro- Denmark Norway, Portugal, I denominated loans. Sweden, Switzerland and the_ eurobond I United Kingdom. As of 2000,a bond which is issued outside I it includes Iceland,of the jurisdiction of any single Liechtenstein, Norway, andIl=======E&onomics
  • 57. II EftropeanMonetaryAgreement ~ ~I~=ch"",a"",no"",e"",ma=~"",ket======"",5~7Switzerland. I in relation to its deposit liabili- I ties and the amount it actually- European Monetary Agreement (EMA) holds. Ian intergovernmental organisation, : - excess supplyadministered by the OEeD which ~ supply minus demand. Thus, afacilitated settlement of balance of I countrys supply of exports of apayments accounts among its homogeneous good is its excessmember states from 1958 to supply of that good.1972. It replaced the EPU and I - exchange controlits functions were taken over by I rationing of foreign exchange,the IMF in 1972. I usually used when the exchange- excess demand rate is fixed and the centraldemand minus supply. Thus, a bank is unable or unwilling tocountrys demand for imports I enforce the rate by the ex-of a homogeneous good is its change-market intervention.excess demand for that good. - exchange market- excess profit 1. the market on which nationalthe profit of a firm over and I currencies are exchanged forabove what provides its owners one another.with a normal return to capital. 2. the actual exchange market,_ excess reserves ~ which exists primarily amongthe difference between the I large international banks. Oth-amount of cash which a bank I ers, who wish to exchange cur- rencies, do it through these 111 _ _ _ I banks . .-----------~r_--,1~ I 3. the theoretical representation 1~ of the exchange market as, ei- 1500 ----+ I ther the interaction of supply I and demand arising from ex- 100(1 change-market transactions, or as an asset market equilibrium ·""""A_ _ _ Seo01 $11Obr.IIn_~03~~wlsnes or IS reqwrea to nolO, I between currencies.&onomics======= II
  • 58. 58 exchangerateuvershooting l&XOgenousgtl1Wth II"---------~==*• exchange rate overshoot- I eign currency. ing I • exchange stabilisationthe response of an excha~ge fundrate to a shock, by first movlllg a government institution some-beyond the point where it will I times used to handle exchangeultimately settle. Thought to I market intervention, chargedhelp explain exchange rate vola- with the explicit function oftility, this was first modelled by I smoothing exchange rate fluc-Dornbusch (1976). I tuations.• exchange rate regime I • exchange-market interven-the rules under which a tioncountrys exchange rate is deter- usually done by a countrys cen-mined, especially the way the tral bank, this is the purchasemonetary or other government and sale of the countrys cur-authorities do or do not inter- rency on the exchange market,vene in the exchange market. I in order to influence or fullyRegimes include floating ex- determine its price. Thesechano-e rates, pegged exchange b 1. I transactions, unless they arerate, managed float, craw mg sterilised, change the monetarypeg, currency board, and ex- I base of the country and thus, itschange controls. money supply.• exchange risk I • exogenous growthuncertainty about the value of : economic growth that occursan asset, liability or commit- I without being the result of de-ment, due to uncertainty about liberate policy or behaviour. T~ethe future value of an exchange term arises because neoclassl-rate. Unless they cover them- I cal growth models converge toselves in the forward market, I a steady state, in which pertraders, with commitments to capita income is constant ~verpayor receive foreign currency I time. Growth, then reqUlresin the future, bear exchange I exogenous technical progress.risk. So do holders of assets andliabilities denominated in for- III =======Eeonomics
  • 59. II exogenous varillble I export bias 59 *================• exogenous variable ~ The EV principle actually con-a variable which is taken as ; sists of a family of principles.given by an economic model. It : These principles differ by thetherefore is subject to direct ~ way probabilities and the val-manipulation by the modeller. ; ues (or payoffs) are generatedIn most models, policy vari- : or interpreted (namely eitherables such as tariffs and par val- ~ objectively or subjectively).ues of pegged exchange rates ~ Thus, the following possibili-are exogenous. ; ties are there:• expectation Objective Subjectivethe expectation of a variable is Payoffs Payoffsthe same as its expected value Iand is also used with both ; Objective Objectivdy Ex- Expectedmeanings. : Probabilities peeted Value Utility (EU ) I (OEV )• expected value : Subjl"Ctive Subjectively Ex- Subjectivdy maximisation pr.·nc.·ple I Probabilities peetl-d Value Exp<."Cted Utility (SEq - : (SEV)the most widely professed rule Iin decision theory. It suggeststhat the option with the larg- ~ • experience goodest expected value should be ~ a product whose value can bechosen- Calculation of the ex- . ; better ~own after having con-Rectedvalue of a decision op- : sumed It. Producers of expe.ri-tIon requires the availability of ~ ence goods. may temporanlythe probabilities attached to ; char~e a pnce lo:wer than theeach possible environmental : margmal cost, to mduce buyersstate (e.g. probability of any ~ to try the pr~uct. Done withspecific action taken by the I an e~port, this w~uld be legallyco~petitor out of all possible ~ conSIdered dumpmg.actlons). Thus, the EV is the : - export biass,:m of the products of ~ ~n- ~ any bias in favour of exporting.vIron~ental states multIphed ; Most often applied to growth~y theIr respective probabili- : that is based disproportionatelyties. I : on accum ulatlon of·the factor .&onomics======= II
  • 60. 60 exportcrr:dit I e.xpurtrequirement II================*used intensively in the export I willingness (expressed via pro-industry and/or technological I tection) of developed countriesprogress favouring that indus- to absorb these exports.try. • export platform• export credit describes the role of a host coun-a loan to the buyer of an export, I try; as a production location de-extended by the exporting firm signed to serve internationalwhen shipping the good prior markets, possibly including theto payment or by a facility of ~ home market of the parentthe exporting countrys govern- firm.ment. In the latter case, by set- • export price indexting a low interest rate on such Iloans, a country can indirectly I price index of the goods whichsubsidise exports. a country exports.• export credit insurance • export promotion I a strategy for economic devel-a program to guarantee pay-ment to exporting firms who I opment which stresses on ex-extend export credits. panding exports, often through I policies to assist them, such as• export limitation export subsidies. The rationaleany policy which restricts ex- is to exploit a countrys com-ports. I parative advantage, especially in I the common circumstance,• export multiplier where an over-valued currencythe multiplier for a change in I would otherwise create biasexports, i.e., the increase in I . agamst exports.GDP caused by one-unit m-crease ill exports. • export requirement a requirement by the govern-• export pessimism ment of the host country forthe view that efforts to expand I FDI, where the investor shouldexports by the LDCs will lead export a certain amount or per-to a decline in their terms of ~ centage of its output.trade because of an inability ;(due to weak demand) or un-II ========&cmomics
  • 61. I t$JHIrt fUhstitutilm-IF Distributilm / F-Distributilm 61I; *==============• export substitution ~ fect of production or consump-a shift to the export of increas- I llon.ingly processed products. The ; • externalityexport of more or less- pro- : an effect of one economiccessed raw materials is substi- ~ agents actions on another, suchtuted for the export of raw or I that one agents decisions makerelatively unprocessed materi- : another better or worse off, byals contributing to local (or na- ~ changing their utility or cost.tionaf) employment and the I Beneficial effects are positivecreation of value added. : externalities, while the harmful• external balance ~ ones are negative externalities.1. balance of payments equilib- ~ • F Distribution / F-Distri-num. bution2. any target value for the bal- ; defined in terms of two inde-ance on current account, bal- : pendent chi-squared variables.ance on capital account or bal- ~ Say u and v be independentlyance of payments.• external economies of scale Ia form of increasing returns toscale, in which productivity andthus , costs of individual firms Idepend on the output of ~eir 2 .. 6 2.35 3.31entire industry, rather than Justtheir own. Unlike more con- ~ distributed chi -squared vari-ventional (internal) scale econo- : abIes with u l and VI degrees ofmies , these are consistent with ~ freedom, respectively.perfect competition. ; Then, the statistic: F =(u/u l ) / ~ (v/vl ) has an F distribution with• externalities · (u l v) degrees of freedom. · Ia benefit or cost associated with ~ As can be computed from thean economic transaction, that is ; definition of the t distribution,not taken into account by those : the square of a t statistic maydirectly involved in making it. I be wntten: . ·A beneficial or adverse side ef-Eeonomics======= I
  • 62. ",,62======~=== .. F Test/ F-Tests I foctorofproductiun IIt 2=(z2/1)/(v/v 1) I • factor endowmentwhere Z2, being the square of a I the quantity of a primary fac-standard normal variable, has a tor available in a country.chi-squared distribution. Thus, • factor intensitythe square of a t variable with Iv1 degrees of freedom is an F I the relative importance of onevariable with (l,vJ degrees of : factor versus others in produc-freedom, that is: I tion, in an industry, usually com- pared across industries. Mostt 2 =F(1,v 1)· I commonly defined by ratios of• F Test/ F -Tests I factOr quantities employed ata test for the joint hypothesis common factor prices, butwhere a number of coefficients sometimes by factOr shares orare zero. Large values generally I by marginal rates of substitu-reject the hypothesis, depend- tion between factors.ing on the level of significance • factor intensity reversalrequired. a property of the technologies• factor abundance I for two industries such that theirthis is fundamental to the H -0 I ordering of relative factor inten-Model, the abundance or scar- sities is different at differentcity of a primary factor of pro- I factor prices. For example, oneduction. Because, in the short I industry may be relatively capi-run at least, the supplies of pri- tal intensive compared to themary factors are more or less other at high relative wages andfixed, this can be taken as given I labour intensive at low relativefor determining much about a wages.couiltrys trade and other eco- • factor intensity uniformitynomic variables. the absence of factor intensity• factor augmenting I reversals.a technological change or tech- I • factor of productionnological difference, if produc- I the input or resource that istion functions differ by scaling combined with other factOrs ofof a factor input only. production in a production pro-II = = = = = = = = & o n o m i c s
  • 63. II foetor price Ifoetor share 63 *===============cess, to produce a good or ser- ~ wages, are driven towardsVlce. ; equality in the absence of bar- : riers to trade. This happens• factor price I am on er other reasons becausethe price paid f?r the services ~ price ~centives cause countriesof a unit of a pnmary factor of : to choose to specialise in theproduction per unit time. It ~ production of goods whose fac-takes into consideration the I tors of production are abundantwage or salary of labour and t~e : there which raises the prices ofrental prices of land and capI- ~ the factors towards equality,tal. Does not normally refer to I with the prices in countriesthe price of acquiring owner- : where those factors are notship of the factor itself, which ~ abundant.might be called the purchase I .price. : • factor price frontier ~ a curve in fact or space s~ow-• factor price equalisation ; iner the minimum combinations ilieorem : .th ofb factor prices consistent WIone of the major theoretical re- ~ the absence of profit in produc-sults of the Heckscher-Ohlin ; ing one or more goods, givenModel, with at least as many : their prices. Since, with perfectgoods as factors, shewing th~t ~ competition, profit implies dis-free and frictionless trade WIll I equilibrium, this shows a lowercause factor price equalisation ~ bound on equilibrium factorbetween two countries, if they : prices.have identical, linearly homoge- Ineous technologies and their . • factor proportions modelfactor endowments are suffi- ~ the Heckscher-Ohlin model ofciently similar to be in the same ; trade.diversification cone. ; • factor share• factor price equalisation : the fraction of payments toan effect observed in models of ~ value added, in an industry, thatinternational trade - that the ~ goes to a particular primary fac-prices of inputs to pr?duc~on ; tor.in different countnes, hke.& : o n o m u s = = = = = = = II
  • 64. 64 factor space I Fed Funds Rate II"----------~= *• factor space I loading onto a ship.a graph in which the axis mea- I • fast tracksure the quantities of factors . a procedure adopted by the US• factor-price space Congress, at the request of thea graph with factor prices on President, committing it to con-the two axis. I sider trade agreements without amendment. In return, the• factor-saving President must adhere to adisproportionately in favour of I specified timetable and otherusing less of a particular fac- procedures.tor. • fat-tailed distributions• factor-using describes a distribution withbiased in favour of using more I excess kurtosis.of a particular factor. I • favourable exchange rate• factory systems I an exchange rate different fromthe idea where factories may the market or official rate, pro-have been more efficient by re- vided by the government on aducing transactions costs. I transaction as an indirect way• fads of providing a subsidy.the conjecture that market • Feasible Generalised Leastprices for securities take long Squares (FGLS)swings away from their funda- I the generalised least squares es-mental values and tend to re- I timation procedure, but with anturn to them. estimated covariance matrix, not• Fama-MacBeth Regression an assumed one.a panel study of stocks to esti- • Fed Funds Ratemate CAPM or APT param- I the interest rate at which USeters. banks lend to one another, their.FAS excess reserves held on depositFree Alongside Ship. Same as I at the US.FOB, but without the cost of ~II = = = = = = = B c o n o m i c s
  • 65. II Federal In.tornu:tion Processing St4~rtls (PIPS) Ifirst mover iUlPllnttlBe 65• Federal Information ~ • final good Processing Standards • a good which requires no fur- (FIPS) : ther processing or transforma-these are encodings defined ~ tion, to be ready for use byby the US government and ~ consumers, investors or gov-used to encode some data ; ernment.(like states and counties) 10 .•. • financial capitalUS data sets. : financial assets, such as stocks,• fiat money ~ bonds, bank deposits, etc., as1. a money whose usefulness ; opposed to real assets such asresults, not from any intrinsic : buildings and capital equip-value or guarantee that it can • ment. ·be converted into gold or an- ~ • financial intermediaryother currency, but only from a ~ an institution which providesgovernments order (fiat) thatit must be accepted as a means ; indirect means for funds fromof payment. : those who wish to save or lend, ~ to be channelled to those who2. money which is intrinsically ; wish to invest or borrow. Ex-useless and is used only as a : amples include banks and othermedium of exchange. ~ depository institutions, mutual• filters ; funds and some governmenta way of treating or adjusting : programs. •data before it is analysed. : • FIRMore exactly, a filter is an al- ~ Factor Intensity Reversal.gorithm or mathematical op- •eration that is applied to a : - first degree homogeI1eoustime series sample to get an- ~ homogeneous of degree 1.other sample, often called the ~ • first mover advantagefiltered data. For example, afilter might remove some ; the advantage which a firm mayhigh-frequency effects from : derive from being the first tothe data. ~ enter a market or from being • the first to use a new technol- ~ ogy, advertising technique, etc.Eetmomics======= II
  • 66. 66 First Order Condition (FOC) I ;her Consiste1u:y I Fisher Consistent ... II• First Order Condition I • fiscal policy (FOC) I any macroeconomic policy in-one of the mathematical neces- volving the levels of govern-sary condi tions for ment purchases, transfers ormaximisation, used routinely in I taxes, usually implicitly focusedsolving economic models. Typi- on domestic goods, residents orcally, it consists of setting equal firms. A fiscal stimulus is anto zero the derivative of the I increase in purchases or trans-function being maximised (or fers or a cut in taxes.its Lagrangian), with respect to • fiscalist viewa variable that can be con- Itrolled. an extreme Keynesian view, that money doesnt matter at all• first welfare theorem of I as aggregate demand policy. economics / first theorem Assumes that investment dc- of welfare economics mand does not respond to in-the statement which states that I terest rate changes. Relevanta Walrasian equilibrium is only in depression conditions.weakly Pareto optimal. Such a • Fisher Consistency / Fishertheorem is true in a large and I Consistent Estimationimportant class of general equi-librium models (usually static I a necessary condition for maxi-ones). The standard case is if ~ mum likelihood estimation toevery agent has a positive quan- ; be consistent. Maximising thetity of every good and every likelihood function L gives anagent has a utility function that I estimate for parameter b thatis convex, continuous and I is Fisher-consistent if:strictly increasing, then the First E[d(ln L)jdb]=O at b=b o,Welfare Theorem holds. I where b is the true value of b. o I Another interpretation or• first-order stochastic phrasing: 1n estimation proce- dominance dure is Fisher consistent if theusually means stochastic domi- I parameters of interest solve thenance. population analog of the esti- mation problem." ======================;;;;Economics
  • 67. II Fisher Effict Ijk&ibility strategy 67 .==============~_ Fisher Effect ~ - Fisher Informationthe theory where a change in the ; an attribute or property of aexpected rate of inflation will : distribution with known formlead to an equal change in the ~ but uncertain parameter values.nominal interest rate, thus I It is only well-defined for dis-keeping the real interest rate ~ tributions satisfying certain as-unchanged. : sumptions. I : - Fisherian Criterion ~ for optimal investment by a ; firm - that it should invest in Io<INnl;;.I.~ R";;;:;l=:tl)(;k : real assets until their marginal "- PIIOCl, (Fal ir ~ internal rate of return equals the UwUMIIMJ Ic..- ~lCounIl"et. t:>f U")I")I) l..Iturecesn tIo.... -> I appropriately risk -adjusted rate- Fisher Equation : of return on securities. Inominal rat~ of interest = real : - Fixed Effects Estimator /1interest rate + inflation ~ Fixed Effects Estimation- Fisher Hypothesis (FE)the real rate of interest is con- a linear regression in which cer-stant. Hence, the nominal rate tain kinds of differences are sub-moves with inflation. The real ~ tracted out, so that one can es-rate of interest would be de- ; timate the effects of anothertermined by the time prefer- : kind of difference.ences of the public and tech- I : - flexibility strategynological constraints deter- Imining the return on real in- : could be considered a strategicvestment. ~ response to uncertainty. A flex- ; ible firm, investment, set of- Fisher Index : skills, residential arrangement,is a price index, calculated for a ~ etc. is more responsive to un-given period by taking the ; predictable futures than a rigidsquare root of the product of the : firm, etc. Pursuing a flexibilityPaasche index value and the ~ strategy would mean to buildLaspeyres index value. ; appropriate flexibilities into : projects and organisations, I Economics==~==== II
  • 68. 68 • .flexible exchange rate I FOB pricing /Ieven if that means higher I jobs, whereas the other part ofproject or organisational costs, I the labour force can be hired andas long as the benefits of pos- fired with ease or employedsible future adjustments out- I with variable hours as needed.weighs these costs. I _ flexible-accelerator model- flexible exchange rate a macro model where there is a Isame as floating exc hange rate. variable relationship between the growth rate of output and- flexible specialisation I the level of net investment. Thea company- level strategy of : relation between the change inpermanent innovation, accom- I output and the level of net in-modation to ceaseless change I vestment is the accelerator prin-(rather than to control it). This I ciple.strategy is based on flexiblemulti-use equipment, skilled I-FOBworkers and the creation, the price of a traded good ex-through politics, of an industrial cluding the transport cost. Itcommunity that restricts the I stands for free on board, butforms of competition to those is used only as these initials. Itfavouring innovation. means the price after loading I onto a ship, but before shipping,- flexible work for.ce thus not including transporta-a work force that can be I tion, insurance and other costsadapted to changing circum- I needed to get a good from onestances. In the context of seg- I country to another. Contrastsmented, dual labour markets, with elF and FAS.its been suggested that a flex- Iible work force may have two - FOB pricingmeanings: One part of the Free On Board Mill base pric-labour force is given the chance I ing. A pricing system in whichto be flexible itself, i.e. to be prices are quoted for delivery atconsidered functionally suffi- the point of production, withciently diversified so that em- I the buyer to pay freight fromployees can be used for differ- that point.ent functions or in differentII ========Bcon"",ies
  • 69. II FOGS Negotiations l.fi:weigndirectin~==t========"",6~9• FOGS Negotiations .~ • foreign asset positionin ilie Uruguay Round, this por- I the amount of assets which resi-tion of the negotiations dealt ~ dents of a country own abroad.with the functioning of the : Also used to mean the net for-GAIT System and resulted ul- ~ eign asset position.timately in the formation of the ~ • foreign direct investmentwro and its dispute settlement ; 1. acquisition or construction ofmechanism. : physical capital by a firm from• footloose activity ~ one (source) country in anotheran activity that is viable at many ; (host) country.different locations. It does not - SlIUCRlllEalRIIITOCIlIlCRYlll_tLCMIM _ _depend on any specific locationfactor. An industry is footloose Iif its long run profitability is the .............. -- -...same for any location in aneconomy. I : 2. investments undertaken by• footloose factor ~ multinational firms in pursuit ofa factor which can move easily I their own organisational objec-across national borders, in con- ; tivestrast to one that, due to inclina- : 3. a component of a countrystion or constraints, cannot. ~ national fmancial accounts. For-Footloose factors are some- ; eign direct investment is thetimes thought to have an advan- : investment of foreign assets intotage in a globalised economy. ~ domestic structures, equipment• footloose industry I and organisations. It does notan industry which is not tied to : include foreign investment intoany particular location or coun- ~ the stock markets. Foreign di-try and can relocate across na- I rect investment is believed to betional borders, in response to ; more useful to a country thanchanging economic conditions. : investments in the equity of itsMany manufacturing industries ~ companies because equity in-seem to have this characteris- ; vestments are potentially hottic. : money which can leave at the IBeonomies======= II
  • 70. 70 foreign investment af3;mentfor protecticm Iforward linkages IIfirst sign of trouble, whereas I bates to American exporters, ifFDI is durable and generally I they form what may be a largelyuseful whether things go well artificial foreign subsidiaryor badly. I called an FSC. This has been the I subject of a trade dispute with• foreign investment argu- the EU which complained to the ment for protection WTO that this constitutes anthe use of protection, to attract I illegal export subsidy.FDI from abroad. It does work,since much FDI has been moti- I • foreign trade zonevated by firms trying to get be- an area within a country wherehind a tariff wall to sell their imported goods can be storedproducts. In an otherwise I or processed without being sub-nondistorted economy, how- I ject to import duty. Also calledever, the cost in terms of more a free zone, free port, orexpensive goods is higher than I bonded warehouse.the benefit from additional capi- I • formula approachtal. I a procedure for organising mul-• foreign repercussion tilateral trade negotiations, us-the feedback effect on a domes- ing a formula for tariff reduc-tic economy, when its macro- I tions as a starting point.economic changes cause large I • forwardenough changes abroad forthose in turn to cause further I on the forward market.changes at home. Most com- I • forward discountmonly, a rise in income stimu- opposite of forward premium.lates imports, causing an expan- Ision abroad that in turn raises I • forward linkagesdemand for the home countrys linkages between a producer orexports. I supplier and their customers. As different from backward• Foreign Sales Corporation linkages, forward linkages are (FSC) I output-oriented and, in the ma-a provision of the US tax code I trix-context of input-outputwhich grants income-tax re- analysis, are conventionallyII ========E&cmomics
  • 71. II forward market Ifree entry 71 *================traced in rows. ~ can be done in different loca- ; tions, including in different- forward market : countries.a market for exchange of cur- Irencies in the future. Partici- : - free cash flowpants in a forward market en- ~ cash flow to a firm, in excess ofter into a contract to exchange I the req uirement to fund allcurrencies, not today, but at a ~ projects that have positive netspecified date in the future, : present values when discountedtypically 30, 60 or 90 days from ~ at the relevant cost of capital.now and at a price (forward ; Free cash flow can be a sourceexchange rate) that is agreed : of principal-agent conflict be-upon today. ~ tween shareholders and manag-_ forward premium I ers, since shareholders would : probably want it paid out inthe difference between a for- Iward exchange rate and the spot : some form to them and man- I agers might want to control it,exchange rate, expressed as an ~ e.g. to use it for unprofitableannualised percentage return onbuying foreign currency spot : projects, for perquisites, to ~ make acquisitions, to create jobsand selling it forward. ; for friends and allies and so- forward rate : forth.also called the forward exchange I : - free enterpriserate, this is the exchange rate on I a system in which economica forward market transaction. I agents are free to own property_ four-firm concentration and engage in commercial ratio transactions.the percent of an industrys sales I : - free entrywhich accrue to the largest fourfirms, a measure of industrial ~ the assumption where newconcentration. ; firms are permitted to enter an : industry and can do so without- fragmentation ~ any costs whatsoever. Togetherthe splitting of production pro- ; with free exit, it implies thatcesses into separate parts which : profit must be zero in equilib- IEconomics======= II
  • 72. 72 .free entry condition l.free trade II========*num. I • free reserves• free entry condition I excess reserves minus borrowed reserves.an assumption posted in d. Isearch and matching model of : • free rider . I.a market. The assumption 1S : someone who enjoys the ben-that there is no institutional con- I efits of a public good withoutstraint on firms entering the ~ bearing the cost. An example,market (e.g. to hire workers). : in trade policy, is that tradeThere is no fixed number of ~ liberalisation benefits the ma-firms. The number of firms is ; jority of consumers withoutdetermined in equilibrium, by their lobbying for it. This maythe costs of starting up. I tip the policy in the direction of• free exit I protection, for which there arethe assumption where firms are I fewer free riders.permitted to leave an industry • free spatial demand curveand can do so costlessly. demand schedule (pricejquan- I tity of demand function) of con-• free goodgoods that are unlimited in sup- I sumers, distributed in space with varying distances from aply and which therefore have no I given, central location, aggre-opportunity cost. gated for a supply location with• free market economy / free price (in the mind of consum- market economies I ers) to include transport costsan economy in which the allo- I from this location to the con-cation for resources is deter- sumers.mined only by their supply and • free tradethe demand for them. This is I a situation in which there are nomainly a theoretical concept as I artificial barriers to trade, suchevery country, even capitalistones, places some restrictions I as tariffs and NTBs. Usually used, often only implicitly, withon the ownership and exchange I frictionless trade, so that it im-of commodities. I plies that there are no barriers to trade of any kind. For aII =======Bconomks
  • 73. II Free TradeArea (FrA) 1JUture-orien:"",RO""e1""Jt=========7=3traded homogeneous product, ~ - frictionless tradeit follows that domestic and ; the absence of natural barriersworld price must be equal. : to trade, such as transport I- Free Trade Area (FTA) : costs.a group of countries which ~ - Friedman Ruleadopt free trade (zero tariffs ~ in a cash-in-advance model of aand no other restrictions on ; monetary system, the Friedmantrade) on trade among them- : rule for monetary policy is toselves, while not necessarily ~ deflate so that it is not costly forchanging the barriers that each ; those, who have money, to con-member country has on trade : tinue to hold it. Then, the cash-with the countries outside the ~ in-advance constraint isnt bind-group. I ing on them.- Free Trade Area of the ; - Full Information Maxi- Americas (FTAA) mum Likelihood (FIML)a preferential trading arrange- ~ an approach to the estimationment being negotiated among ~ of simultaneous equations.most of the countries (all butCuba) of the western hemi- ~ - functional I functionalssphere. ; a mapping from paths of func- : tions to the reals (e.g. a value- frequency ~ function defmed by a mappingthe speed of the up and down ~ from possible paths of choices.movements of a fluctuating eco-nomic variable, that is, the num- ; - functional distribution ofber of times, per unit of time, I incomewhich the variable completes a : how the income of an economycycle of up and down move- ~ is divided among the owners ofment. ; different factors of production, : into wages, rent, etc.- frictional unemployment •unemployment which comes : - future-oriented agentfrom people moving between ~ discounts the future lightly andjobs, careers and locations. • so has a low discount rate or ; equivalently a high discount fac-&onomics==-====== II
  • 74. 74 futures market I General~eement on Tariffi and Trade (GATT) "tor. I small enough that each has a I perceptible influence on the oth-- futures market ers.a market for exchange (of cur- Irencies, in the case of the ex- - gamma indexchange market) in the future. a measure of the connectivity ofi.e., participants contract to ex- I a network comparing (throughchange currencies, not today, a ratio) the actual number ofbut at a specified calendar date links with the maximum num-in the future, and at a price (ex- I ber of possible links (edges) inchange rate) that is agreed this network.upon today. Gamma Index Formula =- gains from trade theorem actual number of linksthe theoretical proposition ------------where (in the absence of distor- I half the number of nodestions) there will be gains from (number of nodes - 1)trade for any economy that - gastarbeitermoves from autarky to free Itrade, as well as for a small open a guest worker.economy and for the world as a _ GATT Articleswhole if tariffs are reduced ap- I the individual sections of thepropriately. I GAIT agreement, convention-- game ally indentified by their Romana theoretical construct in game numerals. Most were originallytheory in which players select I drafted in 1947, and are stillactions and the payoffs depend I included in the WTo.on the actions of all the play- _ General Agreement oners. Tariffs and Trade (GATT)- game theory- I a multilateral treaty enteredthe modelling of strategic inter- I into in 1948 by the intendedactions among agents, used in members of the Internationaleconomic models where the I Trade Organisation. The pur-numbers of interacting agents I pose of the same was to imple-(firms, governments, etc.) is I ment many of the rules and ne-II = = = = = = = = B c o n o m i c s
  • 75. II GeneralAgreementon Trade in Servic; (GATS) I Gini Coefficient 75gotiated tariff reductions that ~ - generalised system ofwould be overseen by the ITO. ; preferencesWith the failure of the ITO to : tariff preferences for develop-be approved, the GATT be- ~ ing countries, where some de-came the principal institution I veloped countries let certainregulating trade policy, until it ~ manufactured and semi-manu-was subsumed within the wro : factured imports from develop-in 1995. ~ ing countries enter at lower tar-_ General Agreement on ; iffs than the same products Trade in Services (GATS) : from developed countries. Ithe agreement, negotiated in : - gentrificationthe Uruguay Round, which ~ the widespread emergence ofbrings international trade in I middle-and upper middle-classservices into the wro. It pro- : enclaves in formerly deterio-vides for countries to provide ~ rated-inner-city neighbourhoods.national treatment to foreign I : _ geobaseservice providers and for themto select and negotiate the ser- I database or index of the inter-vice sectors to be covered un- ; national literature of geography,der GATS. : ecology, earth science and ma- ~ rine science.- general equilibriumequanimity of supply and de- ~ - Giffen goodmand in all markets of an I a good which is so inferior andeconomy simultaneously. The : so heavily consumed at low in- I .number of markets does not : comes that the demand for It I rises when its price rises. Thehave to be large. The simplestRicardian model has markets ~ reason is that the price increaseonly for two goods and one : lowers income sufficiently thatfactor, labour, but this is a ~ the positive income effect (be-general equilibrium model. ; cause it is inferior) outweighsContrasts with partial equilib- : the negative substitution effect. Irium. : - Gini Coefficient ~ a measure of income inequal-:&onomics======= II
  • 76. 76 global Igloba/isation "=================*ity within a population, rang- , interdependencies.ing from zero for complete I • global competitivenessequality, to one if one personhas all the income. It is de- I competitiveness applied inter-fined as the area between the I nationally.Lorenz Curve and the diago- • global optimumnal, divided by the total area an allocation that is better, byunder the diagonal. I some criterion, than all others or rec- a¥aUabie lb DCAF possible. GW c.wllkk., aMI GDP po-r ~.plbo (latnt ~ teIedtd )far) ~ • globalisation i :: : ":." 1. the increasing integration of 3 111 _ world markets for goods, ser- I vices and capital that attracted r, 1 : I ~ ~ (. I • ill II I~ 11 14 special attention in the late 1990s.It measures the degree to I 2. also used to encompass a va-which two frequency (percent- I riety of other changes that wereage) distributions correspond. perceived to occur at about theThe Gini coefficient is a num- I same time, such as an increasedber between 0 and 100 (or 0 I role for large corporationsand 1), where 0 means perfect (MNCs) in the world economyequality (exact correspondence, I and increased intervention intoe.g. everyone has the same in- I domestic policies and affairs bycome) and 100 (or 1) means international institutions such asperfect inequality (one person I the IMF, WTO and Worldhas all the income, everyone else I Bank.earns nothing). I 3. among countries outside• global the United States, especiallythe world-wide presence of a I developing countries, thephenomenon or a world-wide I term sometimes refers to thespatial pattern of locations of an domination of world economicorganisation and/or a pattern of ~ affairs and commerce by the I United States.1/ ========Eeonomics
  • 77. II gold standard I Grandfotherclause . . =========="",7=7 ~ and analysed. ~ • government procurement ; purchase of goods and services : by government and by state- : owned enterpnses. I . I : • government procurement . practice ; the methods by which units of : government and state-owned ~ enterprises determine from• gold standard ; whom to purchase goods anda monetary system where both : services. When these methodsthe value of a unit of the cur- ~ include a preference for domes-rency and the quantity of it in I tic firms, they constitute ancirculation are specified in terms : NTB.of gold. If two currencies are Iboth on the gold standard, then : • graduation Ithe exchange rate between : termination of a countrys eli-them is approximately deter- ~ gibility for GSP tariff prefer-mined by their two prices in ; ences, on the grounds that it hasterms of gold. : progressed sufficiently, in terms ~ of per capita income or another• good ; measure, that it is no longer ina product which can be pro- : need to special and differentialduced, bought and sold and that ~ treatment.has a physical identity. Some-times said inaccurately to be ~ • Grandfather clauseanything that can be dropped I a provision in an agreement,on your foot or, also inaccu- ~ including the GATT but not therately, to be visible. Contrasts : WTO, which allows signatorieswith service. Trade in goods is ~ to keep certain of their previ-much easier to measure than ; ously existing laws that other-trade in services and thus much : wise would violate the agree-more thoroughly documented ~ ment.Economies======= II
  • 78. "",78=========B"",ra"",VJ=ty~ I Gross National Product (GNP) II• gravity model I • Gross domestic producta model of the flows of bilat- I (GDP)eral trade based on analogy 1. the total value of new goodswith the law of gravity in phys- and services produced in a givenics : T.J = AY.Y./D1 , where J .. I year, within the borders of aT i · is exports from country i to I country, regardless of by whom.c6untry j, Yi,Y. are their na- It is referred as gross in thetional incomes, D .. is the dis- I sense that it does not deduct Jtance between them and A is a depreciation of previously pro-constant. Other constants as duced capital, in contrast toexponents and other variables I NDP.are often included. I 2. value of all the goods and ser-• grey area measure vices produced by workers and capital located with a countrya measure whose conformity I (or region), regardless of na-with existing rules is unclear, tionality of workers or owner-such as a VER under the GAIT I ship.prior to the wro. • Gross National Product• green box (GNP)category of subsidies permitted 1. the total value of new goodsunder the WTO Agriculture I and services produced in a givenAgreement includes those not I year by a countrys domesticallydirected at particular products, I owned factors of production,direct income support for farm- regardless of where. It is grossers unrelated to production or I in the sense that it does not de-prices, subsidies for environ- I duct depreciation of previouslymental protection and regional produced capital, in contrast todevelopment. NNP.• green field investment I 2. total value of all fmal goodsFDI which involves the con- I and services produced for con-struction of a new plant, rather sumption in society during a par-then the purchase of an exist- I ticular time period. The GNPing plant or firm. I includes allowances for depre- ciation and indirect businessII ========Economics
  • 79. II gross output I GutfCooperation cou;l~r"",GC=C"",J========"",7"",,9taxes such as those on sales and I central banks have met on theproperty. ~ occasion of the bimonthly BIS3. it is the output of labour and ~ meetings.property of a countrys n~tion- : _ growth accountingals, regardless of the locatlon of ~ decomposition of the sources ofthe labour and property. Gr<:>ss I economic growth into the con-National Product includes m- : tributions from increases income earned by the factors of ~ capital, labour and other factors.production (assets and la.bour) I What remains, called the Solowowned by a countrys resIdents ~ residual, is usually attributed tobut excludes income produced : technology.within the countrys borders by I •factors of production owned by : - Grubel-Lloyd mdexnonresidents. ~ the measure of the intra-indus- ; try trade suggested by Grube!- gross output : and Lloyd (1975). For an indus-the total output of a firm, in- ~ try i with exports X, and impor~sdustry or economy without de- I M. the index ISducting intermediate inputs. ~ I :: [(X;+M) IX,M,IPOOjFor a firm or industry, this is : (X, +M). This is the fractlon oflaraer than its value . added, b I total trade in the industry,which is net of its own mterme- : X +M. that is accounted for by I , "diate inputs. For an economy, : IIT (times 100).gross output is greater than net ~. _ Gulf Cooperation Counciloutput which deducts theamount of the good itself, used I (GCC)as an intermediate input. ; an agreement among six. coun- : tries of Persian Gulf regIon -- group of ten ~ Bahrain, Kuwait, Oman, Qatar,a group of ten countries, mem- ; Saudi Arabia and the Unitedbers of the IMP, which, together : Arab Eri1irates - in 1981, withwith Switzerland, agreed to ~ the aim of coordinating and in-make resources available out- ~ t~grating their economic poli-side their IMF quotas. Since ; Cles.1963, the governors of the GI0Economics======= II
  • 80. 80 H Index (The Herftn;hl-HirSChman Index) I Hat algebra 1• H Index (The Herfindahl- I to the decrease in real income Hirschman Index) and therefore that a real depre-It stands for Herfindahl- ciation will cause an increase inHirschman index, which is a I real expenditure.way of measuring the concen- I • harmonisationtration of market share held by I the change in government regu-particular suppliers in the mar- lations and practices, as a resultketo The H index is the aggre- I of an international agreement,gate of squares of the percent- I to make those of differentages of the market shares held countries the same or moreby the firms in a market. If ~ compatible.there is a monopoly, i.e. one ;firm with all sales, the H index • Harmonised System (HS)is 10000. If there is perfect I an international system for clas-competition, with an infinite I sifying goods in internationalnumber of firms with near-zero trade and for specifying the tar-market share each, the H index iffs on those goods. It wasis approximately zero. Other I adopted at the beginning ofindustry structures will have H 1989 and it replaced the previ-indices between zero and ously used schedules in over 5010000. I countries.• Harberger triangle I • Harrod neutralthe triangular area or areas in a I a particular specification ofsupply and demand diagram technological change or techno-that measure the net welfare I logical difference that is labourloss or dead-weight -loss due to I augmenting.a market distortion or policy, I • Hat algebrasuch as a tariff. the Jones (1965) technique for• Harberger-Laursen- comparative static analysis in Metzler Effect I trade models. By totally differ-the conjecture or result that a entiating a model in the loga-terms of trade deterioration will rithms of its variables, a linearcause a decrease in savings due I system is obtained relatingII = = = = = = = = E c o n o m k s
  • 81. II Havana ~harter I Heckscher-ohlin-;muelSlmMOdel (HOSModel) 81small proportional changes (de- I across countries and differencesnoted by carats (A), or hats) I in relative factor intensitiesin terms of various elasticities across industries. It sometimesand shares. ~ refers only to the textbook or ; 2x2x2 model, but more gener-• Havana Charter : ally includes models with anythe charter for the never-imple- : I numbers of factors, goods, andmented International Trade I countries. Model was originallyOrganisation. The draft was . formulated by Heckschercompleted at a conference in I (1919), fleshed out by OhlinHavana, Cuba, in 1948. I (1933), and refined by• Headquarters services Samuelson (1948,1949,1953).the activities of a firm which ~ • Heckscher-Ohlin Theoremtypically occur at its main loca- (HOT)tion and that contribute in a ~ the prOpOSItlOn of thebroad sense to its productivity ; Heckscher-Ohlin Model thatat all of its locations and plants. : countries will export the goodsThese may include manage- ~ that use relatively intensivelyment, accounting, marketing, I their relatively abundant fac-and R&D. . tors. I• Heavily Indebted Poor : • Heckscher-Ohlin- Countries (HIPC) I . Samuelson Model (HOSthe na~e g~ven to those poor; Model)countnes. ~1.th .large ~ebts, the. ~ usually synonymous with the . . 1 I 1target of lilltlatlVes bemg to for- . H ec ksc h er- Ohl·n M 0 d e, a-gIVe that debt as a means of as- . though sometl·mes the t erm IS .. d 1 I .SIStmg eve opment. ; used to distinguish the more• Heckscher-Ohlin Model : formalised, mathematical ver- (H-O Model) ~ sion that Samuelson used froma model of international trade I the more general but less well-in which comparative advantage : defmed conceptual treatment ofderives from differences in ~ Heckscher and Ohlin.relative factor endowments IEconomics======== II
  • 82. 82 Heckscher-Ohlin-*,mk Model (H;V) I high-tech imlustries or activities "• Heckscher-Ohlin-Vanek I • Hicksian Demand Func- Model (HOV) tionthe Heckscher-Ohlin Model for denoted h(p,u) and it refers tothe case of identical techniques the amount of a good that isof production, used to derive I demanded by a consumer giventhe strong prediction about the that it costs p per unit and thatfactor content of trade, known the consumer will have utility uas the Heckscher-Ohlin-Vanek I from all goods, where h(p,u) isTheorem. the cost-minimising amount.• Heckscher-Ohlin-Vanek • high dimens~on Theorem in trade theory, this refers tothe prediction of the H-O-V having more than two goods,Model where a countrys net I factors, and/or countries, or tofactor content of trade equals its having arbitrary numbers ofown factor endowment minus : these. Contrasts with the two-its world-expenditure share of I ness of the 2x2x2 Model.the world factor endowment. . I • high powered moneyThat is, for country i, P = VI_SIVW, whe~e pi is the factor con- I 1. same as monetary base, intent of its trade, Vi,VW its and the sense of currency plus com-the worlds factor endowment, I mercial bank reserves.and Si its share of world expen- I 2. the monetary base or the to-diture. tal of currency in circulation and commercial bank deposits with• hedge I the central bank.to offset risk. In the foreignexchange market, hedgers use I • high-tech industries orthe forward market to cover a I activitiestransaction or open position and the identification of those indus-thereby reduce exchange risk. I tries considered to be high-techThe term applies most com- I has generally relied on a calcu-monly to trade. lation comparing R&D inten- sities. R&D intensity, in tUln, I has typically been determmed by comparing industry R&D ex-II ========Economics
  • 83. II HilbertSpace/HilbertSpaces I homo~ofdegreezero 83penditures and/or numbers of ~ where multiplying all argu-technical people employed (i.e., ; ments by a constant changes thescientists, engineers, techni - : value of the function by a mono-cians) to industry value added ~ tonic function of that constant:or to the total value of its ship- ; F (DV) = g( D) F (V), where F (-)ments. : is the homogeneous function, V is a vector of arguments, 0>0• Hilbert Space / Hilbert I is any constant, and g( .) is some Spaces strictly increasing positive func-a complete normed metric I tion. Special cases include ho-space with an inner product. So I mogeneous of degree X and lin-the Hilbert spaces are also Ba- early homogeneous.nach spaces. L 2 is an example Iof a Hilbert space. Any Rn with I • homogeneous of degree 1n finite is another. : the same as linearly homoge-• hinterland ~ neous and, for a production ; function, constant returns totributary (factor-supply or : scale.product-market) area of a Iheartland, central region, city or ~ • homogeneous of degree Xport. A hinterland is delineated a homogeneous function whereby the inter-dependency rela- I the monotonic function is thetionships with the core region. ; constant raised to the exponent : X: F(OV)=OXF(V).• home bias Ia preference, by consumers or : • homogeneous of degreeother demanders, for products I zeroproduced in their own country, ; the property of a functioncompared to otherwise identi- : whose value if you scale all ar- Ical imports. This was proposed : guments by the same propor-by Trefler (1995) as a possible I tion, does not change. In the H-explanation for the mystery of ~ 0 Model, CRTS productionthe missing trade. : functions imply that marginal ~ products have this property,• Homogeneous function ; which is critical for factor pricea function with the property equalisation.&tmomics======= II
  • 84. 84 homogeneous product I horiz6ntal intraindustry trade II================*• homogeneous product I selves literally homothetic.the product of an industry in I • homothetic preferenceswhich the outputs of different together with identical prefer-firms are indistinguishable. ences, this presumption is usedContrasts with differentiated I for many propositions in tradeproduct. theory, in order to assure that• homohypallagic I consumers with different in-having a constant elasticity of : comes but facing the samesubstitution. One of the inven- ~ prices will de~and goods in thetors of the CES function tried ; same proportlons.to christen it this in Minhas • horizontal integration(1962), where he also explored production of different vari~t­its theoretical and empirical ies of the same product or dif-implications for the Heckscher- ferent products at the sameOhlin Theorem, but the name level of processing, within adid not catch on. I single firm. This may, but need• homothetic not, take place in subsidiaries ina function of two or more ar- I different countries.guments is homothe~c if ~ ra- • horizontal integrationtios of its first partlal denva- corporate mergers inv?lvingtives depend only on the ratios I competing firms producmg theof the arguments, not th~ir lev- same or similar production atels. For competitive consumers the same stage of production.or producers optimising subject I Such mergers tend to reduceto homothetic utility or produc- I competition in the market.tion functions, this means that :ratios of goods demanded d e- I • horizontal intraindustrypend only on relative pnces, not I trade . . .on income or scale. : intraindustry trade m which the • I exports and imports are at the• homothenc demand : same stage of processing.demand functions derived from ~ Likely due to product differen-homothetic preferences. The I tiation. Contrasts with verticaldemand functions are not them- ; IIT. _II = - - = = = = = = = = E e o n u r n i c s
  • 85. II Huber- White Standard Errors I iden;"",lP"","",ife7=C1"",u:es======="",8=5• Huber-White Standard I principal-agent maximisation Errors problem for a contract thatthe standard errors that have meets various criteria, the ICbeen adjusted for specified as- ~ constraints are those that re-sumed-and-estimated correla- ; quire agents to prefer to act intions of error terms across ob- : accordance with the solution. Ifservations. I the IC constraint were not im- I posed, the solution to the prob-• human capital : lem might be economically1. the stock of knowledge and ~ meaningless, insofar as it pro-skill, embodied in an individual I duced an outcome that metas a result of education, train- ~ some criterion of optimality buting and experience which makes : which an agent would choosethem more productive. I not to act in accord with.2. the stock of knowledge and ~ • iceberg transport costskill embodied in the popula-tion of an economy. ; a cost of transporting a good : that uses up only some fraction• human capital accumula- ~ of the good itself, rather than tion I using any other resources.the attributes of a person which : Based on the idea of floating anare productive in some eco- ~ iceberg, which is costless exceptnomic context. Often refers to I for the amount of the icebergformal educational attainment, ~ itself that melts. It is a very trac-with the implication that edu- : table way of modelling trans-cation is investment whose re- ~ port costs since it impacts noturns are in the form of wage, ; other market.salary, or other compensation. ; • idempotent matrixThese are normally measuredand conceived of as private re- : a matrix M is idempotent ifturns to the individual but can ~ MM=M. (M times M equalsalso be social returns. 1M.)• Ie Constraint ; • identical preferencesstands for incentive compatibil- ~ the assumption that individuals,ity constraint. When solving a : either within a country or in dif- IEetmomics======= II
  • 86. ""8,,,,6===========* identitymll;trix I implicit contract IIferent countries, have the same I Solve for the structural formpreferences. To be useful, since I parameters in terms of the re-individuals and countries in- duced form parameters, andcomes may differ, the assump- I substitute in the estimates oftion is often used together with I the reduced form parameters tohomothetic preferences. get estimates for the structural_ identity matrIX. ones.a square matrix of any dimen- - immiserising growthsion whose elements are ones I economic growth which makeson its northwest-to-southeast the country worse off.diagonal and zeroes everywhere Bhagwati (1958) coined theelse. Any square matrix multi- I term for growth that expandsplied by the identity matrix with I exports and worsens the termsthose dimensions equals itself. of trade sufficiently that its realOne usually says the identity I income falls. Johnson (1955)matrix, since in most contexts I had shown that a market dis-the dimension is unambiguous. torted by a tariff could lose fromIt is standard to denote the growth and had also, indepen-identity matrix by 1. I dently, worked out conditions for Bhagwatis result.- Illiquid Assetsassets which are not easily and - imperfectly competitivequickly converted into money. refers to an economic agent_ ILS / Indirect Least I (firm or consumer), group of agents (industry), model or Squares analysis that is characterised byILS stands for Indirect Least I imperfect competition. Con~Squares, an approach to the es- I trasts with perfectly competi-timation of simultaneous equa- tive.tions models. Steps:a. Rearrange the structural - implicit contractform equations into reduced a non-contractual agreementform. I which corresponds to a Nashb. Estimate the reduced form I equilibrium, to the repeated bi-parameters. lateral trading game other thanII = = = = = = = = & o n o m i c s
  • 87. II implicitpricedejlator I importpenetr:on 87the sequence of Nash equilib- I 2. the difference between theria, to the one-shot trading I price just inside a border andgame. In the labour market, an : the price just outside it, espe-implicit contract is formally rep~ ~ cially in the case of a good pro-resented by a series of games ; tected by an import quota.in which the firm pays a salary ; - import biasand the employee works effec- ~ ~. any bias in favour of import-tively because they expect toplay the game again (continue : mg.the agreement) if it goes well, ~ 2. applied to growth, it tends tonot because they have an ex- ; mean a bias against importing,plicit, enforceable contract. : and against trading more gen- ~ erally. Thus, growth that is- implicit price deflator I based disproportionately on ac-a broad measure of prices de- cumulation of the factor usedrived from separate estimates I intensively in the import-com-of real and nominal expendi- I peting industry and/or techno-tures for GDP or a subcategory logical progress favouring thatof GDP. Without ql!alification, industry.the term refers to the GDP de- Iflator and is thus an index of : - import demand elasticityprices for everything that a ~ the elasticity of demand for im-country produces, unlike the ; ports with respect to price.CPI, which is restricted to con- ; _ import elasticitysumption and includes prices of : usually means the import de-imports. ~ mand elasticity.- implicit tariff ~ _ import penetration1. tariff revenue on a good or I a measure of the importance ofgroup of goods, divided by the I imports in the domesticcorresponding value of imports. economy, either by sector orOften lower than the official or ~ overall, usually defined as thestatutory tariff, due both to ; value of imports divided by thePTAs and due to failures in cus- : value of apparent consumption.toms collection. I&01Iomics======== II
  • 88. 88 .. importpriceindex I inadmissibility II• import price index I in a two-good model with trade,price index of the goods that a lone good is the export good andcountry imports. the other is the import-compet- I ing good.• import substitutea good produced on the domes- I • impossibility theoremtic market that competes with lone of a class of theorems fol-imports, either as a perfect sub- lowing Arrow (1951), showingstitute or as a differentiated that social welfare functionsproduct. I cannot have certain collections of desirable attributes in com-• import substituting mon. industrialisation(ISI)a strategy for economic devel- • impulse response functionopment based on replacing im- a graph of the response of theports with domestic production. I system over time after a shock(lSI) is known an impulse response function graph. One use is in• import substitution I models of monetary systems.a strategy for economic devel- One graphs for example theopment that replaces imports I percentage deviations in outputwith domestic production. It I or consumption over time aftermay be motivated by the infant I a one-time one percent increaseindustry argument, or simply by in the money stock.the desire to mimic the indus- Itrial structure of advanced coun- • Inada conditionstries. Contrasts with export pro- I a function f() satisfies the Inadamotion. conditions if: f(O) = 0, f(0) = infinity and f(infInity) = O. fO• import surveillance is usually a production functionthe monitoring of imports, usu- I in this context.ally by means of automatic li- I • inadmissibilitycensmg. a possible action by a player in• import-competing a game may be said to be inad-refers to an industry which Icompetes with imports. That is,1/ ========&onomies
  • 89. II income eJfoct I indiJforence curve 89 *================missible if it is dominated by I tity demanded divided by theanother feasible actions. The I percentage change in income.term comes with view of a game I • incomplete specialisationas a math problem. .An actionis or is not admissible as a can- I production of goods that com-didate solution to the problem petc with imports.of choosing a utility- • indebtednessmaximising strategy for the I the amount that is owed, thusgame player. I the amount of an entitys (indi-• income effect : vidual, firm, or governments)1. the effect of a change in in- I financial obligations to credi-come on the quantity of a good I tors.or service consumed. I • indemnity payment2. that portion of the effect of a kind of insurance, where pay-price on quantity demanded ment is made (often in previ-that reflects the change in real I ously determined amounts) forincome due to the price change. injuries suffered, not for theContrasts with substitution ef- costs of recovery. The indemnityfect. I payment is designed not to be a dependent on anything the• income elasticity patient can control. From the1. normally, the income elas- I point of view of the insurer, theticity of demand; that is, the I indemnity mechanism avoidselasticity of demand with re- the moral hazard problem ofspect to income. I victim spending too much in2. when used without another I recovery.referent, income elasticity ap-pears to mean of consumption. I • indicator variableThat is for income I and con- in a regression, an indicatorsumption C: income elasticity variable is a variable that is one= (l/C) (dC/dI) 1t I if a condition is true, and zero if it is false.• income elasticity of de- mand ; • indifference curvethe percentage change in quan- a means of representing theEconomics======= It
  • 90. ""9",,O==========ind=~e theory I industrialcuncentration IIpreferences and well being of ~ person who pays them.consumers. Formally, it is a ; • indirect utility functioncurve which represents thecombinations of arguments in I denoted v(p, m) where p is aa utility function that yield a I vector of prices for goods, andgiven level of utility. m is a budget in the same units I as the prices. The indirect util- ity function takes the value of the maximum utility that can be I achieved by spending the bud- get m on the consumption goods with prices p. • individually rational allocation I an allocation is individually ra- tional if no agent is worse off in that allocation than with his• indifference theory I endowment.the analysis of consumer de- I • inductionmand using inditTcrence curvesand an income constraint to I a process of reasonmgdemonstrate the reason for the (generalising) leading from I the observation and recordinginverse relations hi p betweenprice and quantity demand. An I of particular cases to general conclusions or laws.alternative to the older marginal Iutility explanation of this phe- • inductive reasoningnomenon. characterises a reasoning pro-• indirect taxes I cess of generalising from facts,taxes levied on a producer that I instances or examples.the producer then passes on to • industrial concentrationthe consumer as part of the the extent to which a small num-price of a good. Distinguished I ber of firms dominates an in-from direct taxes, such as sales I dustry, often measured by thetaxes which are visible to the four-firm concentration ratio.II =======================Economics
  • 91. 1 indwelling I infrastructure 91 *================Concentration is, in effect, the ~ Activities operating outside theopposite of competition, though ; regulatory and often also out-in an open economy, imports : side the taxation system.complicate the relationship. ~ • information literacy• indwelling I implicit in a full understandinga term M. Polanyi used to sug- I of information literacy is thegest that human beings create realisation that several condi-knowledge by involving them- tions must be simultaneouslyselves with objects, that is, ~ present. First, someone mustthrough self-involvement and ; desire to know, use analyticcommitment ... skills to formulate questions,• inelastic I identify research methodolo- I gies, and utilise critical skills tohaving an elasticity less than evaluate experimental results.one. For a price elasticity of de- I Second, the person must pos-mand, this means that expen- I sess the skills to search for an-diture falls as price falls. For an swers to those questions in in-income elasticity, it means that ~ creasingly diverse and complexthe expenditure share falls with I ways. Third, once a person hasincome. Contrasts with elastic . identified what is sought, heand unit elastic. should be able to access it.• inferior good • informational cascadesa good for which the demand I economic actors improve ondecreases when income in- ; their limited private informa-creases. When a households : tion by observing and mimick-income goes up, it will buy a ~ ing the actions of others.smaller quantity of such a good. ~ • infrastructure• informal economy I the facilities which must be ina reference to those parts of the place in order for a country oreconomy which operate with- I area to function as an economyout official recognition or with I and as a state, including the capi-only ambiguous or tenuous ties tal needed for transportation,to governmental institutions. IEconomics======== 1
  • 92. 92 injury I interbank rate It==========*communication, and provision I trolled by policy makers andof water and power and the in- I can be used to influence otherstitutions needed for security, variables, called targets. Ex-health and education. I amples are monetary and fiscal I policies used to achieve exter-• injury nal and internal balance.harm to an industrys owners Iand/or workers. • in~el1igent enterprise such enterprises that convert• input-output table I intellectual resources into aa table representing all inputs chain of service outputs and in-and outputs of an economys I tegrate these into a form mostindustries, including intermedi - I useful for certain customers.ate transactions, primary in-puts, and sales to fmal users. As I • intensity of land usedeveloped by Wassily Leontief, I factor inputs (capital, labour,the table can be used to calcu- fertiliser, etc.) per unit area oflate gross outputs and primary land, generally yielding highfactor inputs needed to produce I returns per unit area of land, as,specified net outputs. Leontief ~ e.g., in intensive agriculture (as I.(1954) used this to find the fac- : different from extensive landtor content of u.s. trade, gen- I use and extensive agriculture).erating the Leontief Paradox. intensive• institutional thickness I of production, using a relativelya reference to the institutional large input of an input.structure and qualities of insti- I • intensive agriculturetutions of a region, more spe- Icifically the presence, interac- system of farmingtion, collective action (lack of ~ characterised by relatively highinter-institutional conflict) and I levels of factor inputs (capitallegitimacy of institutions in a [including fertiliser] and/or I labour) per unit of land.regIOn. I • interbank rate• instrumentan economic variable that is con- I the rate of interest charged by a bank on a loan to anotherII ========&onomics
  • 93. II interestparity I internationalad~tprocesS 93bank. ~ to another, presumably to be ; used as an intermediate input.• interest parityequality of returns on otherwise ; • internal balanceidentical financial assets de- : a target level for domestic ag-nominated in different curren- ~ gregate economic activity, suchcies. May be uncovered, with I as a level of GDP thatreturns including expected ~ mInImises unemploymentchanges in exchange rates, or : without being inflationary.covered, with returns including I : • internal economies of scalethe forward premium or dis- ~ economies of scale that are in-count. Also called interest rateparity. ; ternal to a firm, that is, the : firms average costs fall as its• interindustry trade ~ own output rises. Likely to betrade in which a countrys ex- I inconsistent with perfect com-ports and imports are in differ- : petition. Contrasts with exter-ent industries. Typical of mod- ~ nal economies of scale.els of comparative advantage, . • InternalIse I. .such as the Ricardian Modeland Heckscher-Ohlin Model. ~ to cause, usually by a tax or sub-Contrasts with intraindustry ; sidy, an external cost or benefittrade. : of someones actions to be ex- ~ perienced by them directly, so• intermediate input ; that they will take it into ac-an input to production which : count in their decisions. Ihas itself been produced and : • international adjustmentthat, unlike capital, is used up I processin production. As an input, it isin contrast to a primary input I 1. any mechanism for change inand as an output, it is in con- ~ international markets.trast to a final good. A very : 2. the mechanism by which pay-large portion of international ~ ment imbalances diminish un-trade is in intermediate inputs. ; der pegged exchange rates and : nonsterilisation. Similar to the• intermediate transaction specie flow mechanism, ex-the sale of a product by one firm I&onomies======= II
  • 94. 94 international;-nuwement I intra-mediatetmde /Ichange-market intervention I of July 2000, it had 182 mem-causes money supplies of sur- I ber countries.plus countries to expand and 2. an international organisationvice versa, leading to price and I with liquidity services to main-interest rate changes that cor- I tain fmancial stability.rect the current and capital ac-count imbalances. I •interoperability I ability of diverse intelligent de-• international factor move- vices to communicate with one ment I another in performing mean-the international movement of ~ ingful tasks.any factor of production, includ-ing primarily labour and capi- I • intra-firm (international)tal. Thus includes migration and tradeforeign direct investment. Also flow of imports and exports ofmay include the movement of ~ goods and services across na-financial capital in the form of ; tional bOlmdaries between differ-international borrowing and ent components of a corporate I network (e.g. between home-lending. I country parent firms and their• international macroeco- foreign affiliates). nomicssame as international finance, • Intraindustry trade (lIT)but with more emphasis on the trade in which a country ex-international determination of ~ ports and imports in the samemacroeconomic variables such . industry, in contrast to inter-as national income and the price industry trade. Ubiquitous inlevel. I the data, much lIT is due to aggregation. Can be horizon-• International Monetary tal or vertical. Fund (IMF)1. an organisation formed to • intra-mediate tradehelp countries to stabilise ex- I another term for fragmenta-change rates, but today pursu- I tion. Used by Antweiler anding a broader agenda of finan- Trefler (2002).cial stability and assistance. As1I=======&Onomics
  • 95. II intra-product specialisation lIS-1M:=1==========9=5• intra-product I visible. specialisation I •invisible tradeanother term for fragmenta- I (imports or exports of a regiontion. Used by Arndt (1997). or country) trade in non-com-• inventories modity services such as financestocks of goods in the hands of I (banking, insurance etc.), com-producers. These stocks are in- munications, transportation oreluded in the definition of capi- toUrIsm.tal and an increase in invento- ~ • involuntary unemploy-ries is considered to be invest- I mentment. ; unemployment as result of de-• invertible : ficiency in aggregate demand. Isaid of a matrix if its inverse : • IS-Curveexists. That is, a matrix A is in- I in the IS- LM model, the curvevertible if there exists another I representing the combinationsmatrix B such that BA =I, where of national income and interestI is the identity matrix. rate at which aggregate demand• investing I equals supply for all goods. Itcreating capital goods. Acquir- I is normally downward slopinging or producing structures, because a rise in income in-machinery and equipment or I creases output by more thaninventories. aggregate demand (through consumption), while a rise in• investment spending I the interest rate reduces aggre-the total amount of spending I gate demand through invest-during some period of time on : ment. Icapital goods. : • lSI I• invisible : Import-Substitutingwith reference to international I Industrialisationtrade, used as a synonym forservice. Invisibles trade is I • IS-LM modeltrade in services. Contrasts with I a Keynesian macroeconomlCEconomks======= II
  • 96. ""96=========L"",S"",-IM",,,:pmodel l Israel-US Free TradeArea IImodel, popular particularly in I prices are) constant, most com-the 1960s, in which national in- I monly in factor-price spacecome and the interest rate were where it shows the combina-determined by the intersection I tions of prices of factors consis-of two curves, the IS-curve and I tent with zero profit in produc-the LM-curve. ing a good at a specified price• IS-LM-BP model of the good .a particular version of the • isoquantMundell-Fleming Model that I a curve representing the com-extends the IS-LM model by binations of factor inputs thatincluding in the diagram a third yield a given level of output incurve, the BP-curve, represent- I a production function.ing the balance of payments I • isostanteand/or the exchange market. I term used by Tord Palander• isocost line (following Schilling) to refer toa line along with the cost of ~ the boundary between two mar-something - generally a com- I ket areas served by two marketbination of two factors of pro- centres with varying prices andduction - is constant. Since transport costs. The isostantethese are usually drawn for I specifies the points with equalgiven prices, which are therefore delivered prices from both cen-constant along the line, an tres.isocost line is usually a straight I • isotimline, with slope equal to the ra- I line connecting points which aretio of the (factor) prices. I subject to equal transport cost• isodapane for given materials (or prod-points of equal additional trans- ucts) around a point of supplyport costs around the mini- I or around a market. Isotimsmum-total-trans port-cost are the basis for calculating ag-point. gregate isodapanes .• iso-price curve • Israel-US Free Trade Areaa curve along which price is (or I a free trade area between the" ========&onomics
  • 97. II J-curve I Kaldor-Hicks criterion 97 *===========United States and Israel that ~ because pre-existing condi-was initiated in 1985. ; tions are often not covered un- : der U.S. health insurance.- J-curve Ithe dynamic path followed by : - just-in-timethe balance of trade in response ~ an organisational system ofto a devaluation, which typically I production designed tocauses the trade balance to : minimise the time and therebyworsen before it improves, trac- associated cost between differ-ing a path that looks like a let- I em stages of production as wellter 1. I as between initial expressions of : demand and the delivery of- Jensens Inequality ~ goods or services. Just-in-timeif X is a real-valued random ; principles and methods werevariable with E( IX I) finite and : first applied by Japanese carthe function g() is convex, then ~ manufacturers but have foundE[g(X)] > = g(E[X]). Jensens ; wide application in other activi-inequality is the inequality one : ties.can refer to when showing that Ian investor with a concave util- I: - k percent ruleity function prefers a certain : a monetary policy rule of keep-return to the same expected re- ~ ing the growth of money at aturn with uncertainty. ; fixed rate of k percent a year. : This phrase is often used as- Jigyobusei (jp) f ~ stated, without specifying themultidivisional system o ; percentage.organisation. ; - Kaldor-Hicks criterion- job lock : the criterion which, for a changedescribes the situation of a per- ~ in policy or policy regime to beson with a U.S. job who is not I viewed as beneficial, the gain-free to leave for another job ~ ers should be able to compen-because the first job has medi- : sate the losers and still be bet-cal benefits associated with it I ter off. The criterion does notwhich the person needs, and the ; require that the compensationsecond one would not, perhaps actually be paid, which, if it did,&onomics===================== /I
  • 98. ""9",,,8=========== ;:retsu system I kitchen sink regression 1would make this the same as I amount of money will be- athe Pareto criterion. I larger real amount. Subsequntly, the interest rate• keiretsu system I would fall and investment de-the framework of relationships I manded rise. This Keynes ef-in post-war Japans big banks fect disappears in the liquidityand big firms. Related compa- I trap. Contrast the Keynes effectnies organised around a big I with the Pigou effect.bank (like Mitsui, Mitsubishi,and Sumitomo) which own a lot I • Keynesian growth modelsof equity in one another and in models in which a long runthe bank and do much business growth path for an economy iswith one another. The keiretsu I traced out by the relations be-system has the virtue of main- I tween saving, investing and thetaining long term business re- level of output.lationships and stability in sup- I • Keynesian macroeconom-pliers and customers. The I icskeiretsu system has the disad-vantage of reacting slowly to I the theory which shows how aoutside events since the players I market-based capitalistare partly protected from the economy may reach equilib- I rium with large scale unemploy-external market. ment and how government• kernel estimation spending may be used to raisethe estimation of a regression I it out of this to a new equilib-function or probability density I rium at the full-employmentfunction. Such estimators are level of output.consistent and asymptotically ~ • kitchen sink regressionnormal if as the number of ; a regression where the regres-observations n goes to infinity, I sors are not in the opinion ofthe bandwidth (window width) the writer thoroughly justifiedh goes to zero, and the product I by an argument or a theory.nh goes to infinity. I Often used pejoratively; other• Keynes effect times describes an exploratoryas prices. fall, a given nominal regresSIOn.II =======&onomics
  • 99. /I k-nearest-neighbour estimator I Kuz; curve 99• k-nearest-neighbour ~ abIes and the model be: estimator ; y=Xb+e where E[ ee] is theit is a kind of nonparametric : matrix OMEGA. The theoremestimator of a function. Given ~ is that if the column space ofa data set {Xi YJ, it estimates I (OMEGA)X is the same as thevalues of Y for Xs other than : column space of X; that is, thatthose in the sample. The pro- ~ there is heteroskedasticity butcess is to choose the k values of I not cross-correlation, then theXi nearest the X for which one ~ GLS estimator of b is the sameseeks an estimate, and average : as the OLS estimator of b.their Y values. Here, k is a pa- ~ • kurtosisrameter to the estimator. The ~ an attribute of a distribution,average could be weighted, e.g. ; describing peakedness. Kurto-with the closest neighbour hav-ing the most impact on the es- : sis is calculated as E[ (x-mu)4]j ~ S4 where mu is the mean and scimate. ; is the standard deviation.• knightian uncertainty ; • Kuznets curveunmeasurable risk. ~ a graph with measures of in-• knots : creased economic developmentif a regression will be run to ~ (presullled to correlate withestimate different linear slopes ; time) on the horizontal axis, andfor different ranges of the in- : measures of income inequalitydependent variables, its a spline ~ on the vertical axis,regression, and the endpoints of ; hypothesised by Kuznetsthe ranges are called knots. The : (1955) to have an invened-U-spline regression is designed so ~ shape. That is, Kuznets madethat the resulting spline func- I the proposition that when ancion, estimating the dependent : economy is primarily agricul-variable, is continuous at the ~ tural, it has a low level of in-knots. ~ come inequality, that during . early industrialisation income• Kruskals theorem ~ inequality increases over time,let X be a set of regressors, y ~ then at some critical point itbe a vector of dependent vari-Economies======== /I
  • 100. 100 labour ;ket outctJ1MS I laissez foin economics IIstarts to decrease over time. I where mO is a guess at the con-Kuzners (1955) showed evi- I ditional median function.dence for this. I • lag operator• labour market outcomes denoted by L, a lag operatorshorthand for worker (never operates on an expression byemployer) variables that are I moving the subscripts on a timeoften considered endogenous in series back one period, so:a labour market regression. Let = et-lSuch variables, which often ap- Ipear on the right side of such • lagging indicatorregressions: wage rates, em- a measurable economic variableployment dummies or employ- I that varies over the businessment rates. cycle, reaching peaks and troughs somewhat later than• labour-using I other macroeconomic variablesa technological change or w;:h- such as GDP and unemploy-nological difference that is bi- ment. Contrasts with leadingased towards usage of more I indicator.labour, compared to some defi- I • Lagrangiannition of neutrality. I a function constructed in solv-• LAD estimation / LAD ing economic models that in- estimator elude maximisation of a func-can be used to estimate a I tion (the objective function)smooth conditional median subject to constraints. It equalsfunction, that is an estimator I the objective function minus, forfor the median of the process I each constraint, a variablegiven the data. Say the data are Lagrange multiplier times thestationary {Xt Yt} The depen- amount by which the constraintdent variable is y and the inde- I is violated.pendent variable is x. The cri-terion function to be minimised I • laissez faire economicsin LAD estimation for each ob- I a school of economics inspired byservation t is: Adam Smith who believed that if we would just let the marketq(xt,Yt,D) = IYt =m(xt,D) III = = = = = = = = E e o n o m i c s
  • 101. II JA,issez-foire IlRw oftliminishinomu;==========""l""O""l function without any son of in- ~ tion. tervention, competition would ~ • Latin American Integra- create order and eventually pros- ; tion Association (LAIA) perity for all. : an organisation of Latin Ameri- • Laissez-faire ~ can countries which replaced the a economic theory advocating I failed LAFTA. LAIA_has the minimum role for government ~ more limited goal of encourag- in the economy, such as provid- : ing free trade but with no time- ing for defence against external ~ table for achieving it. enemies, a system of law to pro- ~ • law of comparative advan- tect individuals and their prop- ; tage erty, and production of such. goods and services which for : the principle which, given the some reason are needed, but ~ freedom to respond to market would not be produced by pri- I forces, countries will tend to vate firms. : export goods for which they ~ have comparative advantage• large country I and import goods for whicha country that is large enough ; they have comparative disad-for its international transactions : vantage, and that they will ex-to affect economic variables ~ perience gains from trade byabroad, usually for its trade to ; doing so.matter for world prices. Con- ; • law of diminishing tlnar-trasts with a small open ginal utility .economy. I . her con- . as a person mcreases• Latin American Free Trade ; sumption of a good or service Association (LAFTA) : (other consumption being helda group of Latin American ~ constant), the marginal utilitycountries formed in 1960, with I of the good or service eventu-the aim of establishing a free ; ally will tend to decline.trade area. This aim was never ; • law of diminishing returnsachieved, and LAFTA was re-placed in 1980 with the Latin : the principle that, in any pro-American Integration Associa- ~ duction function, as the input ofEeonomuS======-4== II
  • 102. "",10"",2===========.. law alone price I learning objective IIone factor rises, holding other I which varies over the businessfactors fixed, the marginal I cycle, reaching peaks andproduct of that factor must troughs somewhat earlier thaneventually decline. I other macroeconomic variables - I such as GDP and unemploy- ment and therefore useful for forecasting them. Contrasts I with lagging indicator. - learning by doing refers to the improvement in technology that takes place in .. - I some industries, early in their history, as they learn by expe- rience so that average cost I falls as accumulated output- law of one price I nses.the principle where identicalgoods should sell for the same ~ - learning curveprice throughout the world if ; a relationship representing ei-trade were free and frictionless. ther average cost or average I product as a function of the ac--LDC cumulated output produced.for many years, the acronym I Usually reflecting learning byLDC has stood for Less De- I doing, the learning curve showsveloped Country, which was cost falling, or average productmore or less the same as de- nsmg.veloping country. However, in Irecent years, LDC has also - learning curve effectsbeen used for Leas t Devel- cost reductions resulting fromoped Country, which has a I skill improvements based onnarrower and more formal repetitive (usually production"definition. related) experiences._ leading indicator - learning objectivea measurable economic variable I a written statement describingII = = = = = = = = E c o n o m i c s
  • 103. II learning organisation l.leontiefpa~ 103measurable achievements you ~ Akerlofs 1970 paper, inhope can be accomplished dur- ; which the fact where a gooding your class experience or any : is available suggests that it isother definable learning activ- ~ of low quality. For example,ity. ; why are used cars for sale? In : many cases because they are- learning organisation ~ lemons, that is, they werean organisation that is continu- ~ problematic to their previousally expanding its capacity to cre- . owners.ate its future. A learning Iorganisation is not merely trying : - lender of last resort Ito survive, i.e. engage in adap- : the function whereby the cen~ ~ tral bank readily makes cashtive learning, but it adds genera-tive learning. ; advances to commercial banks : in the event they misjudge- learning web ~ their cash reserve require -an integrated system of I ments.Internet- based, hypertextuallyorganised course or program ; - Leontief compositematerials, resources, Jinks to : a composite of two or moreresources and communication goods or factors which includesopportunities designed to facili- I them in fixed proportions,tate learning environments and I analogous to the Leontief tech-processes. : nology. I- least squares learning : - Leontief paradoxthe kind of learning that an agent ~ the fmding of Leontief (1954)in a model exhibits by adapting ; that u.s. imports embodied ato past data, by running least : higher ratio of capital to laboursquares on it to estimate a ~ than U .S. exports. This was sur-hypothesised parameter and be- I prising because it was thoughthaving as if that parameter were ; that the U.S. was capital abun-correct. : dant, and the Heckscher-Ohlin ~ Theorem would then predict- lemons modeldescribes models like that of I
  • 104. =lO=4=================Lwn==:rhM~~FU~I~I~ IIthat u.s. exports would be rela- I Leptokurtictively capital intensive.• Leontief Production Functionhas the form q=min{xl,x2}, Iwhere q is a quantity of output Iand xl and x2 are quantities of :· c.mputs or lunctions of the quan- I:tities of inputs.• Leontief technology • Lerman Ratioa production function in which a government benefit to the?O sub~titution between inputs lmderemployed will presumablyIS possIble: F(V) = mini(Vi/ I reduce their hours of work. Theai), where V is a vector of in- ratio of theil, actual increase inputs Vi, and ai are the constant income to the benefit is theper unit input requirements . .~ Ler.man ratIo, which is ordi-Isoquants are L-shaped. ; nanly betw~en zero and one. : Moffitt (199~) estimates it in• leptokurtic I regard to the U.S. AFDC pro-an adjective describing a distri- gram at about .625.bution with high kurtosis.High means the fourth central • Lerner Diagrammoment is more than three thi.s diagram, drawn for giventimes the second central mo- pnces and technology, usesment, such a distribution has I unit-value isoquants of two orgreater kurtosis than a normal more goods to deduce patternsdistribution. This term is used of specialisation and factorin Bollerslev-Hodrick 1992 to I prices as they depend on factorcharacterise stock price returns. endowments. Due originally toLepto- means slim in Greek Lerner (1952) and popularisedarid refers to the central part of ~ by Findlay and Grubert (1959).the distribution. I • Lerner Index I a measure of the profitability of11=======&011"","
  • 105. 105 *================a firm that sells a good: (price- ~ to the Lerner Diagram. In fact,marginal cost) / price. ; Pearces (1952) diagram usesOne estimate, from Domowitz, : unit isoquants rath~r than ·unitHubbard, and Petersen (1988) ~ value isoquants and is muchis that the average Lerner in- ; more cumbersome.dex for manufacturing firms in ; _ leverage ratiotheir data was .37. ~ often, the ratio of debts to total- Lerner paradox : assets. Can also be the ratio ofthe possibility, identified by ~ debts (or long-term debts inLerner (1936), where a tariff; particular, excluding for ex-might worsen a countrys terms : ample accounts payable) to eq- I .of trade. This can happen only: wry.if the country spends a dispro- I Normally used to describe aportionately large fraction of : firms accounts but could de-th~ tariff revenue on the im- ~ scribe the accounts of someported good, and it will not hap- I other organisation or an indi-pen (from a stable equilibrium) ~ vidual or a collection ofif the tariff revenue is redistrib- : organisationsuted. I : - Leveraged Buy-Out- Lerner Symmetry Theo- I (LBO) rem ; the act of taking a public com-the proposition where a tax on : pany private by buying it withall imports has the same effect ~ revenues from bonds and usingas an equal ta.x 011 all exports, if I the revenues of the company tothe revenue is spent in the same : payoff the bonds.way. The result depends criti- I : - Leviathancally on balanced trade, as in a Ireal model, so that a change in : the all-powerful kind of stateimports leads to an equal ~ that Hobbes thought was nec-change in the value of exports. ; essary to solve the problem ofDue to Lerner (1936). ~ social order.- Lerner-Pearce Diagram : - Likert Scalethis name is sometimes given ~ measures the extent to which aEetmomics======= II
  • 106. ",1=06==========I=im; dependent variable Ilinking scheme IIperson agrees or disagrees with I erally involving the variablesthe question in a survey (e.g. I like the total transport costs and1 = strongly disagree, 2 = dis- the distance. The functionagree, 3=not sure,4=agree, I would be linear ifit is suggestedand 5=strongly agree). I that the increase in transport cost is proportional to the in-• limited dependent variable I crease in distance. Linearitya dependent variable in a model I may exist with or without ter-is limited if it is discrete (can minal (or distance-fixed) cost.take on only a countable num- I The latter would result in aber of values) or if it is not al- I curvi-linear, downward slopingways observed because it IS average transport-cost func-truncated or censored. tion.• linear model / linear I In general, non-linear total econometric model I transport costs with decliningan econometric model is linear marginal distance costs wouldif it is expressed in an equation tend to make long-haul trans-in which the parameters enter I portation relatively inexpen-linearly, whether or not the data sive and might create the in-require nonlinear transforma- centive to select locationstions to get to that equation. I which reduce the number of short-haul links and take ad-• linear pricing schedule vantage of the distance-say the number of units, or I economies of (fewer but)quantity, paid for is denoted q long hauls.and the total paid is denoted ~T(q), following the notation of ; • linearly homogeneousTirole. A linear pricing sched- . homogeneous of degree 1.ule is one that can be Sometimes called linear homo-characterised by T(q)=pq for I geneous.some price-per-unit p. I • linking scheme• linear transport cost a requirement that, in order to function get an import license, the im-a reference to a theoretical, lin- I porter must buy a certainear mathematical function, gen- III ========Eeonomics
  • 107. IIlUJUidity I locality 107 *================amount of the same product ~ plan ahead. It is not a povertyfrom local producers. I wage.• liquidity ; • Ljung-Box Testthe capacity to turn assets into : the same as the portmanteau Icash, or the amount of assets in . test.a portfolio that have that capac- I .• LM-Curveity. Cash itself (i.e., money) is ~ in the IS-LM model, the curvethe most liquid asset. ; representing combinations of• liquidity constraint : income and interest rate atmany households or families, ~ which demand for moneye.g. young ones, cannot borrow ; equals the money supply in theto consume or invest as much : domestic money market. It isas they would want, but are con- ~ normally upward sloping be-strained to current income by I cause an increase in income in-imperfect capital markets. : creases the demand for money ~ while an increase in the inter-• little giants I est rate reduces the demand fora reference to those medium- ; money.sized firms which are techno-logically and organisationally ~ • local optimumparticularly innovative and for- : an allocation where by someward-looking in terms of em- ~ criterion is better than all thoseployee relations. In contrast to ; in its neighbourhood.corporate giants, such medium- ; • localitysized firms are more entrepre-neurial, less bureaucratic, with : localisation economies or exter-fewer managerial layers. ~ nal economies of localisation. I Agglomeration economies• living wage ~ (benefits, cost reductions) re-a wage which allows families to : sulting from the concentrationmeet their basic needs without I of the same or similar activities:resorting to public assistance ; ego benefits resulting from theand provides them some abil- : local access to a specialisedity to deal with emergencies and ~ work force or the specialisedBeonomics========= II
  • 108. 108 Locally A.rymptotica; Normal (£AN) Ilocational triangle IIreputation of a locality to which I • location quotientsome but maybe not all of these I a measure of the relative sig-specialised activities contribute. nificance of a phenomenon (e.g.• Locally Asymptotically employment in software activi- Normal (LAN) I ties) in a region compared witha characteristic of many (a fam- I its significance in a larger (benchmark) region. A highily of) distributions. I location quotient for a specific• locally identified activity implies specialisationlinear models which are either and the export of the goods orglobally identified or there arean infinite number of observ-ably equivalent ones. But formodels that are nonlinear in I I ity. ....... _-- services produced by the activ- ........ "---------------- ........parameters, we can only talkabout local properties. Thus,the idea of locally identified I ::" ;:s * eo u ee t. - - - - - - - -_ _ _ _ _ __ _models, which can be distin- Iguished in data from any otherclose by model. A sufficientcondition for local identification I t1 .. M+t" tit, to4II;, Mot} . . . ,is that a certain Jacobian ma- I .locational advantagetrix is of full column rank. any reason for a firm to locate• locally nonsatiated / local production, or a stage of pro- nonsatiation I duction, in a particular place,an agents preferences are 10- I such as availability of a naturalcally nonsatiated if they are con- resource, transport cost, or bar-tinuous and strictly increasing I riers to trade. May explain whyin all goods. a countrys firms succeed in trade, or why a multinational• location decisions and I firm locates there. locational decision -making I • locational triangledecisions and behaviours re-lated to locational choices. I the triangle which has been de- vised and used by WilhelmII ========&onomus
  • 109. IllOComDtive effect I log convexity 109 *================Launhardt and Alfred Weber to ~ any concave function is also log-construct their basic locational I concave.modeL This model was used to : A random variable is said to bedemonstrate the impact of the ~ log-concave if its density func-forces of attraction of three (in I tion is log-concave. The uni-a polygon more) reference lo- : form, normal, beta, exponen-cations (originally 2 raw mate- ~ tial, and extreme value distribu-rial locations and one market) ~ tions have this property. If pdfvis-a-vis the (dependent) opti- ; fO is log-concave, then so is itsmal (=least-transport-cost) lo- : cdfFO and I-FO. The trUncatedcation of a processing plant. ~ version of a log-concave func-Subsequently, the triangle was ; tion is also log-concave. In prac-used by Isard and Moses to : tice, the intuitive meaning ofdemonstrate the impact of sub- ~ the assumption that a distribu-stitution benveen distances ; tion is log-concave is that (a) itand/or materials, and by Beyers : doesnt have multiple separateand Krumme substitution be- ~ maxima (although it could between products (outputs) on I flat on top), and (b) the tails ofoptimal locations. : the density function are not too- locomotive effect ~ thick.the effect that economic expan- ~ An equivalent definition, forsion in one large country can ; vector-valued random variables,have on other parts of the world : is in Heckman and Honore,economy, causing them to ex- I Random vector X is log-concavepand as well, as the large coun- I iff its densitytry demands more of their ex- fO satisfies the condition thatports. f(ax 1 +(I-a)x 2 )·[f(x 1 ) ~ ]a[f(~)](l-a) for all xl and- log concavity ; x2 in the support of X and all aa function f( w) is said to be log- : satisfying O.a.l.concave if its natural log, IIn(f(w)) is a concave function; : - log convexityi.e., assuming f is differentiable, ~ a random variable is said to bef"(w)/f(w) - f(w)2 < = 0 Since I log-convex if its density functionlog is a strictly concave function,Economics===================== II
  • 110. no log or naturtJllog IJogit model II=========*is log-concave. Pareto distribu- I dt.tions with fInite means and vari- I Equivalently, V is the space ofances have this property, and so real-valued random variablesdo gamma densities with a co- I that have variances. This is anefficient of variation greater I infinite dimensional space.than one. I.LnA log-convex random vector isone whose density fO satisfies I the set of continuous boundedthe condition that f( aX I + ( 1- functions with domain RN.a)x2 ). [f(xI)]a[f(~)](l"a) for all • logistic distributionXl and ~ in the support of X a logistic distribution has the cdfand all a satisfying O.a.I. I F(x) = 1/(1 +e"X)• log or natural log This distribution is quicker to compute than the normal dis-in-economics, log always means I tribution but is very similar.natural log, that is loge wheree is the natural constant that is I Another advantage over theapproximately 2.718281828. So normal distribution is that it I has a closed form cdf.x=log Y < = > eX=y. x I pdf is f(x) = e(l +e )"2 =• logical omniscience F(x)F( -x)an assumption underlying theinformation facets of most mi- I • logit modelcro-economic models: If an a univariate binary model. i.e.,agent has knowledge of a phe- I for dependent variable y, thatnomenon, he/she also has per- I can be only one or zero, and afect knowledge of all its impli- continuous indepdendent vari-cations. able x" that:.Ll I Pr(Yj=l)=F(x j b) I Here, b is a parameter to be es-the set of Lebesgue-integrable timated, and F is the logisticreal-valued functions on [0,1]. I cdf. The probit model is the.L2 I same but with a different cdf fora Hilbert space with inner prod- Euct (x,y) = integral of x(t)y(t)II ========Economics
  • 111. loanormal distributitm I LouPreAcC:; ==========1=11• lognormal distribution ~ run average cost curve plots thelet X be a random variable ; relationship between output andwith a standard normal distri- : the lowest possible average totalbution. Then, the variable ~ cost when all inputs can be var-Y=e x has a lognormal distri- ; ied.bution. Example: Yearly in- ; • long run costscomes in the United States are ~ production costs when the firmroughly log-normally distrib- : is using its economically mostuted. ~ efficient size of plant.• Lome Convention ~ • longitudinal dataan agreement originally signed ; a synonym for panel data.in 1975 committing the EU toprograms of assistance and ; • long-term capitalpreferential treatment for the ~ in the capital account of the bal-ACP Countries. The Lome : ance of payments, long-termConvention was replaced by the I capital movements include FDICotonou Agreement in June ~ and movements of financial2000. : capital with maturity of more ~ than one year (including equi-• London Interbank Of- fered Rate (LIBOR) ; ties).the interest rate which the larg- ; • Lorenz curveest international banks charge : a curve indicating the cumula-each other for loans, usually of ~ tive percentage of income plot-Eurodollars. In fact, LIBOR I ted against the cumulative per-includes rates quoted each day : centage of population.for many currencies, excluding I c........... oflnc.)1ntthe eufO, but it is the rate for Idollar loans that is used as abenchmark for other transac-tions.• long run average coststotal costs divided by the num- ~ • Louvre Accordber of units of output. The long : an agreement reached in 1987 IBeonom;cs======= II
  • 112. 112 .. lwe ofvariety I magnification ejfo&t IIamong the central banks of ~ ply. Ml includes only chequableFrance, Germany, Japan, US, I demand deposits.and UK to stop the decline in I • M2 Money Supplythe value of the US dollar thatthey had initiated at the Plaza I a measure of total money sup-Accord. ply. M2 includes everything in I Ml and also savings and other• love of variety time deposits.preference for variety. • macroeconomics• lump sum the branch of economic theorya tax or subsidy which does not I concerned with the economy asdistort behaviour. By using a tax I a whole. It deals with large ag-(or subsidy) in an amount (the gregates such as total output,lump sum) independent of any I rather than with the behaviouraspect of the payers or I of individual consumers andrecipients behaviour, it does firms.not alter behaviour. • made-to-measure tariffNondistorting lump sum taxes I a tariff set so as to raise theand subsidies do not exist, butare a convenieut fiction for theo- I price of an imported good to theretical analysis, especially of ~ domestic price, so as to leave . fl d domestic producers unaffected.gams rom tra e. ; Also called a scientific tariff.• lump sum taxes 1 • magnification effecta tax of a fixed amount that hasto be paid by everyone regard- I the property of the Heckscher-less of the level of his or her I Ohlin Model where changes inincome. Lump sum taxes are certain exogenous variablesconsidered efficient taxes be- I lead to magnified changes incause they do not influence a I the corresponding endogenouspersons decision on how much variables: goods prices as they I affect factor prices in theto work. Stolper-Samuelson Theorem;• Ml Money Supply factor endowments as they af-a measure of total money sup- I fect outputs in the RybczynskiII ========Econumics
  • 113. II managedflORt I marginal rateoftra~""""",,,,,twn,,,,· ========1",,1=3Theorem. Due to Jones (1965). ~ good.- managed float ~ - marginal principlean exchange rate regime in I to maximise the net benefits,which the rate is allowed to be : the strategic or action variabledetermined in the exchange ~ should be increased until MB =market without an announced I Me, i.e. marginal benefits equalpar value as the goal of inter- ~ marginal costs.vention, but the authorities do - marginal propensity tononetheless intervene at their I importdiscretion to influence the rate. I the increase in expenditure on- Management Buy-Out / I imports per unit increase in Management by Objec- (disposable) income. tives (MBO) - marginal propensity tothe purchase of a company by I saveits management. Sometimesmeans Management By Objec- I the increase in saving per unittives, a goal-oriented personnel I increase in (disposable) income.evaluation approach. ~ - marginal rate of substitu- tion- Maquiladorathis is a program for the tem- ~ 1. generally referring to theporary importation of goods ; rate at which the consumer isinto Mexico without duty, un- : willing to substitute one goodder the condition that they con- ~ for another (without loss or gaintribute - through further pro- I of satisfaction).cessing, transformation, or re- I 2. the rate at which factor in-pair - to exports. The program puts can be exchanged in a pro-was established in 1965 and ~ duction process without aexpanded in 1989. ; change in the production (out- : put) leveL- marginal benefit Ithe increase in total benefit con- : - margin~l rate of transfor-sequent upon a one unit in- ~ mationcrease in the production of a I the increase in output of one ~ good made possible by a one-Economics======== /I
  • 114. ~1=14=======11UJ=rg=ina=l=rrn=; I 11UJrketpower theory ofadvertising IIunit decrease in the output of ~ • market for corporateanother, given the technology; controland factor endowments of a when shares of public firms arecountry. Thus, the absolute I traded and in large enoughvalue of the slope of the trans- I blocks, this means control overformation curve. corporations is traded. That• marginal revenue puts some pressure on manag- I ers to perform, otherwise theirthe addition to total revenueresulting from the sale of one I corporation can be taken over.additional unit of outpUt. • market power• marginal revenue product 1. the power held by a firm over price and the power to subduethe change in total revenuewhich results from employing I competitors.one more unit of a factor. 2. a continuum from perfectly competitive to monopsony and• market clearing I theres an extensive practice/in-equality of supply and demand. dustry/science of measuring theA market-clearing condition is degree of market power.an equation (or other represen- I Examples: For workers in antation) stating that supply I isolated company town, createdequals demand. by and dominated by one em-• market equilibrium ployer, that employer is aequality of supply and demand. I monopsonist for some kinds of employment.• market failure • market power theory of1. instances of a free market be- I advertisinging unable to achieve an opti-mum allocation of resources. I the theory of advertising is that I established firms use advertis-2. any departure from the ideal ing as a barrier to entry throughbenchmark of perfect competi- I product differentiation. Such ation, particularly the complete I firms use of advertising differ-absence of a market due to in- entiates its brand from othercomplete or asymmetric infor- Imation.II ========Eeonumics
  • 115. II marketpriceofrisk I markup 115 *================brands to a degree that consum- ~ recent draw affects the distribu-ers see that its brand is a ; tion of the next one; all suchslightly different product, not : processes can be represented byperfectly substituted by existing ~ a Markov transition densityor potential competitors. This ; matrix. A Markov process canmakes it hard for new competi- : be periodic only if it is of highertors to gain consumer accep- ~ than first order.tance. I : - Markov Property- market price of risk ~ a property that a set of stochas-is a synonym for the Sharpe ra- ; tic processes may have. The sys-tio. : tern has the Markov property ~ if the present state predicts fu-_ market structure ; ture states as well as the wholethe way that suppliers and de- : history of past and presentmanders in an industry interact ~ states - that is, the process isto determine price and quantity. I memoryless.There are four main idealisedmarket structures that have ; _ Markov Strategybeen used in trade theory: per- ~ in a game, a Markov strategy isfect competition, monopoly, oli- : one which does not depend atgopoly, and monopolistic com- I all on state variables that arepetition. ~ functions of the history of the : game except those that affect- marketing board ~ payoffs.a form of state trading enter-prise. A marketing board typi- ~ _ Markovs Inequalitycally buys up the domestic sup- ; if Y is a nonnegative randomply of a good and sells it on the : variable, i.e., ifPr(Y <0) =0, andinternational market. ~ k is any positive constant, then_ Markov Process ~ E(Y) = kPr(Y = k).a stochastic process where all ~ - markupthe values are drawn from a dis- ; 1. the amount (percentage) bycrete set. In a first-order : which price is in excess of mar-Markov process, only the most ~ ginal cost. A profit-maximising&onomics======== II
  • 116. 116 MarShallian~ndFunction I matrix multiplications IIseller facing a price elasticity of ~ demands. Under certain as-demand, h will set a markup ; sumptions, this is the conditionequal to (p-c)jp=ljh. One ef- for a depreciation to improvefect of international trade that I the trade balance, for the ex-increases competition is to re- I change market to be stable andduce markups. for international barter ex-2. in wro terminology, some- change to be stable.times used for the extent to I • mass productionwhich an applied tariff exceeds I a production systemthe bound rate. characterised by mechanisation,3. the ratio of price to marginal high wages, low prices, andcost. Can be used as a measure I large-volume output.of market power across firms, I • Matlabindustries, or economies. I a matrix programming lan-• Marshallian Demand guage and programming envi- Fl1nction ronment. Used more by cngi-denoted x(p,m), it is the I neers but increasingly by econo-amount of a factor of produc- mIsts.tion which is demanded by a Iproducer given that it costs p I • matrix multiplicationsper unit and the budget limit the multiplication of matrices orthat can be spent on all factors I vectors is commutative, i.e. theis m. p and x can be vectors. order of the multiplicand and the multiplier cannot be altered• Marshall-Lerner condition I as is the case in regular multi-the condition where sum of the I plications. The process of mul-elasticities of demand for ex- tiplication of matrices proceedsports and imports exceed one I by multiplying (more exactly:(in absolute value); that is, hX I post-multiplying) horizontal+ hM > 1, where hX, hM are vectors by vertical vectors. Thethe demand elasticities for a I sum of the products of thiscountrys exports and imports I multiplication of correspondingrespectively, both defined to be numbers of the respective vec-positive for downward sloping tors results in a number whichII ===================Economks
  • 117. II maturity date I AIeR.COSUR 117 *==~~==========is placed in the position of the ~ ment,resulting matrix (or vector) ~ _ mediall voter theoremwhere the two vectors would ; the proposition where politicalintersect (overlap). : parties will tend to adopt mod-Thus, ~- erate policies to appeal to vot-horiwntal vector x vertical vec- I ers near the middle of the po-tor = a number ~ litical spectrum.vertical vector x horiwntal vec- : - mental modelstor = matrix I : one of Senges five learning dis-matrix x vertical vector = ver- ~ ciplines for the learningtical vector ; organisation: reflecting upon,horizontal vector x matrix = : and continually clarifying, andhoriwntal vector ~ improving our internal picturesmatrix A x matrix Bl = matrix I of the world, and seeing howC : they shape our actions and de- Imatrix B x matrix A = matrix 0 0 , o ClSlons.D I o _ °1° mercant11sm- maturity date I an economic doctrine of thethe maturity date of a financial 16th and 17th centuries thatasset is the date at which that international commerce shouldasset is converted into a speci- ~ primarily serve to increase afied amount of money or physi- ; countrys financial wealth, espe-cal assets. : cially of gold and foreign cur- ~ rency. To that end, exports are- maximum price system ; viewed as desirable and importssimilar to a minimum price sys- : as undesirable unless they leadtem, except that the price speci- I : to even greater exports.fied is the highest, rather thanthe lowest, permitted for an ~ - merchandise tradeimported good. ~ exports and imports of goods._ maximum revenue tariff ; Contrasts with trade in services.a tariff set to collect the largest ; -MERCOSURpossible revenue for the govern- a common market among Ar-Eeonomics======= II
  • 118. ",1""1,,,,8===========* M-Estimators I millennium round IIgentina, Brazil, Paraguay and I world price down by even moreUruguay, known as the Com- I than the size of the tariff, as itmon Market of the South may do if the foreign demand(Mercado Comun del Sur). It ~ for the importing countrys ex-was created by the Treaty of ; port good is inelastic.Asuncion on March 26, 1991, :and added Chile and Bolivia as I • micro-micro theory:associate members in 1996 and I concerned with the study of1997. what goes on inside the black I box (i.e. the artefact of classi-• M-Estimators cal micro-economic theory ofestimators that maximise a the firm).sample average. The em means I • milestonesmaximum-likelihood-like . subprojects where a project is• metatheorem I broken up (to be able to moni-an informal term for a propo- tor development progress andsition which can be proved in a adhere to deadlines.class of economic model envi - I • milestone stabilisations:ronments. I while there may be some free-• method of moments dom to make changes to the estimation design of an evolving product,a way of generating estimators: I there is a need to adhere to in-set the distribution moments I termittent milestone deadlines.equal to the sample moments, I • millennium roundand solve the resulting equationsfor the parameters of the dis- I the name suggested by the Eu-tribution. ropean Union for the trade I round which they and others• Metzler paradox hoped would be initiated atthe possibility, identified by the Seattle Ministerial inMetzler (1949), that a tariff ~ 1999. That ministerial endedmay lower the domestic relative . without agreement to start aprice of the imported good. new round.This will happen if it drives the III = = = = = = = = E c o n o m i e s
  • 119. II MiWs test I monetarism 119 *================- Mills test ~ merce and Industry, MITI wasone of two conditions needed ; renamed METI as of Januaryfor infant industry protection to : 6,2000. Ibe welfare-improving. This re- : - mixing regulationquires that the protected indus- ~ 1. specification of the propor-try become, over time, able to I tion of domestically producedcompete internationally with- ~ content in products sold on theout protection. : domestic market.- minimum efficient scale ~ 2. specification of an amOlillt ofthe smallest output of a firm ; domestically produced productconsistent with minimum aver- : that must be bought by an im-age cost. In small countries, in ~ porter for given quantities ofsome industries the level of de- I imports, under a linkingmand in autarky is not sufficient : scheme. Ito support minimum efficient : - mobile and immobilescale. I factors of production- Ministry of Economy, (factor mobility) Trade and Industry the mobility between different (METI) uses or occupations of factorsthe Japanese government min- I of production (land, labour,istry which deals with eco- I capital, etc.).nomic issues, including the ; _ mode of supplyvitality of the private sector,external economic relations, I the method by which suppliersenergy policy, and industrial of internationally traded ser- I vices deliver their service todevelopment. buyers. The four modes usually- Ministry of International identified are: cross-border sup- Trade and Industry ~ ply, consumer movement, pro- (MITI) ; ducer presence and movementthe Japanese government min- : of natural persons.istry which deals with trade and ~ _ monetarismindustrial policies. Established Iin 1949 as the Ministry of Com- a view where market econo-Beonomics======= II
  • 120. 120 mon;ristview I monopolisticcumpetition IImies are inherently self- I to acquire during a period in thestabilising and that variations in I exchange market, mostly for thethe quantity of money are the purpose of then using it to buymain cause of fluctuations in the I something else.level of aggregate demand. I • money overhang• monetarist view I a money supply which is largerin extreme form, the monetar- than what people want to holdist view is the view where only at prevailing prices. This wasthe quantity of money matters I said to be a major cause of in-by way of aggregate demand flation in Russia after the fallpolicy. Relevant only in an over- of the Soviet Union, which leftheated economy. I an excess of money in circula- I tion.• monetary basethe same as high-powered I • money supplymone)" It refers to the cash in there are several formal defIni-commercial banks, plus cash in tions, but all include the quan-circulation and deposits of tl1e I tity of currency in circulationcommercial bank at the central plus the amount of demand de-bank. posits. The money supply, to- I gether with the amount of real• money income I economic activity in a country,nominal income. is an important determinant of• money market I its price level and its exchangethe money market, in macro- I rate.economics and international fi- • monopolistic competitionnance, refers to the equilibra- essentially the same as imper-tion of demand for a countrys I fect competition. A marketdomestic money to its money I situation in which one or moresupply. Both refer to the quan- firms may be capable of influ-tity of money that people in the I encing the price of the product.country hold (a stock), not to I It is characterised by productthe quantity that people both in differentiation, often estab-and out of the country choose I lished through advertising.II ========:&onomit:s
  • 121. I! monopolyar;gument I morbidity 121 *=================• monopoly argument ~ a statistical model in which allthe monopoly argument for a ; parameters are numericallytariff is the same as the optimal : specified.tariff argument. It gets its name ~ One might use Monte Carlofrom the fact that a country us- I simulations to check how aning a tariff to improve the terms ~ estimation procedure wouldof trade is acting much like a : behave, for example under con-monopoly firm, restricting its ~ ditions when exact analytic de-sales to get a better price. ; scriptions of the performance of• monopsoms 0·C fi • lrm : the estimation are not algebra- I . . fi h th I b f . lcally feaslble or when onea lrm t at lS .e so e uy~r 0 ; wants to verify that ones ana-a good or serViCe, most likely : lytic calculation for a confidenceOf labour in a particular mar- ~ interval is correct.ket. . ~ • moral hazard• monopsony I the tendency of individuals,a state where demand comes ~ firms, and governments, oncefrom one source. If there is only : insured against some contin-one customer for a certain ~ gency, to behave so as to makegood, that customer has a ; that particular contingencymonopsony in the market for : more likely. A pervasive prob-that good. Analogous to mo- ~ lem in the insurance industry, itnopoly, but on the demand side ; also arises internationally whennot the supply side. A common : international financial ins tim-theoretical implication is that ~ tions assist countries in finan-the price of the good is pushed ; cial trouble.down near the cOSt of produc-tion. The price is not predicted ; • morbidityto go to zero because if it went ~ an incidence of ill health. It isbelow where the suppliers are : measured in various ways, of-willing to produce, they wont ~ ten by the probability that a ran-produce. ; domly selected individual in a : population at some date and• Monte Carlo Simulations ~ location would become seri-the data obtained by simulatingEconomics======= II
  • 122. g""12""2========""mD=t.,,,,hh=a: I Multifiber Arrangement (MFA) /Iously ill in some period of time. I cone equilibrium, will arise ifContrast to mortality. I countries factor endowments are sufficiently dissinUlar com-• mothballing I pared to factor intensities ofthe preservation of a production I industries. Contrasts with onefacility without using it to pro- cone equilibrium.duce, but keeping the machin- Iery in working order and sup- • multifactor modelplies available. This may be a model with more than twopreferable - if the facilityS I factors. In the context of tradeoperating costs are high and the theory, this is likely to mean aaim is to have it available in Heckscher-Ohlin Model withtime of war - to having it pro- I more than two factors.duce in peacetime under a sub- I • multi-factorsidy or import protection. productivity(MFP)• movement of natural same as total factor productiv- persons ity, a certain type of Solow re-one of four modes of supply I sidual.under the GATS, this involves MFP = d(ln f)/dt = d(ln Y)/dtthe temporary movement - sLd(ln L)/dt - sKd(ln K)/dtacross national borders of nalli- I where f is the global productionral persons employed by or as- I function; Y is output; t is time;sociated with a firm in order to SL is the share of input costs at-participate in the firms busi- I tributable to labour expenses;ness. Also called temporary Iproducer movement. SK is the share of input costs at- I tributable to capital expenses;• multi-cone equilibrium L is a dollar quantity of labour;a free-trade equilibriun1 in the K is a dollar quantity of capital.Heckscher-Ohlin Model in Iwhich prices are such that all • Multifiber Arrangementgoods cannot be produced (MFA)within a single country, and in- I an agreement (OMA) amongststead there are multiple diver- developed country importerssification cones. This, or a two and developing country export-1 ========&onomics
  • 123. II multifunctionality I multiplier effict.. ==========1"",2=3ers of textiles and apparel to ~ • Multilateral Investmentregulate and restrict the quan- I Guarantee Agencytities traded. It was negotiated (MIGA)in 1973 under GATT auspices ~ one of the five institutions thatas a temporary exception to the I form the World Bank Group,rules that would otherwise ap- ~ MI GA helps encourage foreignply, and was superceded in 1995 : investment in developing coun-by the ATC. I tries .• multifunctionality ~ • multiplierthe purposes that an industry ; 1. a numerical coefficient whichmay serve in addition to pro- : relates the change of a compo-ducing its output. Most often ~ nent of aggregate demandapplied to agriculture by coun- ; (such as the export demand fortries that wish to subsidise it, : a regions products) to a conse-who argue that subsidies are ~ quent change in income (orneeded to serve these other pur- ~ employment).poses, such as rural viability, ; 2. in Keynesian macroeco-land conservation, cultural heri- : nomic models, the ratio of thetage, etc. ~ change in an endogenous vari-• Multilateral Agreement on ; able to the change in an exog- Investment (MAl) : enous variable. Usually meansan agreement to liberalise rules ~ the multiplier for governmenton international direct invest- ; spending on income. In the sim-ment that was negotiated in the ~ plest Keynesian ~~l of aOECD but could not be com- : closed economy, thIS IS l/s,pIe ted or adopted because of ~ ~here s is the marginal propen-adverse public reaction to it. ; Slty to save.Preliminary text of the agree- ~ • multiplier effect~ent w~ leaked to the Internet : the tendency for a change inm Apnl 1997,. where .m.any ~ aggregate spending to cause agroups.oppo~edlt. ~egot1at1ons ; more than proportionatewere discontInued ill Novemer : change in the level of real na-1998. ~ tional income.&onomies======= II
  • 124. 124 multistRgeproduction I Na,tionaldefencea,~tforprotection "========*• multistage production ~ • mystery of the missinganother term for fragmenta- ; tradetion. Used by Dixit and : the empirical observation, byGrossman (1982). ~ Trefler (1995), for the amount I of trade which is far less than• multivariate discrete choice model : predicted by the HOV version ~ of the Heckscher-Ohlin Model.a discrete choice model in which ~ More precisely, the factor con-the choice is made from a set . tent of trade is far less than thewith more than one dimension I differences between countnes .is said to be a multivariate dis- I in their factor endowments.crete choice model. .Nash• Mundell-Fleming Model used as an adjective applied toan open-economy version of the a strategy in a game, this .meansIS-LM model that allows for that it is part of a Nash equilib-international trade and interna- I rium.tional capital flows. Due toMundell (1962,63) and I • Nash equilibriumFleming (1962). an equilibrium in game theory where each players action is• Mundell-Tobin Effect I optimal, given the actions of thesays that nominal interest rates other players. E.g., in a tariff-would rise less than one-for-one and-retaliation game, with eachwith inflation because in re- I country able to improve itssponse to inflation, the public terms of trade with a tariff, zerowould hold less in money bal- tariffs are not Nash, since eachances and more in other assets, I can do better by raising its tar-which would drive interest rates iff. A Nash equilibrium, withdown. positive tariffs, is likely to be• mutual recognition inferior to free trade for both.the acceptance by one country • National defence argu-of another countrys certifica- ment for protectiontion that a satisfactory standard the argument that importshas been met for ability, perfor- should be restricted in order tomance, safety, etc.II =======Bconomks
  • 125. II national income I natural rate OfU~loyment 125sustain a domestic industry so ~ eign producers and sellers thethat it will be available in case ; same treatment provided toof trade disruption due to war. : domestic firms.This is a second best argument, ~ • natural increasesince there are a variety of ways ~ growth of the population due toof providing for defence at I an excess of births over deaths.lower economic cost, includingproduction subsidies, ~ • natural monopolymothballing, and stockpiling. ; a market situation where econo-• national income : mies of scale are such that a ~ single firm of efficient size is1. the general term used to re-fer to the total value of a ; able to supply the entire mar- : ket demand.countrys output of goods and Iservices in some accounting pe- : • natural personriod, without specifying the for- ~ this term appears in the GATSmal accounting concept such as I and it deals with the interna-Gross Domestic Product. ~ tional movement of employees2. the income generated by a : of firms that are providing ser-countrys production, and there- ~ vices in another country. Per-fore the total income of its fac- ; sons are called natural to dis-tors of production. Except for : tinguish them from juridicalsome adjustments that dont ~ persons, such as partnershipsusually enter theoretical mod- ; or corporations, that are givenels, NI is the same as GD P. : certain rights of persons under ~ the law.• national income (GDP) deflator ~ • natural rate of unemploy-a general way of referring to the I mentprice index that measures the ~ the rate of unemploymentaverage level of the prices of all : which would exist when thethe goods and services compris- ~ economy is operating at full ca-ing the national income or GD P. ; pacity. It would be equal to the : amount of frictional unemploy-• national treatment ~ ment in the system.the principle of providing for-Economics======= II
  • 126. 126 naturaltrade I Nemawashi (jp) II=================*- natural trade I commitment being to apply thetrade which is either free or re- I agreement to everything else.stricted, but that is not artifi- Contrasts with positive list.cially encouraged by subsidies _ neighbourhood produc-or other stimulants. tion structure- necessity test I a structure of technology for aa procedure to determine I general equilibrium model duewhether a trade restriction in- to Jones and Kierzkowskitended to serve some purpose I (1986). With an arbitrary butis necessary for that purpose. equal number of goods and fac- tors, each factor produces two- negative externality I (different) goods, each gooda harmful externality, i.e., a uses two (different) factors, inharmful effect of one economic a way that yields more unam-agents actions on another. Con- I biguous results than one nor-sidered a distortion because the I mally finds in high-dimensionfirst agent has inadequate in- trade models without specificcentive to curtail their action. I factors.Examples are pollution from Ifactories (a production external- - neighbourhoodity) and smoke from cigarettes in mathematical Euclidean I(a consumption externality). space, a small set of points sur- rounding and including a par-- negative introspection I ticular point. Thus, for an eco-implicit assumption of most nomic variable, such as an allo-decision models: If an agent cation, the neighbourhood of adoes not know something .than I particular allocation includes allhe/she, however, knd~s that I those allocations that are suffi-he/she does not know it. .. ciently similar to it.- negative list _ Nemawashi (jp)in an international agreement, I a Japanese term that refers toa list of those items, entities, I the practice of broad consulta-products, etc. to which the tion before taking action.agreement will not apply, theII = = = = = = = = E c o n o m i c s
  • 127. II neoclassical neutral 127 *================_ neoclassical ~ to scale and smoothly diminish-a collection of assumptions cus- ; ing returns to individual factors.tomarily made by mainstream ; _ neoliberalismeconomists starting in the late : a view of the world which19th century, including profit ~ favours social justice while alsomaximisation by firms, utility I emphasising economic growth,maximisation by consumers, ~ efficiency, and the benefits ofand market equilibrium, with : free markets.corresponding implications for I •determination of factor prices : - Net DomestIc Productand the distribution of income. I (NDP)Contrasts with classical, ; gross domestic product minusKeynesian, and Marxist. : depreciation. I- neoclassical economics : - Net National Productmost of modern, mainstream I (NNP)economics based on neoclassi- I gross national product minuscal assumptions. Tends to as- ~ depreciation.cribe inevitability, if not neces- ~ - net present valuesarily desirability, to marketoutcomes. : same as present value, being ~ sure to include (negative) pay-- neoclassical growth model ; ments as well as (positive) re-a model of economic growth : ceipts.where income arises from neo- Iclassical production functions in : - neutral Ione or more sectors displaying : 1. said of a technologicaldiminishing returns to saving ~ change or technological differ-and capital accumulation. Due ; ence if it is not disproportion-to Solow (1956) and Swan : ately in favour of using more ~ or less of one factor than an-(1956). ; other. This can be defined in- neoclassical production : several different ways that are function ~ not normally equivalent: Hicks-a production function with the ; neutral, Harrod-neutral, andproperties of constant returnsE&onomus======= II
  • 128. 128 new hamar I nominal 1/=================*Solow-neutral. • new economy2. said of economic growth if it I this term was used in the lateexpands actual or potential out- 1990s to suggest thatput of all goods at the same rate, : globalisation and/or innova-not being biased in favour of I tions in information technologyone over another. In the : had changed the way that theHeckscher-Ohlin Model neutral world economy works. Conjec-growth will occur if all factor I tures included changes in pro-endowments grow at the same ductivity, the· inflation-unem-rate or if there is Hicks Neu- ployment tradeoff, the businesstral technological progress at I cycle, and the valuation of en-the same rate in all industries .. I terprises.3. said of a trade regime if the I • new trade theorystructure of protection favoursneither exportables nor I models of trade that, particu-importables. larly in the 1980s, incorporated I aspects of imperfect competi-• new bancor tion, increasing returns, anda proposed new non-national product differentiation intoworld currency to be used for I both general equilibrium andpayment and reserve purposes, partial equilibrium models ofto be issued by the IMF and in- trade and trade policy. Manytended to maintain a fixed pur- I contributed to this literature,chasing power in the dollar and I but the most prominent waseuro countries. Krugman, starting with I Krugman (1979) .• new economic geographythe study of the location of eco- I • Newly Industrialisingnomic activity across space, par- I Country (NIC)ticularly a strand of literature a group of countries previouslybegun by Krugman (1991a) regarded as LDCs which haveusing agglomeration economies I recently achieved high rates andto help explain why industries levels of economic growth.cluster within particular coun- • nominaltries and regions. 1. in the form most directly/I ========Economies
  • 129. II nominal exchange rate I noneconomic:jectil1es argument.for protection 129observed or named, in contrast ~ These include non-specific sub-to a form that has been adjusted ; sidies, subsidies for industrialor modified in some fashion. : research, regional aids and2. as measured in terms of ~ some environmental subsidies.money, usually in contrast to ~ • non-automatic licensingreal. I import licensing that is discre-• nominal exchange rate ~ tionary, based on an importthe actual exchange rate where : quota or performance related. I •currencies are exchanged on an : • nonconvexttyexchange market. Contrasts I the property of an economicwith real exchange rate. I model or system that states rep-• nominal interest rate resenting technology, prefer-the interest rate actually ob- ences, or constraints are notserved in the market, in contrast I mathematically convex. Be-to the real interest rate. cause convexity is needed for proof that competitive equilib-• nominal rate of protection I rium is efficient and well-be-the protection afforded an in- haved, nonconvexities may im-dustry directly by the tariff and/ I ply market failures.or NTB on its output, ignoring Ieffects of other trade barriers • nondistortedon the industryS inputs. Con- ~ without distortions. Manytrasts with the ERP. ; propositions in trade theory are strictly valid, often only implic-• nominal tariff I itly, only in nondistorted econo-the nominal protection pro- I mles.vided by a tariff, i.e., the tariffitself. Contrasts with effective I • nondistorting lump sumtariff. redundant appellation for a lump sum tax or subsidy.• non-actionable subsidya subsidy which is permitted by • noneconomic objectivesthe rules of the wro, thus not argument for protectionsubject to countervailing duties. I the view where a restriction on Imports may serve a purposeEconomics================== II
  • 130. 130 nonhrmwthetic I norma/good II========*outside of conventional eco- ~ • Nontariff Measure (NTB)nomic models. Unless that pur- ; any policy or official practicepose is itself the restriction of : that alters the conditions of in-trade, then this is a second-best ~ ternational trade, including onesargument, since changes in out- I that act to increase trade as wellput, consumption, etc. can be as those that restrict it. Theachieved at lower economic cost term is therefore broader thanin other ways. I nontariff barrier, although the• nonhomothetic two are usually used inter-any function which is not changeably.homothetic, but usually applied • nontraded goodto consumer preferences that I a good which is not traded, ei-include goods whose shares of ; ther because it cannot be or be-expenditure rise (and others cause trade barriers are toothat fall) with income. high. Except when services are I being distinguished from• non-market economy goods, they are often men-a COlIDtry in which most major I tioned as exam pIes ofeconomic decisions are imposed I nontraded goods, or at leastby government and by central they were until it becan1e com-planning rather than by free use I mon to speak of trade in ser-of markets. Contrasts with a vices.market economy. I • nonviolation• non-specific subsidy I in WTO terminology, this isa subsidy which is available to shorthand for a complaint thatmore than a single specific in- I a countrys action, though not adustry and is therefore non-ac- I violation of WTO rules, hastionable under WTO rules. nullified or impaired a• nonsterilisation members expected benefitsthe exchange market interven- I from the agreement.tion which is done without I • normal goodsterilising its effects on the do- any good for which the demandmestic moneYsupply. increases as incomes increase.II =~=====Econo",ics
  • 131. . 131II normal value I official reserve trans7============• normal valueprice charged for a product on I Mthe domestic market of the pro-ducer. Used to compare withexport pnce in determining Idumping.• normativethe value judgements as towhat ought to be, in contrast )(to positive which is about what I· >1S •. ~ tity of the other that it imports.• normative theory ; Also called the reciprocal de-the theory which depends on : mand curve, it is convenient forunderlying values, not on facts. ~ representing both exports andIt identifies what ought to be I imports in the same curve andif such values are adhered to. : can be used for analysing tar-• numeraire ~ iffs and other changes.the unit in which prices are ~ • offer curve diagrammeasured. This may be a cur- ~ a diagram which combines ~erency, but in real models, such ; offer curves of two countnesas most trade models, the : (or one country and the rest ofnumeraire is usually one of the ~ world) to determine equilib-goods whose price is then set ; rium relative prices.at one. The numeraire can alsobe defmed implicitly by, for ex- ; • official reserve transactionsample, the requirement that : transactions by a central bartkprices sum to some constant. ~ which cause changes in its offi- I cial reserves. These are usually• offer curve ~ purchases or sales of its owna curve showing, for a two- : currency in the exchange mar-good model, the quantity of one ~ ket, in exchange for foreign cur-good which a country will ex- ; rencies or other foreign-cur-port (or offer) for each quan : reney-denominated assets. In IEconomics====================== II
  • 132. 132 a.:;reqUirement I one cone equilibrium IIthe balance of payments, a pur- I each with a different focus orchase of its own currency is a I question: 0: Ownership Ad-credit (+) and a sale is a debit vantages (Firm Specific Advan-( - ). I tages) address the why ques- I tion. L: Location Advantages• offset requirement (Country Specific Advantages)as a condition for importing into I focus on the where question. I:a Gountry; a requirement that I Internalisation Advantages re-foreign exporters purchase do- fer to the how or organisationalmestic products and/or invest in I question.the importing country. • oligopoly• offsets I a market structure where thereside payments or other commit- I are a small number of sellers,ments made by countries or at least some of whose indi-corporations to secure export I vidual decisions about price ororders. In the aerospace indus- I quantity matter to the others.try, companies often have to Pr1cesubcontract parts production Iand/or to transfer technology; inorder to receive a pllrchase or- Prl.ce D2der. However, offsets can take Imany other forms, including Prl.Ci decreases 1m2 Dlbarter trade. are matched lIRl• Ohlin definitionthe price definition of factor I • oligopsonyabundance. In contrast to the I a market ~tructure in whichquantity definition, the price there are a small number ofdefinition incorporates differ- I buyers.ences in demands as well as sup- I • one cone equilibriumplies. Due to Ohlin (1933). I a free-trade equilibrium in the• OLI Paradigm Heckscher-Ohlin Modelrepresents a mix of three differ- where prices are such that allent FDI theories = 0 + L + I, I goods can be produced within a single country; and there isII = = = = = = = = E c o n o m i c s
  • 133. II one-way arbitrage I opmregionalism *==========1",,3~3<;>lily one diversification cone. ~ lation.This will arise if countries fac- ~ • Open Market Operationtor endowments are suffi- ; (OMO)ciently similar compared to : the sale or purchase of govern-factor intensities of industries. IContrasts with multi-cone : ment bonds by a central bank, I in exchange ·for domestic cur-equilibrium. ~ rency or central-bank depos-- one-way arbitrage : its. This changes the mon-the use, by a potential supplier ~ etary base and therefore theor demander in a market, of ; domestic money supply, con-a different market or markets : tracting it with a bond sale andto accomplish the same pur- ~ expanding it with a bond pur-pose, taking advantage of a ; chase.discrepancy among their ; _ open positionprices. With transaction costs,this enforces smaller price dis- I an obligation to take or makecrepancies than would be per- delivery of an asset or currencymitted by conventional arbi- I in the future without cover, thattrage. Due to Deardorff I is, without a matching obligation(1979). in the other direction that pro- ~ tects them from effects of change- one-way option ; in the price of the asset or cur-the situation of a speculator on : rency. Aside from simple owner-an exchange market with a ~ ship and debt, an open positionpegged exchange rate. If there is ; can be acquired or avoided usingdoubt about the viability of the : the forward market.peg, the speculator can sell the I : - open regionalismcurrency short, knowing thatthere is only one direction (one ~ regional economic integrationway) that the currency is likely I which is not discriminatoryto move. Therefore, there is little : against outside countries,risk associated with such specu- ~ typically, a group of countries ~ that agrees to reduce trade . barriers on an MFN basis.E&onomics======= II
  • 134. 134 ;""-CC""otUJtn==iJ""m""U""lh""p""l",,ier=1""itf""h""·ma=l""tll"""""iff,,,, 1/Adopted as a fundamental Iprinciple, but not defined, by IAPEC in 1989. Bergsten(1997) offers five definitions,ranging from open member- Iship to global liberalisationand trade facilitation.• open-economy multiplier ~fl, . lk dW-I4f(: qu~"11) and cumd IhrOV$h ~2:QL. me ·c:Jo..:il~ vrthe simple Keynesian multiplier I :u ,.ltw 1... In! ~nil~ notrIfNol ~ ,JI.~"""fuClIO ,l(: UW.k 04 M2. "The ,;(ttI .,1 ho.Wdina; Ml i.. If. t",-,,-qu;MiCt ftl.)j~ ilWI~ (of thefor a small open economy. I JilfCN"~~ hct .... c:" dlC tfwc!c·/{1MltI TI"c.;r.¥ty hill ,... aM ~ ""Cifhtcd * A,;,r. lo!ll,Ifa bidS ita;iu.:l.d III M!Equals l/(s+m), where s is the opportunity cost to a country ofmarginal propensity to save and I producing a unit more of am is the marginal propensity to I good, such as for export or toimport. replace an import, is the quan-• opportunism tity of some other good thatthe suggestion (widely associ- I could have been produced in-ated with transaction cost I stead.analysis) where a decision- • optimal currency areamaker may unconditionally the optimal grouping of regionsseek his/her self-interests, and I or countries within which ex-that such behaviour cannot I change rates should be heldnecessarily be predicted. This fixed. First defined (as opti-proposition extends the I mum currency areas) bysimple self-interest seeking I Mundell (1961).assumption to include self-in-terest seeking with guile, I • optimal tariffthereby making allowance for I the level of a tariff whichstrategic behaviour. maximises a countrys welfare. I In a nondistorted small open• opportunity cost economy, the optimal tariff isthe cost of something in terms zero. In a large country, it isof opportunity foregone. The I positive, due to its effect on the I terms of trade.II = = = = = = = & o n o m i c s
  • 135. II optimal tarijfargument ,outputa7ting 135• optimal tariff argument ~ countries to restrict the quan-an argument in favour of levy- ; tities traded of a good oring a tariff in order to improve : group of goods. Since the im- Ithe terms of trade. The argu- . petus normally comes fromment is valid only in a large ; the importers protecting theircountry, only if other countries : domestic industry, an OMA isdo not retaliate by raising tar- ~ effectively a multi-countryiffs themselves. Even then, this I VER.is a beggar thy neighbour I • Organisation for Eco-policy, since it lowers welfare : nomic Cooperation andabroad. Development (OECD)• optimum ~ an international organisationthe best. Usually refers to a ; of developed countries whichmost preferred choice by con- : provides governments a set-sumers subject to a budget con- ~ ting in which to discuss, de-straint, a profit maximising ; velop and perfect economicchoice by firms or industry sub- : and social policy. As of Julyject to a technological con- ~ 2002, it had 30 member coun-straint, or in general equilib- ~ tries.rium, a complete alloc~tion of ; • Organisation for Euro-factors and goods that m some: pean Economic Coopera-sense maximises welfare. I tion (OEEC)• optimum optimorum ~ an internatioQ.al organisationthe best of the best or the glo- ; established in 1~48 as the re-bal optimum. This term is : cipient institution of aidused, when there are several ~ through the Marshall Plan. Inallocations each of which is lo- ; 1961, it was replaced by thecally optimal, to refer to the : OEeD. Ibest among these. : • output augmenting I• Orderly Marketing Ar- : said of a technological change rangement (OMA) ~ or technological difference ifan agreement among a group ; one production function pro-of exporting and importing : duces a scalar multiple of the IBconomics======= II
  • 136. ~1=3=6===========0l1=er;alued Ct/:rrency I partial equilibrium IIother. Also called Hicks neu- I • Pareto criteriontral. I the criterion that for change in• over-valued currency an economy to be viewed asthe situation of a currency socially beneficial, it should be I Pareto-improving.whose value on the exchangemarket is higher than is be- I • Pareto optimalitylieved to be sustainable. This the condition which exists whenmay be due to a pegged or man- it is impossible to make any in-aged rate that is above the mar- I dividual better off without mak-ket-clearing rate, or, under a I ing any other individual worsefloating rate, it may be due to off.speculative capital inflows. Con- Itrasts with under-valued cur- I • Pareto-improvingrency. making no one worse off and I making at least one person bet-• para tariff ter off.a charge on imports which is not .included in a countrys tariff I • Pareto-optimalschedule, such as a statistical : a situation where no Pareto-tax, stamp fee, etc. I improving change is possible.• parallel import I • partial equilibriumtrade which is made possible I equality of supply and demandwhen the owner of intellectual I in only a subset of an economysproperty causes the same markets, usually just one, tak-product to be sold in different I ing variables from other marcountries for different prices. IIf someone else imports the .....low-price good into the high-price country, that is a paral- Ilel import.• para-tariffa charge on an imported goodinstead of, or in addition to, a Itariff.II = = = = = = = = E c o n o m ; c s
  • 137. II pass-through I pauperlabOUrargume;:. 137kets as given. Partial equilib- I pool of (usually locally) learnedrium models are appropriate I behaviours and organisationalfor products that constitute only routines which constrain (in-a negligibly small part of the ~ eluding spatially) future activi-economy. They are used rou- I ties.tinely (not always appropri- ; - path dependentately) for analysis of trade poli-cies in single industries. Con- ~ the property where you get totrasts with general equilibrium. : depend on how you got there. ~ That is, if the equilibrium that- pass-through ; will ultimately be reached by athe extent to which an exchange : system depends on the valuesrate change is reflected in the ~ of variables taken on away fromprices of imported goods. With ; equilibrium, then the equilib-full pass-through, a currency : rium is path dependent. Idepreciation, which increases : - patriotism argument.forthe price of foreign currency, ~ protectionwould increase the prices of I the view in which one is help-imported goods by the sameamount, and vice versa. With no ~ ing ones country by buying do-pass-through, prices of imports : mestically produced goods in- ~ stead of imports. In aremain constant. ; nondistorted economy, this is- path dependency : not correct, since the countryreference to effects of past com- ~ can do better producing wheremitments or acquired knowl- ; it has a comparative advantageedge on subsequent actions and : rather than using scarce re-decisions. Recognising that his- ~ sources where it does not.tory matters for a future course ~ - pattern of specialisationof action or development, suchpast commitments or learning I what all goods a country pro-activities could entail previous ~ duces and what it does not pro-investments, e.g. in transac- : duce. Ition-specific assets, contracts, : - Pauper labour argumentresearch & development, or the I the view that a country loses byEconomics======= II
  • 138. "",13"",8==========* perfoct competition I perfoctly elastic IIimporting from another coun- I • perfect foresighttry which has low wages, pre- I exact knowledge of the future.sumably by lowering wages at Under perfect foresight, for ex-home. This view ignores the I ample, the forward rate wouldfact that low wages are due to I exactly equal the spot rate, thatlow productivity, and that the later prevails when the forwardhigh-wage home country, with contract matures.high productivity, will have com- Iparative advantage in some • perfect substituteproducts and will gain from I <l good which is regarded by itstrade. I demanders as identical to an- other good, so that the elastic-• perfect competition ity of substitution betweenan idealised market structure I them is infinite.where there are large num-bers of both buyers and sell- I • perfectly competitiveers, all of them small, so that I refers to an economic agentthey act as price takers . Per- (firm or consumer), group offect competition also assumes I agents (industry), model orhomogeneous products, free I analysis that is characterised byentry and exit, and complete perfect competition. Contrastsinformation. Most interna- I with imperfectly competitive.tional trade theory prior to I • perfectly elasticthe New Trade Theory as- I refers to a supply or demandsumed perfect competition. curve with a price elasticity of infinity, implying that the sup- Price I ply or demand curve as usu- AC ally drawn is horizontal. A small open economy faces per- I fecdy elastic demand for its exports and supply of its im- ports, and a foreign offer Q . . . .ty I curve that is a straight line I from the origin.II ======================_Economics
  • 139. II peifomul-ncerequirement Iplace Utili; 139 Perfectly Elastic & I the learning organis ation : Inelastic Demand I learning to expand our personal p"" p,,« capacity to create the results we D C ~ I most desire, and creating an o I organisational environment Q-y Q- 7 which encourages all its mem- P.r,r.,.vEl. .. , P"j«dyln</a,., bers to develop themselves to-• performance requirement I wards the goals and purposesa requirement where an im- I they choose.porter or exporter achieves • pessimum distancesome level of performance, in reference to the (possibly) dis-terms of exporting, domestic I advantageous location of acontent, etc., in order to obtain I smaller city relative to a largeran import or export license. one.• permatemps • phytosanitaryworkers arbitrarily classified as ~ pertaining to the health oftemporary by employers while I plants.they perform regular jobs andwork over extended periods of I • Pittsburgh Plustime with other workers who I a form of spatial price discrimi-are given regular employee sta- nation based on oligopolistictus. Permatemps tend to receive I collusion. The mill price at onelower wages and less benefits. I location determines the deliv- ered price at all locations, re-• personal distribution I gardless of the location of thethe distribution of income on I plant from which delivery is ac-the basis of income groups. For tually made.example, by dividing all income Irecipients into ten groups : • place utility I(deciles) and showing the share the utility (benefits, satisfac-each of these groups had of the I tion) associated with or derivedtotal income. from the attributes of a place or location.• personal masteryone of Senges 5 principles for&onomics======== II
  • 140. 140 Planned Unit Development :UD) I political econmny ofprotection II• Planned Unit Develop- I more than two, that would be ment (PUD) I bilateral, but not a great many,a land development project which would be multilateral.comprehensively planned as an • plurilateral agreemententity via a unitary site plan I the plurilateral agreements ofwhich permits flexibility in I the WTO contrast with thebuilding sitting, mixtures of : larger multilateral agreements,housing types and land uses, I in which the former are signedusable open spaces a,nd the I onto by only those memberpreservation of significant natu- countries that choose to do so,ral features. while all members are party to• planning curve I the multilateral agreements.the long nm average cost curve. I • political economy• plasticity I 1. early name for the disciplineresources and investments are of economics.called plastic, to indicate that 2. a field within economics en-there is a wide range of discre- I compassing several alternativestionary, legitimate decisions to neoclassical economics, in-within which the user may cluding Marxist economics.choose. I Also called radical political• Plaza Accord I economy. 3. a field within economics thatan agreement reached in 1985 Iamong the central banks of : concerns the interactions be-France, Germany, Japan, US ~ tween political processes andand UK to bring down the value I economic variables, especiallyof the U.S. dollar, which had economic policies.appreciated substantially since • political economy of1980. By the time of the Lou- I protectionvre Accord, two years later, the I the study of reasons, especiallydollar had fallen 30%. political ones, in which the coun-• plurilateral tries choose to use protection.among several countriesII = = = = = = = = E c o n o m i c s
  • 141. II portfolio approach I positive list 141 *================Includes models of voting, lob- ~ • positional goodsbying, and campaign contribu- I goods which are at least in parttions, as these lead policy male- : demanded because their posses-ers to erect tariffs. ~ sion or consumption implies I social or other status of those• portfolio approachan approach to explaining ex- ~ acquiring them.change rates which stress their ; • positiverole in changing the propor- refers to what is, in contrasttions of different currency-de- to normative which involvesnominated assets in portfolios. value judgements as to whatThe exchange rate adjusts to ought to be. The word is not,equate these proportions to de- in this use, the opposite of ei-sired levels. ther negative or harmful.• portfolio flow • positive externalitythe sale or purchase of fil!ancial a beneficial externality, I.e., aassets across countries. beneficial effect of one eco-• portfolio investment I nomic agents actions on an-the acquisition of portfolio capi- I other. Considered a distortiontal. Usually refers to such trans- because the first agent has in- I adequate incentive to act. Ex-actions across national borders I amples are the attractiveness ofand/or across currencies. well-kept fr.rrms for the tourism• portfolio theory I industry (a production external-the analysis as to . how an in- I ity) and ·reduced contagion ofvestor can maximise the ex- disease due to vaccines (a con-pected return from a portfolio sumption externality).of various kinds of financial as- ~ • positive listsets, having given degrees of Irisk and uncertainty associated . in an international agreement,with them (or minimise the risk ; a list of those items, entities,involved in realising some given : products, etc. to which the I agreement will apply, with noexpected return).Economics======= II
  • 142. ""14,,,,2==========:Ostmodernism I preferenceforl1ariety IIcommitment to apply the agree- I GMOs, for example.ment to anything else. Con- I • predationtrasts with negative list. I the use of aggressive (low) pric-• postmodernism ing to put a competitor out ofa still tenuous attempt to lend business, with the intent,. onceidentity to a new era beginning I they are gone, of raising pricesin the early 1970s which is as- to gain monopoly profits.sociated with changes from and • predatory dumpingreaction to certain attributes of Imodernity or modernism. . dumping for the purpose of I driving competitors out of bus i-• Prebisch-Singer Hypoth- I ness and then raising price. This esis is·the one motivation for dump-the idea where the relative ing that most economists agreeprices of primary products I is undesirable, like predatorywould decline over the long pricing (predation) in otherterm, and therefore that de- contexts.veloping countries that were I • predatory pricingled by comparative advantageto specialise in them would I a company engages in preda-find their prospects for devel- I tory pricing when it sets theopment diminished. Due to price of its goods very low, inPrebisch (1950) and Singer I order to eliminate its competi- I tors and prevent new companies(1950). from entering into the market-• precautionary principle place.the view that when science has I • preference for varietynot yet determined whether a I the increased utility whichnew product or process is safeor unsafe, policy should pro- I people experience when theyhibit or restrict its use until it is have access to a larger numberknown to be safe. Applied to I of differentiated product vari-trade, this has been used as the ~ eties. In reality, this may reflect their ability to find productsbasis for prohibiting imports of ; more closely suited to their own~fl ====================Bconomics
  • 143. II J!refoY.ences Iprice definition 143 *=======particular ne~d~, b~t .as m.~d- ~ (1996).elled in the Doot-StIglitz utIlity ~ • present valuefunction, they are better off con- ; the value today of a stream ofsuming small quantities of each : payments and/or receipts overof a larger number of products. ~ time in the future and/or the• preferences ; past, converted to the prese~t1. in trade policy, this refers to : using an interest rate. If Xt ISspecial advantages, ~uc h as ., the amount in period t and r thelower-than-MFN tanffs, ac- , interest rate, then present valuecorded to another countrys ex- ~ at time t=O is V = St (Xt)/ports, usually in order to pro- : (1 +r)t. .mote that countrys deve1op- ~ • preshipment inspection ment. ~ certification of the value, qual-. 2. in trade theory, this refers to ; ity, and/or identity of tra~ed the attitudes of consumers to- : goods done in the exportmg wards different goods, as :ep- ~ country by specialized agencies resented by a utility functlon. ; or firms on behalf of the im- Some propositions in. tra e ~ porting country. Traditionally theory use the assumptlon f. used as a means to prevent identical and/or homothe ic ; over- or under-invoicing, it is Preferences. : now beino- used also as a secu- , b • preferential trading ar- : rity measure. rangement ~ • price definition a group of countries which ~e Y ~ a method of defining relative lower (or zero) tariffs agal st ; factor abundance based on ra- imports from members th n : tios of factor prices in autarky: outsiders. Includes FTAs, c s- ~ Compared to country B, coun- toms unions, and common m - , try A is abundant in factor X kets. Encouragement to e: relative to factor Y iff wXA/ this term instead of the m re ~ wYA < wXB/wYB, where wIJ misleading FfA has come fr ; is the autarky price of factor I Jagdish Bhagwati, as . "n ~ in country J, I=X,Y, J=A,B. Bhagwati and PanaganyaE&onomics======= 1/
  • 144. ""l",,44============~e discrimination I price undertaki1ltf /I• price discrimination I • price linethe sale by a firm to buyers at I a straight line representing thetwo different prices. When this combinations of variables, usu-occurs internationally and the ally two goods, that cost thelower price is charged for ex- I same at some given prices. Theport, it is regarded as dumping. slope of a price line measures relative prices, and changes in• price elasticity I prices can therefore be repre-the elasticity of supply or de- sented by changing the slope of,mand with respect to price. or rotating, a price line. A• price elasticity of demand I steeper line means a higherchange in the quantity de I relative price of the good mea- sured on the horiwntal axis . • price support . . ~ P, P, government action to Increase I the price of a product, usually P.,iod 8 . a n ti c Own and . by buying it. May be associated ~ ", =~~~·i~Y Price. . with a price floor. P , • price taker I an economic entity which is toomanded of a good or service in I small relative to a market toresponse to a change in price affect its price, and that there- fore must take that price as• price inelastic I given in making its own deci-having a price elasticity of less sions. Applies to all buyers andthan one (in absolute value). sellers in markets that are per- I fectly competitive. Applies also• price level to a country if it is a small openthe overall level of prices in a Icountry, generally measured economy.empirically by a price index, but • price undertakingoften captured in theoretical I a commitment by an exportingmodels by a single variable. I firm to raise its price in an im- porting-country market, as aII = = = = = = = = E c o n o m i c s
  • 145. II pricing to 11UJrket I private cost 145 *================means of settling an anti-dump- ~ ing an additional unit of a gooding suit and preventing an anti- ; or service declines as additionaldumping duty. : units are acquired. I• pricing to market : _ principle of diminishing ,the practice of an exporting ~ returnsfirm holding fixed (or not I the proposition which states thatfully adjusting) the price it ~ the marginal product of the lastcharges in the export market : unit of labour employed de-when its costs or exchange I clines as additional units ofrates change. ; labour are employed.• primary budget surplus ; - Prisoners dilemmathe primary budget surplus a strategic interaction where(or deficit) of a government two players both gain individu-is the surplus excluding inter- ally by not cooperating, leadingest payments on its outstand- to a Nash equilibrium in whiching debt. both are worse off than if they cooperated. Important espe-• primary factor cially for explaining why coun-an input which exists as a stock I tries may choose protectionproviding service that contrib- even though all lose as a result.utes to production. The stock isnot used up in production, al- ~ - private benefitthough it may deteriorate with ; the benefit to an individual eco-use, providing a smaller flow of : nomic agent, such as a con-services later. The major pri- ~ sumer or firm, from an event,mary factors are labour, capital, ; action, or policy change. Con-human capital (or skilled : trasts with social benefit. Ilabour), land, and sometimes : - private costnatural resources. I : the cost to an individual eco-• principle of diminishing ~ nomic agent, such as a con- marginal utility ; sumer or firm, from an event,the proposition that the satis- : action, or policy change. Con-faction derived from consum- I trasts with sqtial cost.Economics======== II
  • 146. 146 privategoods I product cyck II=========*• private goods I same level of output as existinga good that cannot be consumed I policies.without paying for it and the I • Producer Support Esti-supply of which is reduced when mate (PSE)it is consumed by a particular I introduced by the OEeD touser of it. I quantify support in agriculture,• probability density it measures transfers from con-for a continuous random vari- sumers and taxpayers to agri-able, a function whose integral I cultural producers as a result ofover any set is the probability I measures (of) support, ex-of the variable being in that set. pressed as percentage of gross I farm receipts. Also called pro-• probability distribution I ducer subsidy equivalent.a specification of the probabili-ties for each possible value of a I • product cyclerandom variable. the life cycle of a new product, that first can be produced only• producer presence I in the country where it was de-a mode of supply of a traded veloped, then as it becomesservice in which the producer I standardised and more familiar,establishes a presence in the I can be produced in other coun-buyers country by FDI and/or tries and exported back topermanent relocation of work- where it started. Due to Vernoners.• producer subsidy equiva- lent I I. I (1966) . product cycle associated with observed regu-1. producer support estimate. larities in the way in which the2. this ought logically to mea- production and marketing ofsure the extent to which exist- I products change during the lifeing policies serve to subsidise of a product and therebyproducers, defined as the ad change their interaction withvalorem subsidy that, if paid I and demands on their environ-directly to producers per unit of ~ ment.production, would lead to theII ========&onomies
  • 147. II protluatliffiren#lltWn Iprotectionirm. =========14=7_ product differentiation ~ profit of a firm.causing buyers to believe that a ~ - profit shiftingparticular version of a product ; the use of government policiesis superior to that being offered : to alter the outcome of interna-by competitors. ~ tional oligopolistic competition_ product localisation I so as to increase the profits ofmodifying and adapting for- ~ domestic firms at the expenseeign-made products/services, to : of foreign firms. This is a keyrender them suitable for a new ~ element of strategic trademarket. ; policy.- production externality ; - prohibited subsidyan externality arising from pro- : a subsidy which is prohibitedduction. ~ under the rules of the wro. ; These include subsidies that are- production function : specifically designed to distorta function that specifies the out- ~ international trade, such as ex-put in an industry for all com- I port subsidies or subsidies thatbinations of inputs. ~ require use of domestic rather- production possibilities : than imported inputs. Ilevels of output that are within : - prohibitionthe range of possibilities for a ~ denial of the right to import orparticular economy. ; export, applying to particular- production worker : products and/or particulara worker directly engaged in ~ countries. Includes embargo.production. In empirical stud- ~ - prohibitive tariffies of skilled and unskilled ~ a tariff that reduces imports tolabour, data on production ; zero.workers are often taken to rep-resent unskilled labour. ~ - protectionism : advocacy of protection. The- profit maximising ~ word has a negative connota-the level of a variable or ; tion, and few advocates ofbehaviour that maximises the protection in particular situa-Eeonomics======= II
  • 148. ",1""4,,,,8===========~OCOI o/accession I quantity definition IItions will acknowledge being I ity, in either its absolute or itsprotectionists. relative form.• protocol of accession I • push-pull factorslegal document specifying the push factors act to drive peopleprocedures for a country to or goods and services awayjoin an international agree- I from a place whereas pull fac-ment or organisation, includ- tors draw them to a new loca-ing the rights and responsibili- tion.ties that accompany such ac- I • quadcessIOn. I refers both to the Quadrilateral• public goods I Meetings and to the partici-a good that can only be supplied pants in those meetings, theto all if it is supplied to one and U.S., Canada, EU and Japan.the availability of which is not I • quadrilateral meetingsdiminished by anyone I meetings which occur occasion-consumers use of it. ally, involving the trade minis-• purchasing power parity ters of the U .S., Canada, EU exchange rate I and Japan to discuss tradean exchange rate, computed to policy issues.yield absolute purchasing power • quality multiplierparity. Useful for making com- Iparisons of real values (wages, I secondary effects resultingGDP) across countries with dif- from learning, innovative activi-ferent currencies. Since the pur- I ties and quality improvementschasing power parity theory is I · of existing products or technolo-rarely correct, this contrasts with gles.the nominal exchange rate. • quantity definition• purchasing power parity I a method of defining relative theory factor abundance based on ra-a theory of the exchange rate tios of factor quantities: Com-that the rate will adjust to I pared to country B, country A I is abundant in factor X rela-achieve purchasing power par- tive to factor Y, iff XA/YA >II = = = = = = = = E c o n o m i c s
  • 149. IllJUantity theory ofnumey I relICtion C:ient 149XB/YB, where II is the quan- ~ imported good, net of any tar-tity of factor I with which ; iff, minus the world price timescountry J is endowed, 1=X,Y, : the quantity of imports.J=A,B. ~ . • range• quantity theory of money ~ usually used in the context ofthe idea that there is a direct link I the outer range of a good. Thisbetween the quantity of money ~ range refers to the maximumin the economy and the price : distance over which a productlevel. ~ can be sold at a givenEo.B. ; price. /• quasi-linear utilitya utility function of the form ~ • ration foreign/exchangeU(xO,x1, ... ,xn) = xO + Siui(xi), : to ration access to scarce for-where ui( x) are strictly concave ~ eign currency under a peggedfunctions. This is useful for gen- I exchange rate with an over-val-erating demand functions for : ued currency. Usually done bygoods xi that depend only on ~ means of import licensing.their own prices in terms of the . • reactlon coeffi Clent I • .numeraire xO. ~ terms used as a relatively gen-• quid pro quo FDI ; eral reference to the manner inFD1 in response to the threat : which a dependent subsystemof protection. Done by a firm ~ is (structurally) linked to an-which exports into the domes- ; other subsystem within a largertic market, the motive is to cre- : systems model. The coefficientate jobs there and lessen the . ~ specifies the impact of a changethreat that its exports will be I in one variable (representingrestricted. Due to Bhagwati : the independent subsystem) on(1985). ~ another variable (representing I the dependent subsystem). 1n-• quota rent ~ put-output coefficients, pro-the economic rent received by : pensities to consume locallythe holder of the right (or li- ~ (pel) and probabilities in tran-cense) to import under a quota. ; sition matrices represent ex-Equals the domestic price of the : amples. IE&onomics======== II
  • 150. 150=~~~~~~~~~~~= * . reactum curve I real exchllrngerate II Ho,.iZl:lnt:81 dicplace.ent V{c.) " .0 .0 5 .0 4 .0 3 .0 20 1.0 0 .0 - 1.0 I relative price level, which may 0 .0 : have decreased, so that the prices of its goods relative to I foreign goods have increased. .. :!20 • real balance effect 1, 0 I the influence that a change in .0 the quantity of real money has on the quantity of real national o 10 ~ ~ ~ ~ Coeff, cient of horu:onUI t ubcr adt ~ ~ ~ r~actlort I income demanded. koH(N/c. ] I • Real Estate Investment• reaction curve Trust (REIT)the graph of a reaction function . I a trust (corporation) which• reaction function pools the capital of differentthe function that specifies the I investors to acquire (or providechoice of a strategic variable by financing for) all forms o(realone economic agent as a func- estate. A REIT functions like ation of the choice of another I mutual fund for real estate.agent. Most familiar specifying I • real exchange rateoutput choices of firms In a 1. the nominal exchange rateCournot duopoly. adjusted for inflation. Unlike• real I most other real variables , this1. adjusted for inflation. I adjustment requires accounting for price levels in two curren-2. referring only to real eco- cies. The real exchange rate is:nomic variables as opposed to I R = EP* jP where E is the~ominal, or monetary ones, as nominal domestic-currencyill real models. price of foreign currency, P is3. used with appreciation or I the domestic price level, and P*depreciation, refers to the real is the foreign price level.exchange rate. Thus, a real ap- I 2. the real price of foreignpreciation means that the nomi- goods; i.e., the quantity of do-nal ~alue of a countrys currency I mestic goods needed to pur-has Increased by more than its chase a unit of foreign goods.1/ =======Economics
  • 151. 1 reIIl interestmte I reflexivity 151 *==============~Equals the reciprocal of the ~ • red boxterms of trade. Equivalent to I a category of subsidies which aredefinition l. : forbidden under WTO rules.3. the relative price of traded ~ This terminology is used in thegoods in terms of nontraded I Agriculture Agreement, wheregoods. ~ however there is no red box. : Presumably equivalent to pro-• real interest rate I hibited subsidies.the nominal interest rate whichis adjusted for inflation, to get I • redistributed tariff revenuethe percentage yield an asset ; a common assumption that tar-holder gets in terms of real re- : iff revenue is given to consum-sources. Equals the nominal in- ~ ers as transfer payments (not interest rate minus the rate of in- I proportion to what they paid byflation. : importing) to be spent like any ~ other income. Since in general• real model I equilibrium the effects of a tar-an economlC model without ~ iff depend on how the revenuemoney. Most general equilib- : is spent, this is a useful neutralrium models of trade are real ~ assumption.models. This includes theRicardian Model, the ~ • redistribution policyHeckscher-Ohlin Model, and ; measures taken by governmentthe models of the New Trade : to transfer income from someTheory. ~ individuals to others.• real national income ~ • redundant tariffnational income adjusted for ~ a tariff which, if changed, willinflation. ; not change the quantity of im- : ports, either because the tariff• real terms ~ is prohibitive, or because somesame as real. A wage expressed ; other policy such as a quota orin real terms is just the real : an embargo is limiting quantity.wage. I : • reflexivity I a post-structuralist concept in-Economics======= II
  • 152. 152 region I relative location II=~~=""=====* creasingly used in industrial so- I mcreases. cial geography to capture the I • regulation school/theory ability of a person to reflect on their own reflections and to I a body of thought originating understand the foundations of ; in French political economy, fo- ones own knowledge and un- cusing on structure and change derstanding of ones local envi- I of the capitalist economr Re- ronment and context. jecting market forces as allocative mechanisms, these • region I theories suggest the dominance contiguous areas with common of the mode of regulation (so- or complementary characteris- cial norms, government rules tics or linked by intensive inter- I and private practices) which action or flows. I motivate(s) individuals to achieve economic stability. • regional policy in a trade context, this usually • Reillys law of retail gravi- refers to a regional aid. tation I a statement related to the dis- • regionalism tribution of market share in hin- the formation or proliferation I terlands of competing cities or of preferential trading arrange- I shopping centres.ments: I • relative demand • regression analysis I the ratio of the demand for one the statistical technique of fmd- good to the demand for an- ing a straight line which ap- I other, most useful in represent- proximates the information in I ing general equilibrium in a two- a group of data points . Used good economy, where relative throughout empirical econom- I price adjusts to equate relative ics, including in both interna- I supply and relative demand. tional trade and finance. I • relative location • regressive tax I a pOSItIOn in space (location) a tax on income in which the defined on the basis of distances proportion of tax paid relative I and relationships to other loca- to income decreases as incomeII = = = = = = = = & o n o m i c s
  • 153. II relative price I rent seeking 153 *================tions. ~ or other forum, the measure ; recommended by the dispute- relative price : settlement panel to resolve the1. the price of one thing (usu- ~ dispute, usually a measureally a ~ood) in ter~s of an- ; which will bring the offendingother; I.e., the ratio of two : country into compliance withprices. ~he relatiive price ~f ~ wro (or other) rules.good X ill terms of good Y IS ;pX/ pY</SUB< i>. . - rent2. the relationship between the ~ 1. economic rent, or the pre-prices of different goods and ; mium that the owner of a re-services. May be thought of in : source receives over and aboveterms of the amount of one ~ its opportunity cost.good which can be had for a I 2. the payment to the owner ofcertain expenditure compared : land or other property in returnto the amount of another good ~ for its use.which can be had for the same : - rent grad. I lentexpenditure. ~ a representation of the decline- relative supply ; in rent with distance from athe ratio of the supply of one : market or centre.good to the supply of another, I smost useful in representing I Rent ~general equilibrium in a two- per:n~rc I lJeight ofgood economy, where relative Buildinssprice adjusts to equate relative Isupply and relative demand. ____- rdiability Di.bncc caDthe ability of a statistical instru-ment to come up with similar/ ~ - rent seekingconsistent measurements/re- ; the using up of real resourcessults over time. : in an effort to secure the rights ~ to economic rents that arise- remedy ; from government policies. Inin a trade dispute in the wro : international economics, the I~onomics======== 1/
  • 154. 154 rental price I revealed preforence II================~*term usually refers to efforts to I • restrictive business prac-obtain quota rents. tice• rental price action by a firm or group of firms to restrict entry by otherthe payment per unit time for I firms, that is, to prevent otherthe services of a unit of a factor firms from selling their prod-of production, such as land or I uct in their market. This is acapital. I restraint of competition and• rentier would normally be illegal undera person whose income comes competition policy.mainly from rent on land or, I • results-based trade policymore broadly, from assets I the use of trade policies tar-rather than labour. I geted to specific indicators of• rent-seeking economic performance. For ex-the activities of individuals or ample, in the early 1990s, thefirms to obtain special privi- I U.S. insisted on achieving speci-leges, such as monopoly power, fied market shares in trade withwhich will enable them to in- Japan.crease their incomes. Using up I • return to capitalresources to win such privileges I same as the rental price of capi-from governments or their I tal. Since capital can only beagencles. measured in monetary units,• reserve asset I the rental price is, say, dollarsany asset which is used as inter- I per dollars worth of capital pernational reserves, including a unit time, and it therefore hasnational currency, precious the form of a rate of return likemetal such as gold or SDRs. I an interest rate.• reserve currency I • returns to scalea currency that is used as inter- I same as increasing returns tonational reserves, often because scale.it is an intervention currency. • revealed preference the use of the value of expendi-II ========E&onomies
  • 155. II revenueargumentfora tariff I risk ~~iU~m=========~1~5~5ture to reveal the preference of ~ advantage. It assumes perfecta consumer or group of con- ; competition and a single factorsumers for the bundle of goods : of production, labour, with con-they purchase compared to ~ stant requirements of labourother bundles of equal or ; per unit of output that differsmaller value. : across countries. !• revenue argument for a : • risk I tariff : 1. uncertainty that associatesthe use of a tariff to raise rev- I with a transaction or an asset.enue for the government. Many ; 2. the probability of loss. Dif-other kinds of tax cause smaller : fers from definition 1, becausedistortions and are hence pref- ~ uncertainty includes probabil-erable to tariffs for this pur- I ity of gain as well.pose. However, a tariff is oneof the easier taxes to collect, and I • risk aversionit is therefore common in the ~ desire to avoid uncertainty. Riskearly stages of a countrys de- : aversion is usually quantified byvelopment. ~ the mathematical expected ; value that one is willing to• revenue seeking : forego in order to get greaterthe use of real resources in an ~ certainty.effort to secure a share of thedisposition of tariff revenues. ~ • risk premium I 1. the higher expected return• reverse engineering ~ (in the sense of ~athematicalthe process of learning how a : expected value) which an uncer-product is made by taking it ~ tain asset must pay in order forapart and examining it. ; risk averse investors to be will-• Ricardian Model : ing to hold it.the classic model of interna- ~ 2. the difference between thetional trade introduced by ; interest rate on a risky asset andDavid Ricardo to explain the I: that on a safe one.pattern and the gains from 3. in exchange markets, the dif-trade in terms of comparative I ference between the forward&onomics======== II
  • 156. 156 rollback I satisficer, satisficing 1/=================*rate and the expected future I creases the output of the indus-spot rate. I try that uses that factor inten- sively and reduces the output of- rollback I the other (or some other) in-1. the phasing out of measures I dustry. Due to Rybczynskiwhich are not consistent with an (1955).agreement.2. in the Uruguay Round, the - sanctionagreement to remove all 1. to approve or give permis-GATT-inconsistent trade-re- I sion for an action, as when anstricting and trade-distorting I international organisation sanc-measures by the time negotia- tions the use of particular eco-tions were completed. I nomic policies._ Ru1es of Origin (ROO) I 2. a forceful measure used by a nation or group of nat:ionsrules included in a FTA speci- I against another as a penalty forfying when a good will be re- I violating international law orgarded as produced within the international norms. UsuallyFTA, so as to cross between I plural: sanctions.members without tariff. Typi-cal ROOs are based on percent- - Sanitary and phytosanitaryage of value added or on I regu1ations(SPR)changes in tariff heading. I government standards to pro- tect health of humans, plants- ru1es-based trade policy and animals. SPS measures areinstitutional arrangements in I subject to rules in the WTO towhich national trade policies are prevent them from acting asgoverned by internationally I NTBs.agreed-upon rules, as in theGATT and WTo. -SAP_ Rybczynski Theorem I Structural adjustment program.the property of the Heckscher- I - satisficer, satisficingOhlin Model that, at constant I 1. a references to behavioursprices, an increase in the en- that are constrained by limiteddowment of one factor in- information and bounded ra-II = = = = = = = = E c o n o m i c s
  • 157. II saPingfunction I second-best RI,;gUmen:=J1t1=rJte&=tuJn",,· ".."",======""1",,5,,,,7tionality. Satisficers ~ - Schengen Agreementbehavioural objectives are asso- I an agreement (later, conven-ciated with fmding satisfactory : tion) signed in 1985 to elimi-solutions (instead of optimal ~ nate all frontier controls andsolutions) to problems which, I permit free movement of per-in turn, are conditioned by the ; sons between the participatingindividuals aspiration levels. : countries. In 1999, it was incor-2. seeking or achieving 1 satis- ~ porated into the Europeanfactory outcome, rather than ; Union. Currently (2001), thethe best possible. Contrasts with : participants include all EUthe optimising behaviour usu- ~ countries except Ireland and theally assumed in economics and ; U.K., plus Iceland and Norway.trade theory. Alternative mod- ; _ scientific tariffels based on satisficing arespreading within economics, : a made-to-measure tariff. Ibut not yet much in interna- :-SDR Itional. : Special Drawing Right. I- saving function : - secondary tariffsthe relationship between saving ~ any charges imposed on im-and national income. ; ports in addition to the statu-- scale economies : tory tariff, such as an import Iincreasing returns to scale. : surcharge. I- scarce factor : - second-best argument for . protectionthe factor in a countrys endow-ment with which it is least well; 1. any argument for protectionendowed, relative to other fac- : which can be countered by ~ pointing to a different and lesstors, compared to other coun-tries. May be defmed by quan- ; distortionary policy that wouldtity or by price. : achieve the same desired result ~ at lower economic cost.- scarcity rent I 2. an argument for protectionan economic rent that is due to ; to partially correct an existingsomething being scarce. distortion in the economy whenEeonomics======= II
  • 158. 158 secular change 1;lf-SUjJi&iency argumentfor protection "the first-best policy for that pur- I other, the first country derivespose is not available. For ex- I these seigniorage benefits. Thisample, if domestic production is the case of a reserve currency.generates a positive externality I • selectiveand a production subsidy to Iinternalise it is not available, applied to a trade policy. Thisthen a tariff may be second-best I means one which affects onlyoptimal. some countries, not all, in con- trast to MFN policy. Selectivity• secular change ~ is an important concern in thechange over a long period of ; use of safeguards, which coun-time, such as a decade or more. tries often would prefer toDistinguished from cyclical I make selective but are requiredchange which occurs in shorter I by GATT Article XIX to betime periods such as a year. nondiscriminatory.• segmentation • selective closurea segmented pattern of business a form of plant closure whereorganisations where every seg- I the decision-maker has optionsment is conceived as a number between different plants andof organisations) with similar where the ultimate decision ischaracteristics which are both I based on relative (internal and/the cause and the effect of their or external) locational merits.membership of particular eco- This type of closure is the mostnomic niches. I spatially specific type of closure.• seigniorage I • self-sufficiencythe difference between what I provision by ones self to all ofmoney can buy and its cost of : ones own needs. In interna-produ~tion.Therefore, seignior- ~ tional trade, this means eitherage is the benefit that a govern- I not trading at all (autarky), orment or other monetary au- importing only non-necessities.thority derives from the ability • self-sufficiency argumentto create money. In interna- I for protectiontional exchange, if one countrys I the view which states that amoney is willingly held by an-1/ ========E&onomks
  • 159. II sensitin I Shimbel Index 159 *================country is better off providing ~ - shadow pricefor its own needs than depend- ; the implicit value or cost asso-ing on imports. It may be based : ciated with a constraint. That is,on fear that war or foreign gov- ~ the increased value that will beernments will interrupt imports. I achieved by relaxing the con-This is a second-best argument, : straint by one unit. When for-since many policies could pro- ~ eign exchange is rationed, thevide for that contingency with- ~ shadow price of foreign ex-out sacrificing all the gains from ; change becomes for relevant ex-trade. : change rate decisions. I- sensitive : - shallow integrationin trade negotiations and agree- ~ reduction or elimination of tar-ments, countries often identify ; iffs, quotas and other barrierslists of particular sensitive prod- : to trade in goods at the border,ucts or sensitive sectors that ~ such as trade-limiting customsthey regard as especially vulner- I procedures. Contrasts withable to import competition and ~ deep integration.that they wish to exempt fromtrade liberalisation. : - shared vision I : one of Senges five learning dis-- serious injury ~ ciplines for the learningthe injury requirement of the ; organisation: building a senseescape clause, understood to be : of commitment in a group, bymore stringent than material ~ developiiIg shared images ofinjury but otherwise apparently ; the future we seek to create, andnot rigorously defmed. : the principles and guiding prac-- service ~ tices by which we hope to get I there.a product which is not embod-ied in a physical good and that I _ Shimbel Indextypically effects some change in ; measure of the minimum num-another product, person or in- : ber of links necessary to con-stitution. Contrasts with good. ~ nect one node with all nodes inTrade in services is the subject ; the network.of the GATS.Beonomics======= II
  • 160. ~16~O~~~~~~~~~~sm~t~gaUhalnud~non~immne II• Shitauke gaisha I is approximately determined bya Japanese term that refers to a I their two prices in terms of sil-subcontract( ed) company ver._ short - simple money multiplier1. used with sell or sale, this the amOlll1t by which a change inmeans that the seller does not I the monetary base is multipliedcurrently have the thing being to bring about the eventualsold, but intends to acquire it change in the total money sup-on .the market prior to making I ply. It is called the simple moneydehvery. multiplier because it does not2. used by itself as a verb, it take into aCCOlll1t possible offsetsmeans to sell short, as to short I to the process, such as a rise ina currency, meaning to sell it I the amOlll1t of money that indi-forward in anticipation that its viduals or households mayvalue on the spot market will choose to hold as cash when thefall. I money supply increases .• shuttle trade I • single undertakingthe trade accomplished by indi- I a term, in trade negotiations,viduals and groups travelling to for requiring participants to ac-other countries, buying goods I cept or reject the outcome ofand bringing them home, often I multiple negotiations in a singlein their luggage, to resell. An package, rather than selectingimportant source of imports for I among them.Russia in 1990s, some people I • situationtravelling abroad several times I a reference to the relational at-a month for this purpose. tributes of a location, i.e. to the_ silver standard location relative to (in relation-a monetary system where the I ships with) other key locationsvalue of a currency is defmed in (relative location).terms of silver. If two currencies - size distribution of incomeare both on a silver standard, then I the distribution ofincome amongthe exchange rate between them I groups of income recipients, de-II = = = = 0= = = E c o n o m i c s
  • 161. 1 SMAC function I SOE 161 *================fined on the basis of the size of Itheir incomes.• SMAC functionan acronym for the CES fimctionbased on the names of the fourauthors who introduced it in Ar- Irow et al. (1961). I private costs incorporated by• small country assumption ~ the producer in its market price.the assumption in an economic : - Social Darwinists Imodel that a country is too : a disparate group of turn-of-small to affect world prices, in- ~ the-century commentators oncomes or interest rates. ; social issues who sought to• small open economy : utilise the Darwinian law ofan economy which is small ~ natural selection (survival ofenough compared to the ; the fittest) as a basis for socialworld markets in which it par- : policy. The best-known of theticipates that (as a good ap- ~ social Darwinists was Herbertproximation) its policies do I Spencer.not alter world prices or in- ; • social indifference curvecomes. The country is thus a ~ a curve showing the combina-price taker in world markets. : tions of goods that, when avail-The term is normally applied ~ able to a count~ yield the sameto a country as a whole, al- ; level of social welfare.though it is sometimes usedin the context of only a single ; - social welfare functionproduct. : a function mapping levels of ~ utility of the individuals in an• social cost I economy to a level of welfarethe real cost to society of hav- ~ for the economy as a whole.ing a good or service produced,that may be greater than the :.SOEI Small open economy.Economics======~ II
  • 162. ""16,,,,2==========s=ole:Porling agency I Spatial entrapment II- sole importing agency I spatial revenue curve in orderan entity, either private or gov- I to determine the spatial mar-ernment, that has been granted gin of profitability.by government the exclusive _ Spatial demand curveright to import certain goods. I refers to the aggregate demand- Solow model I curve containing the individualthe neoclassical growth model. I demand of consumers locatedAlso called the Solow-Swan at different distances from theModel. I focal point of supply. In other words, demand is aggregated- Solow neutral across space, as seen from thea particular specification of I perspective of the supplier (andtechnological change ortechno- I her f.o.b. prices), as if the deliv-logical difference that is capital ered price of the good is in-augmenting. I creasing for the consumer with_ Solow residual I distance by the correspondinga measure of technological I transport cost.progress equal to the difference :between the rate of growth of ~output and the weighted aver- ;age of the rates of growth of :capital and labour, with factor ~ I------~--Io/Cincome shares as weights. Due I D.to Solow ( 1957). Also called thegrowth of total factor produc-tivity. Used to compare sources Iof growth across countries. - Spatial entrapment a concept used to describe the- space-cost curve I situation of women restricted toexpresses the spatial variability distinctly female labour mar-of total production costs of a I kets close to children and homefirm with a given output level. I in the urban periphery.Smith (1966) superimposedthis spatial cost curve on the1 = = = = = = = = & u n o m i & s
  • 163. II Spatial iso-outlay line I specialisation ===========1"",63~ ..• Spatial iso-outlay line ~ permits tariff preferencesthis is a theoretical construct I among developing countriesused to introduce space into and by developed countries, inmicro-economic production I favour of developing countries,theory. The curve represents I as under the GSp.the results of an optimisation ; - special drawing rightprocess. Every point on the : originally intended within thecurve represents different loca- IMF as a sort of internationaltions but equal total production I money for use among centralcosts (outlays) based on vary- banks pegging their exchangeing (optimal) input combina- rates, the SD R is a transferabletions (and resulting varying I right to acquire anothertransport costs for these in- ; countrys currency. Defined inputs). terms of a basket of currencies,• Spatial margin I today it plays the role in thata line or boundary signifying the I form of a unit of internationalend of profitability or viability, I account.thus separating profitable from : - specialisationloss-making spaces. I 1. producing more than is• Spatial margin of agricul- ~ needed by you with regard to tural production ; some things, and less of others,the boundary of a region of : hence specialising in the first.profitability or positive rent. ~ In international trade, this isBeyond this boundary, trans- ; just the opposite of self-suffi-port costs outweigh net-returns : ciency.leading to net losses. ~ 2. doing less than everything, as I when a country produces fewer• special and differential treatment ~ different goods than it con- : sumes. In a 2x2 trade model,the GATT principle where de- ~ this means each country pro-veloping countries be accorded ; duces just one good. With manyspecial privileges, exempting goods and countries, it meansthem from some requirements I each country has some goodsof developed countries. It also
  • 164. 164 specie I specificity ru.le "========*that it does not (and cannot I dustries and - more loosely -competitively) produce. Also I factors that could be used else-may be called complete where but do not, in the shortspecialisation. I run, have the time or resources I needed to move.• speciecoins, normally including only I • specific factors modelthose made of precious metal. a model where some or all fac- tors are specific factors. Must• specie flow mechanism I commonly, the specific factorsunder the gold standard, the model has one specific factormechanism where international I (often capital or land) in eachpayments would adjust. A coun- I industry plus another factor (of-try with high inflation would I ten labor) that is mobile be-export less, import more and tween them. But an extremethus lose specie, i.e., gold. With I form of the model can have allthe money supply fixed to the I factors specific.quantity of gold, the resultingmonetary contraction would I • specific tariffreduce prices. Due to David a tariff specified as an amountHume. of currency per unit of the good.• specific commitment • specificityunder the GATS, the identifI- I the property where a policycation of a category of services I measure applies to one or ain which a country will apply group of enterprises or indus-national treatment and assure I tries, as opposed to all indus-market access for foreign ser- I tries.vice providers. specificity rule I •• specific factor the principle where the optimala factor of production which is policy for correcting a distortionunable to move into or out of ~ is one that deals most directly,an industry. The term is used to . or specifically, with that distor-describe both factors that would tion.not be of any use in other in- I11----========&onDmi&1
  • 165. II specu~ative attack I stable 165 *================• speculative attack ~ • spot ratein any asset market, the surge I the exchange rate on the spotin sales of the asset that occurs ~ market. Also called the spotwhen investors expect its price : exchange rate.to fall. A common phenomenon I : • spreadin the exchange market, espe- ~ the difference between the pricecially under an adjustablepegged exchange rate. ; one must pay to buy something, : such as a currency, and the price substance of the site. ~ one receives for selling it.• splashing (industrial ~ • stabilising speculation splashing) I speculation which decreases thea term used to refer to the es- ~ movements of the price in ~etablishment of multiple branch : market where the speculationplants across the landscape (of ~ occurs. Freedman (1953) pro-Nigeria) by expatriate firms. ; vided a classic argument that• splintering : speculation on a floating ex-another term for fragmenta- ~ change rate would betion. Used by Bhagwati (1984). ; stabilising.• spot market ; • stabilisation policy1. a market for exchange (of : the use of monetary and fiscalcurrencies, in the case of the ex- ~ policies to stabilise GDp, aggre-change market) in the present ~ gate employment and prices.(as "Opposed to a forward or fu- I • stabletures market in which the ex- ; 1. of an equilibrium, where thechange takes place in the fu- : dynamic adjustment away fromture). ~ equilibrium converges to the2. market where goods, ser- ; equilibrium.vices, or financial assets are : 2. of an economic variable, nottraded for immediate delivery. ~ subject to large or erratic fluc-This differs from a futures mar- I tuations.ket, where the delivery will bemade at a future date.Beonomics======= II
  • 166. 166 standard ofliving I stelldy state II=======~*• standard of living ~ duction in distortion from im-the concept has moved from a I perfect competition and in-more or less strictly pecuniary ~ creased product variety. Con-interpretation of well-being to : trasts with dynamic gains fromone which incorporates non- I trade.pecuniary components, thereby I • static modelapproaching the economists an economic model which hasconcept of utility as expressed I no explicit time dimension. Ain a utility function. Dissatisfac- static model abstracts from thetion with using the simple mea- process by which an equilib-sure of real per-capita GDP has I rium or an optimum might belead to use of indicators which I reached only over time, as wellinclude length of life, level of : as from the dependence of the . b Ieducation and access to JO S, . variables in the model itself oninfrastructure and amenities. ; a changing past or future. Con-• standstill trasts with dynamic model.1. a commitment to refrain I • stationary statefrom introducing new measures the economic condition envi-that are not consistent with an I sioned by the classical writersagreement. I once the growth of population2. in the Uruguay Round, the had reached the point whereagreement not to introduce new output per capita was reducedGATT-inconsistent trade-re- to the subsistence level and thestricting and trade-distorting accumulation of capital had re-measures during the negotia- duced the return to investmenttions. I to zero. The economy would• static gains from trade remain in equilibrium with nothe economic benefits from I possibility of future incre.ases. intrade which arise in static mod- population or per capIta lll-els, including the efficiency I comes.gains from exploiting compara- I • steady statetive advantage, the reduced a type of equilibrium, especiallycosts from scale economies, re- in a neoclassical growth model,II = = = = = = = E c o n o m i e s
  • 167. ·11 sterilise I strlltegic decision-mRking • ~========1~6~7 in which those variables that are ~ tions) that protection lowers not constant grow over time at ; the real wage of a countrys _ constant and common rate. a : scarce factor and raises the ~ . sterill~ . real wage of its abundant fac- . I tor. Due to Stolper and to use. offsetting open market : Samuelson (1941). operations to prevent an act of I exchange market intervention ~ - straight-line PPF from changing the monetary : the PPF which arises in the base. With sterilisation, any I Ricardian Model or in the HO purChase of foreign exchange is ; Model if the two sectors have accompanied by an equal-value : the same factor intensity. It is a sale of domestic bonds and vice ~ downward ~loping straight line versa. ; with, therefore, a constant mar- _ sticky place : ginal rate of transformation. I a concept used in industrial ge- : - strategic alliance I ography to refer to the geo- : an agreement among compa- graphic consequences of inertial I nies for the purpose of achiev- forces which prevent hyper- ~ ing a common goal, usually in mobility (in an increasingly : the form of sharing comple- slippery production space) ~ mentary strengths, achieving from completely obliterating ; cost efficiencies or adjusting to production assembles in space. : rapid technological or market ~ changes.- Stolper-Samuelson Theo- rem ~ - strategic decision-making1. the proposition of the ; as different from programmed,Heckscher-Ohlin Model where : routine decisions, strategic de-a rise in the relative price of a ~ cisions tend to be relatively in-good raises the real wage of the I frequent, not repetitive, involvefactor used intensively in that ~ the commitment of consider-industry and lowers the real : able resources (capital) andwage of the other factor. ~ have long-time horiwns with2. the further proposition (re- ; significant levels of uncertainty.quiring addition assump-Eeonomics======== II
  • 168. ic""16,,,,8==========S;teo "aU policy I substitution effect II• strategic trade policy I • structural adjustmentthe use of trade policies, includ- I programing tariffs, subsidies and even : the list of budgetary and policyexport subsidies, in a context of ~ changes that are required by theimperfect competition and/or I IMF and World Bank in orderincreasing returns to scale to for a developing country toalter the outcome of interna- qualify for a loan. This condi-tional competition in a countrys I tionality typically includes re-favour, usually by allowing its ducing barriers to trade andfirms to capture a larger share capital flows, tax increases andof industry profits. I cuts in government spending.• strategic variable I • stumbling blockan economic variable that is cho- I the term which Bhagwatisen with regard to, and some- (1991) used, together withtimes with a view to influenc- building block, to addressing, economic behaviour by I whether PTAs help move thesomeone else. Most frequently world toward or away fromrefers to the choice of firms in multilateral free trade.an oligopoly. • substitution effect• strategy I 1. the change in the quantity ofdetermination of the basic long- I a good demanded resultingterm goals and objectives of anenterprise, and the adoption of ~courses of action and the allo- Ication of resources necessaryfor carrying out these goals.• structural adjustmentthe reallocation of resources I(labour and capital) among sec-tors of the economy, in responseto changing economic circum- I from a change in its relativestances, including trading con- I price, leaving aside any changeditions or changes in policy. in quantity demanded that canII ========Economics
  • 169. II sunk costs I SlNp 169 *================ be attributable to the associated ~ upward sloping, straight or change in the consumers real ; curved and drawn with quantity income. It may also be thought : on the horiwntal axis and price of as a change in the quantity ~ on the vertical axis. Supply demanded as a result of a move- ; curves for exports and for for-. ment along a single indifference : eign exchange usually have the curve. ~ same qualitative properties as 2. that portion of the effect of ~ supply curves for labour, being price on quantity demanded ; potentially backward bending. that reflects the changed ~ - supply elasticity tradeoff between the good and : the elasticity of a supply func- other alternatives. Contrasts ~ tion, usually with respect to with income effect. I pnce. - sunk costs ; - surplus costs that are irrevocable and : in the balance of payments, or should not be used to influence ~ in any category of international current decisions. I transactions within it, the sur- - superior good ~ plus is the sum of credits mi- a good the demand for which is : nus the sum of debits. Also elastic. ~ called simply the balance for ; that category. Thus, the balance - supply curve : of trade is the same as the sur- the graph of quantity supplied ~ plus on trade, or the trade sur- as a function of price, normally ; plus, and similarly for merchan- I .~lI,pl: I"UI ~( 10 Ii,,,," , : dise trade, current account and ~ capital account. l"~- . - ~" :" -~ .. ... " , " ~" ~.: :/: ... ,....-..... ~.............. . ..~........ ~ - sustainable development . - - -!..!:::.: I a system of resource us<; that ILL ~ protects non-renewable re- : sources and the environment. I : - swap I 1. in the exchange markets, this &onumics======= II
  • 170. "",17"",0==========* swap rate I tariffjumping IIis a simultaneous sale of a cur- , specified level, called the bow1drency on the spot market to- , rate.gether with a purchase of the • tariff equivalentsame amount on the forward market. By combining these , the level of tariff which wouldtwo transactions into a single be the same, in terms of its ef-one, transactions costs may be , fect, usually on the quantity ofreduced. imports, as a given NTB.2. an arrangement between • tariff escalationcentral banks whereby they in a countrys tariff schedule,each agrees to lend their cur- , the tendency for tariffs to berency to the other. , higher on processed goods than on the raw materials from• swap rate , which they are produced. Thisthe difference between the spot , causes the effective rate of pro-and forward exchange rates. tection on these goods to beThus, the price of a swap. higher than the nominal rate• systems thinking , and puts LDC producers of pri-the last of Senges five learning mary products at a disadvan-disciplines of his learning tage.organisation: A way of think - , • tariff factorying about, and a language for , a production facility establisheddescribing and understanding, , by a foreign firm through FD Ithe forces and interrelationships in a country, in spite of itsthat shape the behaviour of sys-I higher production costs, in or-tems, helps us to see how to , der to serve its market withoutchange systems more effec- paying a tariff.tively, and to act more in tune ,with the larger processes of the • tariff headingnatural and economic world. the descriptive name attached to , a tariffline, indicating the prod-• tariff binding uct to which it applies.a commitment, under the GATT, by a country not to raise , • tariff jumpingthe tariff on an item above a the establishment of a produc-II = = = = = = = = E c o n o m i c s
  • 171. II tariffline Itariffic4tion 171 *================tion facility within a foreign ~ iffs, organised by product.country, through FDI or licens- ~ _ Tariff Schedule of theing, in order to avoid a tariff. ; United States (TSUS)_ tariff line : the official product nomenc1a-a single item in a countrys tar- ~ ture for specifying tariffs in theiff schedule. I United States, used until 1988,_ tariff peak ~ when it was replaced with the : harmonised system.in a tariff schedule, a single tar- Iiff or a small group of tariffs : - tariff wallwhich are particularly high, of- ~ a tariff, presumably a high one,ten defined as greater than ; perhaps in lots of industries.three times the average nomi- : The term is used to highlightnal tariff. ~ the difficulty foreign sellers c. I have in getting their products- tariff prel.erence past the tariff, often in the con-a lower (or zero) tariff on a ~ text of the incentive thereforeproduct from one country than ~ provided for FDI.is applied to imports from mostcountries. This violation of the ~ - tariff-and-retaliation gameMFN principle is permitted in ; the game of countries settingspecial cases, including some : tariffs knowing that by doing sopreferential trade arrange- ~ they alter the terms of trade toments and the GSp. ; their own advantage. This is one : very specific form of trade war.- Tariff Rate Quota (TRQ) Ia combination of an import tar- : - tarifficationiff and an import quota in which ~ conversion of NTBs to ad valo-imports below a specified quan- I rem tariffs, at the level of theirtity enter at a low (or zero) tar- ~ tariff equivalents. In the Uru-iff and imports above that quan- : guay Round, developed countrytity enter at a higher tariff. Also ~ agricultural NTBs werecalled a tariff quota. ; tariffied and bound, the purposeIi tariff schedule : being to replace unwieldy NTBs ~ with tariffs that can then be-the list of all of a countrys tar-E e _ i e s = = = = = = = II
  • 172. ",1"",7"",2=========t."",a"",""",iffi=a; retaliation I technological trajecttwy IIcome the subject of negotiation. I • Technical Barrier to Trade (TBT)• tariffs and retaliationthe process of one country rais- a technical regulation or other Iing its tariff to secure some ad- requirement (for testing, label-vantage, to which another coun- I ling, packaging, marketing, cer-try responds by raising its tar- I tification, etc.) applied to im- ports in a way that restrictsiff, the first raises its tariff still I trade.further, etc. I • technical coefficient• task environmentthose elements or inputs in an I in input-output analysis, iden- tifies the percentage or portionorgmsations environment that I of the total inputs of a sectorbear potentially on goal settingand on goal attainment within I required to be purchased from another sector irrespective ofan organisation . the geographic origin of this• tax increment financing I purchase. Technical (input) co-is used to facilitate the financ- efficients represent direct back-ing of larger development ward linkages of an industry toprojects by capturing the prop- I other industries and constituteerty tax revenue stream pro- I the recipe for production ofjected for the development and that industry.investing it into improvements • technical regulationassociated with the project. a requirement of characteristics• team learning I (such as dimensions, quality,one of Senges five learning dis- performance or safety) that aciplines for his learning product must meet in order toorganisation: transforming I be sold on a countrys market.conversational and collective I • technique of analysisthinking skills, so that groupsof people can reliably develop I a method for displaying or ma- nipulating economic models.intelligence and ability greaterthan the sum of individual • technological trajectorymembers talents. the movement of multi- dimen-II ========Ecrmomi&s
  • 173. ~I temporary admission I tertiary sector .. 173sional trade-offs amopg techno- ~ trade of a region or countrylogical variables that the para- ; improve when the prices fordigm defines as relevant. : exports increase or those forProgress can be defmed as an ~ imports decrease. Yes, the con-improvement of these trade- ; cepts of terms of trade can beoffs. One could imagine the tra- : meaningfully applied to manyjectory as a cylinder in a mul- ~ exchange type interactions.tidimensional space (Dosi); or: 1 f : - terms 0 trade argumenta pattern of normal problem-solving activity within a techno- 1 same as the optimal tariff argu-logical paradigm. ment, that works by restricting the quantity of trade in order- temporary admission 1 to improve the terms of trade.permission to import a good ~ - terms of trade effectduty free for use as input in pro- 1 the effect of a tariff on the termsducing for export. : of trade. By reducing the de-- temporary producer ~ mand for imports, a tariff lev- movement 1 ied by a large country causes thea mode of supplying a traded ~ prices of those imported goodsservice by the temporary move- : to fall on the world marketment of persons employed by ~ relative to the countrys exports,the supplier into the buyers ; improving its terms of trade.country. ; _ tertiary sector- terminal costs : economic activities which aretransshipment and loading ~ concerned with thecosts that must be paid regard- 1 organisation and coordinationless of the distance involved. : of production and other eco- ~ nomic activities, and with the- Terms of Trade (TOT) 1 exchange (logistics, distribu-terms of trade that do not refer · . 1 tion, marketing etc.), mainte- to contractual conditions of : nance (repair etc.) and con-trade, but to price or exchange ~ sumption (retailing, wholes al-relationships between exports ; ing) of goods and services .and imports. Thus, the terms ofEconomics======= II
  • 174. ""17""4=========t""he""C,,,,Dm=;S I Total Factor Productivity (TFP) "• the commons I would be true in the world if theshared resources. Air and w,a- I world conformed to the modelster are frequently used ex- assumptions, and perhaps alsoamples. I to additional assumptions speci- I fied in the proposition. I • thread a hierarchical arrangement of linked notes where each succes- I sive contribution is written as a response to an earlier note in the discussion (to organise dis- I course). Usually used by online conferencing forums and called• the loss function threading .also known as the criterion func- Ition . A function that is • time-space convergenceminimised to achieve a desired refers to the diminishing timeoutcome. Often econometricians I needed to connect two places byminimise the sum of squared er- transportation due to improv-rors in makir.g an estimate of a ing transport technologies.fi..mction or a slope. In this case, ~ • tortthe loss function is the sum of ; in law, a private or civil wrong.squared errors. One might alsothink of agents in a model as I • total factor productivityminimising some loss fi..mction in I the growth of real output be-their actions that are predicated yond what can be attributed toon estimates of things such as fu- increases in the quantities ofture prices. I labour and capital employed.• theoretical proposition I • Total Factor Productivitya property of an economic (TFP)model which is derived (de- a measure of the output of anduced) from its assumptions. It I industry or economy relative tousually takes the form of a pre- I the size of all of its primary fac-diction about something that tor inputs. The term, and its
  • 175. II trade creati011 I Trade Policy Review :echanism (TPRM) 175acronym TFP, often refers to ~ countrys participation in worldthe growth of this measure, as ; markets through trade, accom-measured by the Solow re- : plished by trade liberalisation.sidual. I : • trade intensity index I• trade creation for a group or bloc of countries,trade which occurs between I usually in a PTA, the ratio ofmembers of a preferential trad- the blocs share of intra-blocing arrangement that replaces trade to the blocs share in worldwhat would have been produc- ~ trade. If greater than one, thistion in the importing country ; is said to suggest that the blocwere it not for the PTA. It is : displays trade diversion. Indexassociated with welfare im- ~ seems to be due to Frankelprovement for the importing I (1997).country since it reduces the costof the imported good. Concept Idue to Viner (1950).• trade flowthe quantity or value of acountrys bilateral trade withanother country.• trade indifference curvein a diagram measuring quan- Itities of exports and imports, a : • trade liberalisation Icurve representing amounts of : reduction of tariffs and removalq~ade among which a freely I or relaxation of NTBs.trading country is indifferent,based on its community indif- I • Trade Policy Reviewference curves and its transfor- ~ Mechanism (TPRM)mation curve. Due to Meade : the periodic review of the trade(1952). ~ policies and practices of the ; member countries of the WTO,• trade integration conducted and published by thethe process of increasing a WTo.Economics======= II
  • 176. 176 trade theqry I transfor payment II=========*• trade theory I ported or sometimes a goodthe body of economic thought I that could be exported or im-which seeks to explain why and ported if it werent for thosehow countries engage in inter- I pesky tariffs.national trade and the welfare I • trade-related investmentimplication of that trade, en- measurecompassing especially the any policy applied to foreignRicardian Model, the I direct investment which has anHeckscher-Ohlin Model, and I impact on international trade,the New Trade Theory. such as an export requirement.• trade triangle • trade-weighted averagein the trade-and-transforma- tarifftion-curve diagram, the right I the average of a countrys tar-triangle formed by the world I iffs, weighted by the value ofprice line and the production imports. This is easily calculatedand consumption points, the I as the ratio of total tariff rev-sides of which represent the I enue to total value of imports.quantities exported and im-ported. I • trade-weighted exchange rate• trade-and- transforma- tion- curve diagram the weighted average of a I countrys bilateral exchangeone of the most frequently used I rates using bilateral trade, ex-diagrams of trade theory, using ports plus imports, as weights.a transformation curve together Iwith one or more price lines and • transaction valuesometimes community indiffer- the actual price of a product,ence curves to illustrate produc- I paid or payable, used for cus-tion, consumption, and trade toms valuation purposes.and the effects on them of tar- • transfer paymentiffs and other exogenous Ichanges. payment made by the govern- I ment or private sector of one• traded good I country to another as a gift ora good that is exported or im- aid, not as payment for any" ========Economics
  • 177. II trtInsftrJl4ymmts I ubUJuitous""""::~Dr!!!!!!m!!!!!!·[,nits!!!!!! ===",!!====1!!!!!!7!!!!!!7good or service nor as an obli- ~ • treasury billsgation. Also called a unilateral i short-term bonds issued by thetransfer. : government, used to pay to• transfer payments : cover government spending. I Isocial benefits paid to individu- .• treeals or households by govern- ~ a fully connected network with-ment. i out circuits.• transfer pricing ; • triadthe practice of pricing goods and : Europe, North America and Iservices flowing within a corpo- : Japan.ration between corporate unitslocated in different tax jurisdic- ~ • two cone equilibriumtions, so as to shift profits into I a free-trade equilibrium in thethe jurisdiction with the lowest ~ Heckscher-Ohlin Model wherecorporate income tax rates. : prices are such that all goods ~ cannot be produced within a• transformation curve i single country, and instead theresame as production possibility : are two diversification cones.frontier. The name comes from ~ This, or a multi-cone equilib-the idea that, by devoting re- ; rium, will arise if countries fac-sources to producing one good : tor endowments are sufficientlyinstead of another, it is as ~ dissimilar com pared to factorthough one good is being trans- ; intensities of industries. Con-formed into another. : trasts with one cone equilib- I .• transition matrix : num.a matrix of transition probabili- ~ • ubiquitous materials orties (p) (probabil~ties of ou~- ~ inputscome a on any gIven expen- ; materials or production (ormentj during a specific period: consumption) inputs that areof time, given that outcome a ~ available more or less every-occurred on the preceding ex- ; where in a similar quality andperiment j during the previous : at approximately the sameperiod of time). ~ price. Still, ubiquitous inputs II
  • 178. 178 utIeOPeretl intertst jlllrity ~nited Nations Con.formee on nwIe ... IImay have an effect on location: ~ where prices charged at differ-Inasmuch as such ubiquities ; ent locations are uniform andaffect the weight or bulk of: independent of transport costs.the final product, the location ~ Romote buyers are subsidisedof production (ceteris pari- ; by buyers near the productionbus) will tend to be relatively location.close to the market (in order • unilateral transferto save transport costs). transfer payment.• uncovered interest parity • unit isocost lineequality of expected returns onotherwise comparable finan- I an isocost line along which thecial assets denominated in two I cost is equal to one unit of thecurrencies, without any cover I numeraire, such as one dollar.against exchange risk. U ncov- • unit isoquantered interest parity requires I the isoquant for a quantity equalapproximately that i = i * + a I to one unit of a good. The unitwhere i is the domestic inter- isoquant is useful for relatingest rate, i * the foreign inter- the price of a good to the pricesest rate and a the expected ap- I of factors employed in its pro-preciation of foreign currency duction.at an annualised percentage - Un~ laoquant 1.B for Foodrate. 1.6 1.4• unequal exchange Land in 1.2trade where the labour used to I Food 1 Pr.ducti •• O.Bproduce a countrys exports is 0.6more than the labour used to I 0.4produce its imports, as in the I 0.2exchange between low -wage o 1 2 3 lebor In Foo" Productiondeveloping countries and high-wage developed countries. I • United Nations Confer-• uniform delivered pricing ence on Trade and Devel- opment (UNCTAD)a common pricing scheme forconsumer and other goods I an intergovernmental body es-II ========Economi&s
  • 179. tablished in 1964 within the ~ times other considerations).United Nations, responsible for ; Represents both their welfaretrade and development. His- : and their preferences. Itorically, it has often been the : - value addedinternational voice of develop-ing countries. ~ the value of output minus the I value of all intermediate inputs,- upstream subsidisation ~ representing therefore the con-export of a good, one of whose : tribution of, and payments to,inputs has been subsidised. ~ primary factors of production.- urban-growth boundary ~ - Value Added Tax (VAT)a politically specifted line around ; a tax which is levied only on thecities, beyond which develop- : value added by a ftrm. A VATment is discouraged or prohib- ~ is usually subject to border taxited. Sometimes also called ur- I adjustment.ban-limit lines or rural-limit ; - value marginal productlines, urban growth boundariesexist in many cities, counties and ~ marginal value product. ~ - value networkregions across the U.S., particu-larly in California. : the communications network of- utility function ~ relations between all individu-a function which speciftes the ; als and organisations who addutility (well being) of a con : value to a product. I : - value quota I °1 ~ : a quota specifying value - price f ~:._ j /1 ~ times quantity - of a good. variable cost I _ ; the portion of a firm or : industrys cost which changes ., . , ~ with output, in contrast to ftxed - .. - - - - I cost.sumer for all combinations of :goods consumed (and some- IBeonomics======= II
  • 180. ~18~O~~~~~~~~M~nII~~ble~~ I VoluntRry Export Restmint (VER) II I A merger accomplishing an 2!lOO I internalisation of such linkages 1.800 1.000 increases control of input or I."" I output markets and thereby I.ZOO lover prices and other market facets. • vertical intraindustry trade • variable levy -.. "" I intraindustry trade in which the exports and imports are at the different stages of processing. a tax on imports that varies over I Contrasts with horiwntal lIT. time, so as to stabilise the do- I mestic price of the imported • vertical mixing good. Essentially, the tax is set I ensures a variety of different equal to the difference between I ages, experience sets and skills the target domestic price and on design teams. the world price. • vertical specialisation • vehicle currency another term for fragmenta- the currency used to invoice an I tion. international trade transaction, I • visible especially when it is not the na-1 tional currency of either the in referring to international I importer or the exporter. trade, used as a synonym for good. Visibles trade is trade • vertical integration I in goods. Contrasts with invis- production of different stages of : ible. processing of a product within ~ • Voluntary Export Re- the same firm. straint (VER) • vertical integration I a restriction on a countrys im- corporate mergers involving ports that is achieved by nego- firms that are involved in for- tiating with the foreign export- wardly or backwardly related I ing country, for it to restrict its production stages, i.e. they buy I exports. each others inputs or outputs. II ========&OtJOmiu
  • 181. II Voluntary Import Exptmsion (VIE) I: degree homogeneous 181• Voluntary Import Expan- ~ • welfare proposition sion (VIE) ; in trade theory, this usually re-the use of policies to encourage : fers to any of several gains from Iimports, in response to pressure : trade theorems.from trading partners. Due to ~ • welfare triangleBhagwati (1987). ~ in a partial equilibrium market• Walrasian auctioneer ; diagram, a triangle represent-a hypothetical entity that facili- : ing the net welfare benefit ortates market adjustment in dis- ~ loss from a policy or otherequilibrium by announcing ; change. In trade theory, it oftenprices and collecting informa- : means the triangle or trianglestion about supply and demand ~ representing the deadweightat those prices without any dis- I loss due to a tariff.equilibrium transactions actu- I • Western Hemisphere Freeally taking place. : Trade Area (WHFTA) I• WARP : name sometimes proposed forWeak Axiom of Revealed Pref- ~ a preferential trading arrange-erence. ; ment including most or all of : th(.· countries of the western• water in the tariff ~ hemisphere. Now called FTAA.the extent to which a tariff thatis higher than necessary to be ~ • :1£ro degree homogeneousprohibitive. I homogeneous of degree zero.E&onom;cs======== II
  • 182. Notes