International Business and Economics

Study Notes

Globalization refers to networks of international linkages comprising economic, financial, political, and social markets that bind countries, institutions, and people in an interdependent economy.

Protectionism involves restricting trade through measures such as quotas, tariffs, and subsidies to protect domestic industries.
Nationalism involves forced sales of multinational corporation (MNC) assets to local buyers.

Expropriation occurs when a local government seizes foreign-owned assets of an MNC and provides inadequate compensation.
It is more likely to occur in countries with constant political upheaval and change.

Economic integration results from the lessening of trade barriers and the increased flow of goods, services, capital, labor, and technology around the world.
A disadvantage of economic integration is the loss of sovereignty.

Free Trade Area (FTA): The simplest form of regional integration, allowing free trade between member countries. (e.g., USMCA, European Free Trade Association)
Customs Union: Allows free trade between members and adopts common tariffs and non-tariff barriers for imports from non-member countries. (e.g., Andean Community)
Common Market: A group of countries committed to removing all barriers to the free flow of goods, services, and factors of production between each other, and pursuing a common external trade policy. (e.g., Mercosur)
Economic Union: A deeper level of economic integration, may adapt a common currency, establish uniform tax rates, and establish a common trade policy with non-member countries. (e.g., European Union)
Political Union: A central political system directing and overseeing economic, social, and foreign policies of member states. (e.g., United States)

MERCOSUR: A South American trading bloc, the 4th largest trading bloc after the EU, USMCA, and ASEAN.
USMCA: A free-trade agreement between the US, Mexico, and Canada, replacing NAFTA.
The European Union (EU): A regional economic group with 27 countries, aiming to increase the scale of the marketplace for firms inside the economic bloc.

Political risk refers to the chance that political forces may change a country's business environment, leading to investment losses or lower-than-projected returns.
Ways to deal with political risk include hedging, creating dependency, and adaptation, such as participative management and local debt financing.