Chapter 5 Learning Objectives

After studying this chapter you should be able to:1. Use the resource- and institution-based views to

explain why nations trade2. Understand classical and modern theories of

international trade3. Realize the importance of political and economic

realities governing international trade4. Participate in two leading debates on international

trade5. Draw implications for action

Trade termsexporting - Selling abroad

importing - Buying from abroad

merchandise – physical goods

services - acts, efforts, or performances exchanged from producer to user without ownership rights

trade deficit - An economic condition in which a nation imports more than it exports

trade surplus - An economic conditionin which a nation exports more than it imports

balance of trade - The aggregation of buying (importing) and selling (exporting) by both sides leads to the country-level trade surplus or deficit.

REALITIES OF INTERNATIONAL TRADE

import tariff - A tax imposed on imports

nontariff barriers (NTBs) – restrict imports but are not in the usual form of a tariff: subsidies, import quotas, export restraints, local content requirements, administrative policies, antidumping duties, over-elaborate or inadequate infrastructure, “buy national" policy, bribery and corruption, unfair customs procedures, restrictive licenses, etc.

deadweight costs - Net losses that occur in an economy as the result of tariffs

REALITIES OF INTERNATIONAL TRADE

import quotas - Restrictions on the quantityof imports for specific period of timevoluntary export restraints (VRAs) - superficial policy to show that exporting countries voluntarilyagree to restrict their exportslocal content requirements - A requirement that a certain - proportion of the value of the goods made in one country originate from that country.antidumping duties - Costs levied on imports that have been “dumped” (selling below costs or below exporter’s home market price to “unfairly” drive domestic firms out of business)