ESSE Definitions PDF

CHAPTER 5: INTERNATIONAL TRADE ● Mercantilism: Theory prevalent in Europe and thought to be the origin of capitalism. They defended the fact of trading, as it made a country richer. However, they wanted to avoid imports by imposing many barriers and promote the exports by imposing policies to do so....

CHAPTER 5: INTERNATIONAL TRADE ● Mercantilism: Theory prevalent in Europe and thought to be the origin of capitalism. They defended the fact of trading, as it made a country richer. However, they wanted to avoid imports by imposing many barriers and promote the exports by imposing policies to do so. The term was created by Adam Smith. ● Absolute advantage theory: Theory that states that the country that has absolute advantage is the one that should produce and distribute to the world. ● Absolute advantage: Ability of a party to produce a good or service more efficiently than its competitors. Produce the goods more cheaply, using less resources. ● David Ricardo comparative advantage: Model in which it states that each country should specialize in producing and exporting the good in which it has competitive advantage. ● HO Model: Model in which it states that each country should specialize in the production and export of the good that uses intensively the factor of production they have in abundance. ● Competitive advantage: Lower opportunity cost to produce a certain good than other countries. ● Revealed comparative advantage (RCA): Index that measures a country’s relative advantage in a specific industry as evidence by trade flows. Numerator: Importance of one good in a certain country; Denominator: Importance of one good in the world. ● Economies of scale: Cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount produced per unit of time. ● Gravity Model: Model that states that the closer two countries are and the greatest is their GDP, the more they will trade. ● Inter-industrial trade: When a country specializes in producing and exporting certain goods to import others. ● Intra-Industrial Trade: When the same products are exchanged across borders. A country acts as a producer, importers and exporter of the same goods. ● Grubel-Lloyd Index: Measures intra-industrial trade of a particular product. Numerator: Total trade - absolute value difference between exports minus imports; Denominator: Total size of trade ● Aggregation of product: The index will be higher for broader categories than for narrow categories ● Aggregation of commercial partners: Index will be higher for a group of countries than for a specific country. ● Protectionism: The theory or practice of shielding a country's domestic industries from foreign competition by taxing imports. ● Free trade: International trade left to its natural course without tariffs, quotas, or other restrictions ● Import Quota: Restriction on the quantity of a good that may be imported. This restriction is enforced by issuing licenses to domestic firms that import. The government receives no revenue from the quota, but the quota license holders do. ● Voluntary Export Restraint (VER): Limit imposed by the government of the exporting country restricting the amount of a good that may be exported to a specific country during a certain period of time. The goal is to protect consumers by hurting producers. ● Domestic content requirements: Regulations that require a specified fraction of the final good to be produced domestically ● Red tape: Bureaucratic and administrative barriers. ● Public procurement requirements: Obligation of government agencies to purchase from domestic suppliers, even when they charge higher prices. ● World Trade Organization: Multilateral organization that considered free trade as an engine for development and growth, and increased welfare. It is a non-discriminatory system, that promotes free trade, the reduction of trade barries, provides stability, fair competition and development. CHAPTER 1: ECONOMIC DEVELOPMENT ● Absolute poverty: Situation where a lack of resources prevents access to basic needs. ● Relative poverty: Disadvantage with respect to the society or reference ● Temporary poverty: Oscillations over the poverty line depending on circumstances. ● Absolute poverty line: Monetary value of resources required to maintain a minimum welfare, given in absolute terms. ● Relative poverty lines: Monetary value defined with respect to a reference value (median of the distribution of household income) ● Poverty puzzle: Societal poverty line + upper-middle income line (5.8$/day), lower-middle income line (3.2$/day), within household inequality, multidimensional measure, international poverty line. ● Least developed countries: Low income countries confronting severe structural impediments to sustainable development. ● Sustainable development: Concentrated efforts towards building and inclusive sustainable and resilient future for people and the planet. ● Development: Multidimensional process which consists in the improvement in the standard of living (welfare) of a society and all the people who are part of it. It goes beyond the GDP growth ● Economic growth: Sustained increases in material living standards over time ● World happiness report: Landmark survey of the state of global happiness that ranks 156 countries by how happy their citizens perceive themselves to be. They focused on how social, urban and natural environments combine to affect our happiness. ● GNI: Total income received by the country form its residents and business regardless of whether they are located in the country or abroad ● GNP: Income of all of a country’s residents and businesses whether it flows back to the country or is spent abroad. ● SDG: 17 Sustainable Development Goals adopted by the UN in 2015 as a universal call to action to end poverty, protect the planet and ensure that by 2030 all people enjoy peace and prosperity. ● Poverty line: Minimum amount of income considered adequate. ● National Poverty Line: Minimum amount of income considered adequate by adding up the cost of essential needed by an adult in a given year. (nutritional, clothing and shelter) ● International poverty line: Constructed by taking the poverty line of the 15 poorest countries (1.9$/day) ● Poverty gap index: Index that tries to capture the intensity of poverty, telling us the fraction of the poverty line that people are missing in average in order to escape poverty. ● UN Human Development Report: UN report that provides cross-country comparable data to make better action possible. ● Human Development Index: Summary measure of average achievements in key dimensions of human development, based on (1) long and healthy life, (2) knowledgeable and (3) decent standards of living. It is a geometric mean of normalized indices for each of the three dimensions. ● Multidimensional Poverty Index: Summary measure of average achievements in key dimensions of human development: health, education and standards of living. This index replaced the HDI in 2010, since it has more factors and variables and measures individual situations ● Genuine Progress Indicator: Measure of sustainability economic welfare. It tries to capture the wellbeing of a country measuring the social, economic and environmental indicators. ● Social progress index: Measures the capacity of a society to meet the basic human needs of its citizens, the foundations of wellbeing and the opportunities of individuals to reach their full potential. ● Inclusive wealth index: Measures the capacity of a nation to create and then maintain human well-being over time. Meant to use as a sustainability index based on manufactured capital, social value of human capital and social value of natural capital. ● Inequality: The phenomenon of unequal and/or unjust distribution of resources and opportunities among members of a given society. It can be manifested in rent, wages, consumption, opportunities, services, resources, freedoms and political opportunities, consumption… ● Market income: The income you receive from the activities of the market ● Disposable income: Gross income - Taxes ● Final income: Disposable income - VAT + Public services. ● Categorical inequalities: Comes from being in a certain category ● Intergenerational elasticity: How a change in your parents income will affect the children's situation. It assumes the intergenerational relationship is constant across the income distribution and therefore is affected by changes in inequality between generations. ● Intergenerational inequality social mobility: Movements of individuals in social position over time. ● Lorenz curve: Picture of how income is cumulative among members of a population. The further it is, the more unequal the distribution of income. ● Gini coefficient: Numerical equivalent of the area between the Lorenz curve and the perfect.equality line. Takes values between 0 and 1. ● Commitment to reducing inequality Index 2018: Global ranking of governments based on what they are doing to tackle the gap between rich and poor. ● Palma ratio: Share of all income received by the 10% people with higher disposable income dividend / share of all income received by 40% people with the lowest disposable income. ● Decade of action: Call for accelerating sustainable solutions to the world’s biggest challenges, from poverty, gender, climate change, inequality to closing the financial gap. ● Climate change: Long-term shifts in temperatures and weather patterns provoked by human activities due to the burning of fossil fuels among others. ● Mitigation: Policies made to fight climate change ● Technological divide: Unequal access to digital technology, including smartphones, tablets, laptops, and the internet. The digital divide creates a division and inequality around access to information and resources. CHAPTER 2: CURRENT SITUATION FORECAST ● Self-fulfilling expectations: Process through which and original false expectation leads to its own confirmations due to the world acting in ways that confirm it. ● Repeal of the Glass-Steagall: End of banks regulation ● Commodity Futures Modernization Act: Swaps and derivatives excluded form some regulation and oversight ● Commodity reinvestment act: Encourage banks to lend in low-income neighborhoods. ● Financial crisis: Situation in which some financial assets suddenly lose a large part of their nominal value. In 2008, the causes were the massive sell of subprime mortgages and the bubble that was created around them. ● Poverty effect: The effect of feeling poorer by the fact that the price of something you own has decreased. ● Wealth effect: The effect of feeling richer by the fact that the price of something you own has increased. ● Too big to fail: Theory in banking and finance that asserts that certain corporations are so large and interconnected that their failure would be disastrous to the greater economic system, so the government should support them to prevent failures. ● Automatic stabilizers: Type of fiscal policy designed to offset fluctuations in a nation’s economic activity through their normal operation. ● Quantitative easing: Monetary policy action whereby a central bank purchases government bonds and other financial assets in order to inject monetary reserves into the economy to stimulate economic activity. Buying a lot of assets and increasing the size of their balance. ● Purchasing Managers Index: Index of the current direction of economic trends in the manufacturing sector. It captures whether market conditions are going well (PMI greater than 50), or going worse (PMI less than 50) ● Recession: Period of temporary economic decline during which trade and industrial activity are reduced, identified by a fall in GDP in two successive quarters. CHAPTER 3: POPULATION ● Urbanization: Increase of urban population ● Megacity: City with more than 10 million people ● Dependency ratio: People over 65/people of working age ● Mobility: All forms of population movement, temporary or permanent ● Circulation: Temporary or repeated migration ● Demographic transition model: Model based on historical trends of the birth rate and the death rate, which predicts that a country’s population growth rate goes through several stages as it develops. ● Developing countries: Sovereign state with a lesser developed industrial base and a lower Human Development Index relative to other countries ● Developed country: sovereign state that has a high quality of life, developed economy and advanced technological infrastructure relative to other less industrialized nations. ● Replacement fertility: Total fertility rate at which population exactly replaces itself from one generation to the next, without migration. ● Caring economy: Sector of the economy that is responsible for the provision of care and services that contribute to the nurturing and reproduction fo current and future populations. ● Net migration rate: Difference between the number of immigrants and the number of emigrants. ● Rejuvenation: Short-run increase of birth rates (?) CHAPTER 4: GLOBALIZATION ● Globalization: Process of growing integration and interdependence of nations, characterized by the intensification of international links ● Slowbalization: Process of increasing globalization, but slower in the rate of integration. ● Technological revolution: Period in which one or more technologies is replaced by another novel technology in a short amount of time. ● Leapfrogging: Concept used in many domains of the economic field. The main idea behind the concept of leapfrogging is that small and incremental innovations lead a dominant firm to stay ahead ● Remote worker: Somebody who works, at least partially, away from the office. ● Distributed team: Team where at least one person is working from a different place. ● Bretton Woods agreements: Collective international currency exchange regime that lasted from the mid-1940s to the early 1970s. ● Direction of trade statistics (DOTS): Presents the value of merchandise exports and imports disaggregated according to a country’s primary trading partners. Area and world aggregates are included in the display of trade flows between major areas of the world. ● Global trade: Exchange of goods or services between countries and is made up of the total imports and exports of each participating nation. ● Border effects: Asymmetries in trade patterns between cities and regions of different countries and those that are located in the same country. ● Trade liberalization: The removal or reduction of restrictions or barriers on the free exchange of goods between nations ● Trade openness: Trade - tariffs. ● Financial integration: Phenomenon in which financial markets in neighboring, regional and/or global economies are closely linked together. ● Chinn-Ito Index: Index measuring a country’s degree of capital account openness. Based on binary dummy variables, they represent the restrictions on cross-border financial transactions. ● Economic liberty: Freedom to produce, trade and consume any goods and services acquired without the use of force, fraud, theft or government regulation ● Pax-Britannica: Period of peace due to the British providing a common set of laws that manage world stability and reduction of stability. (1815 to 1914) ● Stolper-Samuelson theorem: Theorem that proves that when the price of a good increases, the price of the factor of production that is intensively used will increase more than proportionally to the price of the good. ● Feldstein-Horioka paradox: Theory that states that it is not necessary for levels of domestic investment and savings to be correlated, as investors seek the best opportunity. ● Home bias: Tendency for investors to invest the majority of their portfolio in domestic equities, ignoring the benefits of diversifying into foreing equities. ● Outsourcing: The act of delegating an activity to another company ● Offshoring: A company moves parts of its company to another place ● Nearshoring: Offshoring to countries that are nearby ● Farmshoring: Moving the production to rural areas ● Intra trade: Is when we sell and buy the same thing across borders. The trade is between the same category of goods ● GVCs: Global Value Chains. Full range of activities that economic actors engaged in to bring a product to market. ● Forward international trade integration: Form of vertical integration in which companies expand their activities to control the direct distribution of their products (va directamente al cliente) ● Backward international trade integration: Form of vertical integration involving the purchase of suppliers in the supply chain. The firm integrates things that were used to be done by suppliers. ● Regionalism: The theory or practice of regional rather than central systems of administration or economic, cultural, or political affiliation. ● Multilateralism: The principle of participation by three or more parties, especially by the governments of different countries.