Understanding International Trade

Comparative advantage refers to a country's ability to produce a good or service at a lower opportunity cost than its trading partners. It is significant in international trade as it encourages countries to specialize in the production of goods and services in which they have a comparative advantage, leading to increased efficiency and mutual benefit through trade.

The implementation of trade policies can be influenced by factors such as political power, policy change, domestic preferences, and collective action problems. These policies can impact stakeholders including domestic producers, consumers, foreign producers, and workers. The winners and losers of free trade can be affected by compensation measures and the influence of different sectors.

Protectionist policies can lead to negative effects on welfare, productivity, and international relations. Strategies to mitigate opposition to free trade include providing compensation for the losers, such as worker retraining programs and unemployment benefits, and promoting support for freer trade through addressing domestic preferences and political influence.

<p>Comparative advantage in international trade refers to a country specializing in producing goods or services in which it has a lower opportunity cost compared to other countries. For example, if Country A can produce both wheat and cloth, but it can produce more cloth in the same amount of time than Country B, while Country B can produce more wheat in the same amount of time than Country A, then Country A has a comparative advantage in producing cloth, and Country B has a comparative advantage in producing wheat.</p> Signup and view all the answers

<p>Trade specialization allows each country to focus on producing goods or services in which it has a comparative advantage, leading to increased efficiency and higher global output. This specialization leads to greater productivity, as countries can concentrate on what they do best, resulting in more efficient allocation of resources and higher overall economic welfare.</p> Signup and view all the answers

<p>Absolute advantage refers to a country's ability to produce a good or service using fewer resources than another country, while comparative advantage refers to a country's ability to produce a good or service at a lower opportunity cost than another country. An example of absolute advantage is Country A being able to produce more cars than Country B using the same amount of resources. An example of comparative advantage is Country A focusing on producing computers because it has a lower opportunity cost in producing computers compared to Country B.</p> Signup and view all the answers

<p>Political institutions can favor representation of narrow or broad interests, empower large groups, check the power of smaller ones, and promote liberalized trade. Democracies are less protectionist than dictatorships, and the push for desired trade policies has to be filtered through different political institutions.</p> Signup and view all the answers

<p>International institutions facilitate cooperation and can promote cooperation. They also address issues of rule-making, monitoring, and enforcement, such as through the WTO's ability to enforce provisions and authorize sanctions for violators of rules.</p> Signup and view all the answers

<p>Under WTO's rules, the national treatment principle states that foreign goods should be treated like domestically produced goods, and the most favored nation principle requires every trading partner to be treated like the favored trading partner without discrimination. An exception exists for regional trade agreements (bilateral trade agreements).</p> Signup and view all the answers

<p>Trade liberalization is good for a nation's economy, creates winners and losers, involves strategic interaction, and international institutions can facilitate cooperation between domestic actors, which may lead to a prisoner's dilemma.</p> Signup and view all the answers

<p>Portfolio investments and Foreign direct investment (FDI)</p> Signup and view all the answers

<p>From 1974 to 1982</p> Signup and view all the answers

<p>Pursuing industrialization</p> Signup and view all the answers

<p>$140 trillion</p> Signup and view all the answers

<p>The 2008 financial crisis</p> Signup and view all the answers

<p>Debt crisis manager</p> Signup and view all the answers

<p>No obligation to payback grant</p> Signup and view all the answers

<p>There was a debt crisis</p> Signup and view all the answers

<p>1997</p> Signup and view all the answers

<p>It grew from $40 billion to $330 billion</p> Signup and view all the answers

<p>Concessional loans have reduced interest rates, while non-concessional loans are granted at market interest rates</p> Signup and view all the answers

<p>Bonds, loans, and stocks</p> Signup and view all the answers

<p>Investors maintain control over the investment</p> Signup and view all the answers

<p>Higher returns due to higher interest rates in developing countries, access to natural resources, and different business environments</p> Signup and view all the answers

<p>90</p> Signup and view all the answers

<p>Characterized by incomplete information</p> Signup and view all the answers

<p>Default on the loan</p> Signup and view all the answers

<p>Distribution of profits and control over resources</p> Signup and view all the answers

<p>Differences in macroeconomic trends between countries</p> Signup and view all the answers

<p>It can have negative effects on another country's economy</p> Signup and view all the answers

<p>To oversee many aspects of international financial affairs</p> Signup and view all the answers

<p>It is a tool of international financiers, doing little to assist poor nations in achieving economic growth</p> Signup and view all the answers

<p>Funding infrastructure projects and augmenting private capital flow</p> Signup and view all the answers

<p>Having a good credit rate which allows them to borrow money at a cheaper rate and lend it to developing countries with low interest rates</p> Signup and view all the answers

<p>Investors have no role in management</p> Signup and view all the answers

<p>Access to natural resources and different business environments</p> Signup and view all the answers

<p>90% goes to wealthy countries due to lower risks</p> Signup and view all the answers

<p>Cut off of future lending and seizure of assets</p> Signup and view all the answers

<p>MNCs outsourcing jobs and seeking ethically relaxed governments</p> Signup and view all the answers

<p>Concessional loans are offered at reduced interest rates, while non-concessional loans are granted at market interest rates.</p> Signup and view all the answers

<p>Sovereign risk and restrictions on foreign ownership</p> Signup and view all the answers

<p>They can potentially lead to negative effects on borrowing and lending countries</p> Signup and view all the answers

<p>The benefits and costs of foreign investment do not equally affect every citizen</p> Signup and view all the answers

<p>Incomplete information available for all transactions between debtors and creditors</p> Signup and view all the answers

<p>To manage the international monetary and financial system</p> Signup and view all the answers

<p>It provides limited impact in preventing financial crises</p> Signup and view all the answers

<p>It is traditionally used only during crises to make economic adjustments</p> Signup and view all the answers

<p>It has a very good credit rate which allows them to borrow money at a cheaper rate</p> Signup and view all the answers

<p>To facilitate better cooperation between creditors and debtor countries</p> Signup and view all the answers

<p>By setting financial standards and providing information, international finance facilitates relations between borrowers and lenders.</p> Signup and view all the answers

<p>Latin America's total debt grew from $40 billion to $330 billion.</p> Signup and view all the answers

<p>Debtor-creditor interactions may become a burden, impose constraints, and create conflicting interests.</p> Signup and view all the answers

<p>High debt accumulation</p> Signup and view all the answers

<p>It is provided as a grant with no obligation to payback</p> Signup and view all the answers

<p>1974 to 1982</p> Signup and view all the answers

<p>Tendency for debt accumulation</p> Signup and view all the answers

<p>Severe economic downturn and currency devaluation</p> Signup and view all the answers

<p>Pursuit of industrialization</p> Signup and view all the answers

<p>Short-term trading of financial instruments such as stocks and bonds</p> Signup and view all the answers

<p>Potential benefits for global efficiency and economic growth</p> Signup and view all the answers

<p>Transfer of technology and managerial expertise</p> Signup and view all the answers

<p>Non-compliance with loan repayment schedules and conditions</p> Signup and view all the answers