_axL_

(OMPREHENJIVE


ECONOMICS
Chief Editor & Compiler:

ABHISHEK
Nelson Brian
All rights reserved. No part of this book may be reproduced in any
form, electronically or otherwise, in print, photoprint, micro film or
by any other means without written permission from the publisher.
ISBN
Copyright
First Edition
Published by
8/ -8247-03 /-5
Publisher
2004
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Preface
Economics is the science that deals with the production,
distribution and consumption of wealth. It studies the
various problems oflabour, finance, taxation, etc. and tries
to find a solution or the best possible way to tackle these
problems. The subject not only deals with the present and
future growth of a country's 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 complex
level or the macro level, like the national income or the
production of an industry. The job of the economists is to
identify the economic problems of a country's economy
and find solutions for the same, thereby promoting a healthy
and smooth economic growth.
There are two schools of thoughts in economics, viz. the
Classical and the Modern. The economists belonging to
these two schools have contributed a lot in the field of
economics 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 the
readers with a handy referral for the terminology used in
the subject. The dictionary covers almost all the terms
that form a part and parcel of economics in simple and
easily comprehensible language. In order to enhance the
readers knowledge and bring about more relevance, many
examples and pictures have been used along with the defi-
nitions of the terms.
II a foir trader / foir traders I t:lepreciation 5
- a fair trader / fair traders and government) of a country,
contrasted with free trader, a ; in contrast to the total demand
fair trader is a holder of the for that country's output.
point of view that one's country's : _ absorption approach
government must prevent 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 the
lb'
mestic ones. : earnings less a sorptIon.
- abilene principle _ abstinence
a description of a group's inabil- the giving up of the current con-
ity to solve their disagreement. ; sumption in order to increase
Nobody wants to reach a par- : the future consumption. It is
ticular destination (Abilene), often characterised by directing
for fear of offending or contra- ; the available resources towards
dicting each other. : the production of capital goods.
- absolute advantage Due to this, the future produc-
; tion of the consumer goods will
1. a term used in the interna- ...,
tional trade theory, as per which increase.
a country specialises in produc- : _ abundant factor
ing such goods and services that the factor which is available in
it is able to produce more abundant supply in a country
ciently (more output per urut of ; relative to other countries. Can
input) than any other country : be defmed both with respect to
2. the ability of a country to pr?- quantity and price.
duce a good at lower cost, mil d d . . tion
terms of real resources, than : - acce eprecla
th untry In
a Ricardian I depreCIatlOn of a new asset
ano er co. . . d h ' h
model, cost is in term of only ; over a peno t at ISalmTuch
I
b
. shorter than the norm. e
a our. '. . th d I
- absorption
the sum-total of demands for
goods and services by all resi-
dents (consumers, producers
I firms operatIng m e eve op-
: ing areas usually follow this
I . .
: method of depreCIatIOn.
I
Economics======= II
I accepting house II
• accelerating inflation
I • accelerator co-efficient
I states that any increase in the a sudden inflation rate increase.
It is the result of the
government's efforts to hold the
employment level below its I
natural rate.
output is always accompanied
by a corresponding increase in
the capital, like machinery etc.,
that is used to produce it. The
• acceleration principle;
accelerator
indicative of a relationship be-
. tween income and output and
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
I states that the aggregate net
investment level is dependent
on the expected change in out-
I put .
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
• accelerator
the process in which demand I
change for the consumer goods
leads to an even larger demand
change for the capital I
ment used to produce them.
the establishments whose busi-
ness is to accept or guarantee
bills of exchange. Such establish-
ments may also be involved · in
several other services and func-
tions.
II ========E&onomics
IIIICUSS / accessibility I accounts receiV:============7
• access / accessibility
term expressing the ease with
which a location can be reached
and interacted with from other
locations.
• rate
also known as the hiring rate,
i.e. the total number of employ-
ees added to the payroll in a
given period of time. It acts as
an important indicator of the
future business conditions.
...... _1Aow . ..... c.- ___
... .....
Il" ""' ..... ,..- ...... __ "
.... ---_ ... _-
• accessions tax
cepted or endorsed to make
; some cash available for a short
: term, without receiving any
goods in return. The sole pur-
pose of this is of discounting
; • accommodation endorse-
ment
I
: the endorsing of a note or any
other bill of credit by one indi-
; vidual to another in order to
: grant him the right to obtain a
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 .
the tax on the receiver of gifts I
and inherited property, it is lev-
ied by the government.
• accommodating move-
ments
the transferring of gold and con-
vertible currency aboard by a
country in order to meet its bal-
ance of payment deficits.
• accommodation bill
that bill, which is drawn, ac-
I • accounts receivable
; the amount that a business is
: entitled to receive from its cus-
tomers, generally a period of
; 10 to 90 days is taken as stan-
: dard to receive payments for
I
E&onomics======= \I
8 accounts ;eiVIJble (finance) I active circulation "
the goods already transported. I and Pacific less developed coun-
• accounts receivable (fi-
nance)
I tries that were included in the
Lome Convention and now the
I Cotonou Agreement.
the entitlement of a firm to re-
ceive application of money I • across-the-board tariff
from its debtors for obtaining I changes
funds to fincnce the current op- a change of all tariffs in a coun-
erating expenses or some other try. They are raised or lowered
expense. I by an equal percentage.
• accrual basis I • action lag
a method of accounting in I the delay between the formula-
which the income and expenses tion of a policy decision and its
are not charged until the time execution.
they are actually earned or in-
curred.
I • actionable subsidy
• accrued
I a subsidy which is not prohib-
the earnings, sales, expenses or
other items of income or expen- I
diture, which are already made
or incurred and are outstand-
mg.
• accrued expenses
ited by the World Trade
Organisation (WTO), but that
member countries are permit-
ted to levy compensating duties
agamst.
• active balance
a term to indicate a balance of
payments that is favourable for
a country, when the revenue
earned from exports is higher
an accounting entry ,,,herein a I
liability is recorded when the
cost of a service used but not
paid for is observed. I than the expenditure incurred
on tl1e import of goods and ser-
• accumulation
the acquisition of an increasing I
VICes.
• active circulation
quantity of something.
• ACP countries
a group of Mrican, Caribbean
I at any given time, the part of
I the RBI's issue which is in cir-
culation.
II ========Eetmomies
1\ actiPe tnllritet I addition rule
- active market
market for a specific set of stock
or shares traded quite fre-
quently and regularly.
_ activity rate
the percentage of people in a
given population age group that
are employed, but not in the
defence forces of the country.
- actual protection rate
implicit tariff.
_ actuals
the items that are bought with
the intention of immediate de-
livery in a stock exchange.
- ad valorem
1. in proportion to the value. A
term used to refer to the taxes
and duties levied on goods, etc.
as a percentage of their value.
A. V.a--.Per Capita Ass .....
• LN<f""""
.-
080'l"MTc:. eLtOt
0"""""""
._'"""""
.000000Y-...ot
.W5lPAUIIIItACH
0 .........
2. per unit of value i.e. divided
by the price.
- ad valorem equivalent
the ad valorem tariff which
9
*================
~ of its effects on trade, price or
; some other measure, to a non
: tariff barrier.
I
: - ad valorem tariff
: tariff defined as the percentage
I of the value of an imported
~ good.
~ - ad valorem tax
a t<LX or duty calculated on the
I basis of the value of a transac-
I tion. It is taken as a percentage
of price at the selling or produc-
tion stage.
~ - adaption & adoption
. dichotomy
a constituent of A.A. Alchian's
and Charles M. Tiebout's
I rationalisation of classical eco-
nomic theory. The argument is
that active, deliberately optimal
I (adaptive) behaviours are not
I needed for the viability of
: optimising theories, since eco-
~ nomic actors would be either
; 'adopted' by the competitive
: environment or would fail.
I
: - addition rule
I
a rule for the determination of
I the derivative of a function with
respect to a variable, where the
function constitutes the linear
would be equivalent, in terms I sum of two or more different
Eeonomics======== II
""l=O=========ad=rjust;le
peg
I ad71ancedepositrequirement 1/
functions of the variable.
• adjustable peg
I • adjustment lags
I the time taken by a variable, like
ccpital stock to adjust to tje
changes in its determinants.
an exchange rate which is I
pegged, but for which it is lID-
derstood that the par value will
be changed occasionally. Such I
system can be subject to ex-
treme speculative attack and fi-
nancial crisis, as speculators
may easily anticipate these
changes.
• adjustment mechanism
the theoretical process through
which a market changes in dis-
equilibria, moving toward equi-
I librium if the process is stable.
I • administered protection
I protection resulting from the
application of anyone of sev-
eral provisions that respond to
• adjustment assistance
a government program to as-
sist those workers and/or firms
whose industry has declined,

T'JlMAnm"JoY<2
(HR.

I specified market circwnstances
or events, usually as determined
by an administrative agency.
• 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 authorities
that action is necessary and the
actual implementation of the
either because of competition
from imports (trade adjust-
ment assistance) or from other I
causes. Such programs usually
have two (conflicting) goals,
which include, to lessen hard-
ship for those affected and to
action. The duration of this time
depends upon how efficient the
authorities are in implementing
I the policies formulated.
I • advance deposit require-
help them change their
behaviour.
ment
a requirement where a percent-
age of the value of imports or
II =======E&onomi&s
II tulT1l1ncerefunding I Rtl!flomerlltWn
of import duties should be de-
posited prior to the payment,
without competitive interest
being paid.
of the view that the employees
; should be free to decide about
: joining a union or not and those
who state that the employees
; should not be allowed to enjoy
- advance refunding : the benefits of a union without
to exchange those bonds whose paying for them.
expiry date is approaching for I
new bonds on advantageous : - agenda 21
terms. a plan of action adopted at the,
_ adverse selection ; Rio Summit for promoting sus-
: tainable development.
the tendency for insurance to be I
purchased only by those per- : - agglomeration
sons who are most likely to I 1. geographical concentration
need 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 close
a term of trade which is consid- I to a single location, rather than
ered unfavourable relative to I being spread out uniformly
some benchmark or to past ex-
penence.
- advice
note sent by one merchant to
another, requesting him to de-
liver the ordered goods.
- agency shop
the mandatory requirement for
a prospective employee joining
a firm to pay the union dues
without being a part of the trade
union. kind of arrange-
ment is generally found in the
US between the ones who are
over space.
I
: - agglomeration economies
I (of Scale or Scope)
I benefits, savings or drop in av-
: erage cost resulting from the
clustering of activities. Gener-
ally, the concept of agglomera-
; tion economies refers to savings
: or benefits derived from the
clustering of activities external
; to the 'firm' and are therefore a
: part of 'external economjes'.
I
: - agglomeration economy
I any benefit which accrues to
Eeonomics======= II
=12=========='Wf'Y'iJ==a; concentration I "'IJ8"t94tetxpmditun II
economic agents as a result of ~ aggregate demand curve relates
having large numbers of other .
agents geographically close to
them, thus tending to lead to I
agglomeration.
• aggregate concentration
the state in which the goods
produced in one sector of the
economy or the whole is con- I
centrated around a few large
the level of real national income
(GDP) demanded (the total
corpora tions.
• aggregate demand
the total demand
I quantity of goods and services
demanded) to the price level (as
measured by the GDP defla-
tor).
In the
economy. It takes into account I
the total of all the desired ex-
penditure at any time by all I • aggregate expenditure
groups in the economy. The I in macroeconomic theory, ag-
main groups who spend are gregate expenditure is sum-to
consumers (consumption),
firms (who spend on invest- I
ment), government (govern-
ment expenditure) and over-
seas (exports).
Aggregate
Expenditure (AE)
A'
t'
A.
E'
Price level (P)
ADzPyR
=C+ 1+ G + NX
AD
.---+:
o VOR vf Reallncome
('(II.. RGDp)
• aggregate demand curve
in macroeconomic theory, the
o Yo Y
1
RGDP
I tal of the amount of desired
spending by consumers, gov-
ernments, private investors and
I foreign buyers (net of spending
on imports) at each level of real
national income (GDP).
II ========B&onomks
II tI9!J1VJRte meRS'Un of support I RllocRted cost

13
• aggregate measure of ing the same.
support
h
.. 1 • aggregation
t 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 : demand is an aggregate,
agricultural products. It in- m with the demand of
eludes the value of price sup- an mdiVldual . .
ports and direct subsidies to . 2. the amalgatlon of two or more
specific products, as well as of an economic entity into
payments which are not prod- a category. For macroeco-
uct specific. ; purposes, all goods and
• aggregate supply
it is the total quantity supplied
at every price level, i.e. the to
Price Lovel (P)
AS
O
Real Income
(YR. RGDp)
tal of goods and services pro-
duced m an economy in a given
time period.
: are usually aggregated
1 mto Just one.
• aggregative model
; a model used in econometrics
: where the creation of variables
is. done by using groups of indi-
1 VIdual variables.
; • agio
: it refers to the fee that is paid
1 •
: for exchangmg one currency for
another, or for a foreign bill of
; exchange.
; • agistment
• aggregcte supply curve : to feed or take care of the cattle
in macroeconomic theory, the with the intention of getting a
short run aggregate supply 1 reward.
relates the total quan- ; • allocated cost
my of goods and services sup- . th
piled and the price level (as; e.allocation of expenditures to
d
: vanous accounts.
measure by the GDP defla- 1
tor) and with all else remain-
E&onomics======= II
14
=================*
• allocation
alloctJrion I angel inPUtor II
distort production and trade.
• American Depository
Receipt (ADR)
an assignment of economic ;
resources to uses. In general :
equilibrium, an assignment of
factors to industries produc- I
ing goods and services, to-
gether with the assignment of :
resulting final goods and ser- I
vices to consumers, within a
country or throughout the
world economy.
• allocative efficiency .
the best possible allocation of ;
I a document given to a share-
holder and issued by the US
Bank in response to the deposit
of shares by the shareholder.
resources.
• allonge
a sheet of paper to provide an
additional space for endorse-
ments, usually attached to a bill
of exchange.
• all-or-none order (US)
I • amortisation
this term is U5ed in relation to
the payment of a loan in ad-
I vance, over a specified time pe-
riod. Such fund can also be cre-
a limited price order for buy-
ing or selling of shares and I
stocks, with the condition of :
I est.
ated when equated instalments
I are deposited at regular inter-
I vals of time, so as to accumu-
late an amount equivalent to the
amount of debt including inter-
being executed entirely or none :
at all. I • AMS
• amber box
Aggregate Measure of Support.
• angel investor
the category of subsidies in the I
WTO Agriculture Agreement,
the total value of which is to be
reduced. It includes most do-
mestic support measures that
a venture capitalist with a so-
I cial conscience. They are like
I other venture in the
sense that 'angels' are 'looking
for higq. growth potential with
II =======;;;;:;:;;;::;:;E&onomics
a five-to-ten-year cash-out. An-
gel investors often look for' 'psy-
chic income' beyond just bal-
ance sheet and income state-
ment- the chance to help other
entrepreneurs, assist with inner
city problems ... for example.
- anglo-saxon bias
Walter Isard's characterisation
of the 19th century in a spatial
economic theory in Britain, in
contrast to the 'Germanic Bias'
in the development of the clas-
sical location theory.
- annuity
is a type of life insurance con-
tract that gives periodic pay
---
··· ··1

. .. "
-
.ft
--
.-..
I
. ... .. .. .. ill 'I. A .... .. . .. .. II .. Q II .. .. • • .... .. .. - •
T _ _ ca.
15
*================
- anticipation
, in accounting parlance is, to
: record the earnings or profit
before they are actually realised.
- antitrust legislation
a law that targets healthy com-
; petition amongst all the players
: in a particular industry and thus
restricts monopolistic practices
; followed by a private
; - anti-trust policy
: the U.S. term for competition
, li
: po cy.
,
: -ANZCERTA
Australia-New Zealand Closer
; Economic Relations Trade
: Agreement.
,
: _APM
Average Propensity to Import .
,
: - appellate body
the standing committee of the

ments to the insured at some ,
future time, usually retirement.
······:'1·· , .. "
:::.:::?,/ .

- antedate
earlier dating of a document,
such as a life insurance policy, ,
than what is current, so that it
matures or takes effect sooner.
S;·l!(····



WTO which reviews decisions
&tmomit:s======= II
16
=================*
of dispute settlement panels.
• applied economics
a branch of economics that stud- I
ies practical problems and uses
the principles and tools of eco-
nomic analysis.
• applied tariff rate
the effective actual tariff rate at
applied economics I arbitrat'ion II
Can You
Keep It?
Is It a Buslaes.?
• appropriation
in accounting, money or tnate-
a country's border.
I rials set aside or spent for a spe-
• appreciation cific purpose or allocating the
a rise in the value of a country's resources between the numer-
currency on the exchange mar- I ous uses.
ket, relative to a particular other
currency or to a weighted aver-
age of other currencies. The I
currency is said to appreciate.
• appreciative theory
(Nelson)
attempts to structure qualitative I
notions about the nature of a I
firm and its activities, in a man-
ner that is less straining but
richer at the formal level.
I bO
• ar Itrage
I the simultaneous buying of cur-
rency, securities or goods from
one market for the purpose of
I selling in another market at a
higher price.
• appropriability problem
problems associated with the
ability of the firm to capture
acceptable levels of benefits, I
associated with the exploitation
of its own technological inno-
vations through confidentiality,
• arbitration
is a way of settling a dispute
I between two parties, by a third
I person who has interest in that
patents, etc.
matter.
II ========Economics
\1 argument forprotection I asymmetric ;fo"",'"","tI."","'"",tion========"",1"",7
• argument for protection
the reason given for restricting
imports by tariffs.
• armington assumption
the assumption in which inter-
nationally traded products are
differentiated by the country of
ongm.
• articles of association
an official document legally re-
quired to be filed with the reg-
istrar by the promoters of a
public limited company.
• a r ~ b a i t o
part-time work.
• asset stripping
the selling of those assets by a
company that are not required
in its day to day functioning.
~ 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
I balance, specifically, with only
monetary and fiscal policies
available under fixed exchange .
rates.
~ • assimilative capacity
I the ambit to which the environ-
: ment carl accommodate or tol-
I
: erate pollutants.
I • d
. • asslste areas
~ those relatively backward areas
; which are recognised by the con-
cerned administration or the
~ government as being eligible to
; receive special assistance.
; • associated company
: the connection or relation of an
~ independent company with an-
I other independent company.
~ • asymmetric information
• assignment ; the failure of two parties to a
the right of transference of : transaction to have the same
benefit of loan that a person I relevant information.
is entitled to receive from an- I
other person, for instance Mr.
Economus======= II
=1",,8=========== ;:mPtotic distribution I autarkyprice "
• asymptotic distribution
I • at sight
I the payment of a bill of eX-I
change or promissory note as
and when demanded.
the probability distribution to-
wards which a statistic moves
or inclines at the point when
the sample size reaches infin- I
ity. Generally used in econo-
metrics in assessing the large
sample properties of its esti- I
• at the market
I an instruction given by a client
to his stockbroker for buying or
selling stocks or shares, and
I permitting the broker to buy or
I sell at a price that is around the
mators.
• at best
in relation to the stock market,
an abbreviation used to indicate
market price prevailing at the
time.
• ATe
the lowest possible price in re- I
spect of a buying order, and 'the
highest possible price' in respect
of a selling order.
I Agreement on Textiles and
Clothing.
• at discretion
an instruction given by a client
to his stockbroker for buying or
selling stocks or shares and
granting the broker to exercise
his own judgement for the price
at which to buy.
• atomistic competition
market structure characterised by
I a large number of firms, who
I compete independently.
I • autarky
1. self-sufficiency and indepen-
dence of a nation in economic
• at limit I terms.
an instru'ction 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 price
est price that may be paid or I price in autarky, i.e. the price of
the lowest price for making a something within a country
sale.
when it is not traded by that
I country.
II ========Eeonomics
II"uthorised cllpitlllillutoregnssion * ==========1=9
• authorised capital
the maximum amount of capi-
tal that can be raised by a pub-
lic limited company through the
public issue of shares. This
amount is also stated in the
I lined or can be avoided without
I any specific effon of the govern-
ment.
I
: • autonomous expenditures
those expenditures which re-
I main unaffected by the level of
memorandum of association,
which is filed along with the I
articles of association with the
registrar.
• authority constraints
as and when individual or
joint activities occur and who I
can participate in such activi-
ties is constrained by author-
ity constraints, which are re- I
lated to who controls the par-
ticular piece of time-space:
working hours, land owners' I


t:-"\-
I -- I
'-8.7
property 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 value
1. government spending pro- I of each observation is partially
grams that respond to changes I
in the level of national income in
such a way as to offset those
changes.
2. are the ways through which
the fluctuations in the different
economic variables are stream-
". lie til ...... fit
I " 'ull
-.....
--
'_ ...... 01_
==--
&onomics======= II
20 A11er;e Fixed Cost (APC) I backbone firms "
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 country's 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 country's 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
age flxed costs are total flxed
costs divided by the number of ~
units of output, that is, flxed I
cost per unit of output.
lBB
-- 0
5aa8
the amount spent for produc-
ing each unit of output. The
average cost is calculated by di-
viding the total cost by the num-
I ber of units produced. The av-
erage total cost comprises of
two elements, the average flxed
I cost and the average variable
cost .
• Average Variable Cost
(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
as per the theory of factor pric-
/
Japanese concept to describe
medium-sized flrms which ex-
II ========&_I&S
II backhaul transportation I balance =trtule========2=1
hibit the effects of strong entre- I • backward linkages
preneurial leadership and vital- I linkages to suppliers of inputs. A
iry. In such firms, strategies are : useful concept to differentiate
shaped by technological innova- direction of flows in complex
tion, marketing and attention I economies.
given to skilled and participa- __ ... __ _
tory workforces .
• backhaul transportation
utilisation of otherwise empty I
cargo space on the return trip,
after a primary transport ac-
tivity has taken place. Since I
the primary transport function I
may have paid for the partial
or full cost of return transpor- I
tation, the price of backhaul I • balance of merchandise
utilisation may be relatively trade
low.
• backward bending
the value of a country's mer-
chandise exports minus the
I value of its merchandise im-
I ports.
a curve which reverses direc-
tion, usually if, after moving
out away from an origin or
axis, it then turns back to- I
wards it. The term is used I
most frequently to describe
supply curves for which the I
quantity supplied declines as
price rises above some point,
as may happen in a labour sup-
ply curve, the supply curve for I
foreign exchange, or an offer
81Bion. of u.s. daHII,.
____________
50 . . ----_
o ..
'1190 1911' 19112 19113 '9114 '_'_'997 1_
curve.
Economics======= II
""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
any proceSs, especially (any au-
tomatic one, by which a coun-
try with a payments imbalance I
moves towards balance of pay-
ments equilibrium.
• balance of payments
argument for protection
a common reason for restrict- I
ing imports, particularly under
fixed exchange rates, when a
country is losing international
reserves due to a trade deficit.
count
a country's receipts minus pay-
ments for current account
transactions. It is equal to the
balance of trade plus net in-
flows of transfer payments.
kl.-a on o..n-ft'It Account.
<Itlliorw or DoU .. :r)
I • balanced budget
• balance of payments I such budget rises where the
surplus government receives the same
a number summansmg the I amoum of money from ta.xation
state of a colmtry's international I as it is spending. Classical
transactions, usually equal to
the balance on current account I Balanced Budget Plan ~
plus the balance on capital ac- I COMPOSrroNOfFMNCI&.LASSETS
count.
• b a l ~ n c e on capital account
a country's receipts minus pay
CAPITAl. ACCOUNT BAlANCE
(lJ ",0_ C-1IIodYe)
- ..... -
-.-..... -
ments for capital account trans-
actions.
1_ 2000 lIOCI2 200l 201M 3JCII 2010
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,
I the government should run a
deficit (spending more than its
II ========Economics
II balanced growth I Bayesiananalysis .. ==========",,2=3
revenue) to boost the economy ~ which acts as a bank for centrcil
and when the economy is I banks, fostering cooperation
booming, they can run a surplus among them and with other
(spending less than revenue). In I agenCies.
this wa); they can balance the lb'
• arrters to entry
budget 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 patents
exhibits balanced growth if con- I
• base money
sumption, investment and capi-
al
I monetary base.
t· grow at a constant rate while
hours of work per time period
stays constant.
• balanced trade
1. a balance of trade equal to
zero.
I • basic balance
lone of the more frequently used
measures of the balance of pay-
ments surplus or deficit under
I pegged exchange rates, the basic
2. the assumption that the bal- I
ance of trade must be zero in
equilibrium, as would be the case
with a floating exchange rate and
balance is equal to the current
account balance plus the balance
I of long-term capital flows.
I • basing-point pricing
no capital flows.
• Bank for International
Settlements
an international organisation
I a pricing method in which
prices arc quoted to include
transportation from one (or
I more) given point(s), regard-
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=========== ;w
ar
thy neighbqur I bill ofe:x:change II
Bayesian Analysis
poster1or IkeIhood pIIor
P(9,A.ix,I) = P(xI9,A.,I)P(9, A.II)
" J P(xI9,A.,I)P(9,A.II)
8.A
mwglnllliza10n
P( ~ x,l) = J P( 9, A.I x,l)
1 is the prior Infennalon A
• beggar thy neighbour
I • bid price (or rent) func-
tion
a set of combinations of land
prices and distances, among
I which the individual (or firm)
is indifferent. It describes
prices which the household
I (firm) would be willing to pay
at varying locations and for
varying amounts of land, in
order to achieve a given level
for a country to use a policy for I
its own benefit which harms
I of satisfaction (utility/ prof-
its) .
other countries. Examples are
optimal tariffs and, in a reces- I
sion, tariffs and/or devaluation
to create employment.
• bid/ask spread
the difference between the
• benign neglect
doing nothing about a problem, I
hoping that it will not be seri-
ous or will be solved by others.
I price which a buyer must pay
on a market and the price that
a seller will receive for the
I same thing. The difference
covers the cost of and provides
profit for the broker or other
I intermediary, such as a bank
I on the foreign exchange mar-
ket.
• bequest savings motive
people save so that they can
leave an inheritance to their chil-
dren.
• bicycle theory I • bill of exchange
with regard to the process of : a contract entitling an exporter
multilateral trade liberalisation, I to receive immediate payment
the theory which if ceases to I in the local currency for goods
move forward (i.e., achieve fur- that would be shipped else-
ther liberalisation), will collapse I where.
(i.e., past liberalisation will be I
reversed).
"II ========E&onomics
II Bts Iinuleet surplus
. ___ c.. . ...
ro ....... nc
--
• BIS
Bank for International Settle-
ments.
• blue box
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
~ be a bubble economy in the
; late 1980s .
; • budget deficit
: the negative of the budget sur-
I
: plus, thus the excess of expen-
I diture over income.
a special category of subsidies
permitted under the WTO I ~ .. ~ - . ­
Agriculture Agreement. It in- ..,
I ..
eludes payments which are
linked to production but with I
provisions to limit production
through production quotas or
requirements to set aside land
from production.
• border tax adjustment ; • budget surplus
rebate on indirect taxes' (taxes : in general, an excess of income
I dO
on other than direct income, : over expen lture, but usually
such as a sales tax or VAT) on ~ refers specifically to the govern-
exported goods and levying of ; ment budget, where it is the
them on imported goods. : excess of tax revenue over ex-
~ penditure (including transfer
; payments).
• broker's fee
the fee for a transaction charged
by an intermediary in a market,
E&tmomics=====================
II
",,26============* businesscycle I capability constraints II
BillionNOK
120
80
.0
-40
-80
a4 88 sa liM) 82 8.C eEl 88 00 02
120
80
.0
-40
-80
I cable or telegraph rather than
through mail. The payee is then
notified about the arrival of the
I payment by the correspondent
I bank.
• 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 rule
fall irregularly over time, relative a rule used to determine the
to trend. I derivative of a function in rela-
Boom
C\,VP u ~ s w i n g
/
''. \ Dov\'nswing
I tion to a variable, where the
function consists of another
function.
• call
I in the stock exchange terminol-
ogy, an option to purchase a
• business services specific amount of some stock
services that are forwardly I at a quoted price, known as the
linked to other business activi- I striking price, within a specified
ties. Such services tend to per- period of time.
form functions, which are more I
efficiently 'externalised' by the I
dient firms, i.e. cannot be effi-
• call loan
a loan that can be concluded or
ciently performed in-house. I 'called' at any point of time by
the creditor or the debtor.
For example banking, lfiSur- I
ance, etc.
• cable transfer
in the context of foreign trade,
• capability constraints
constraints on human activities
I in time and space, imposed by
nature or available tools. Part
a bank draft which is sent by I
of Hagerstrand's time-geo-
II ========Economics
27
II capital I capital structure
*================
graphic conceptualisation.
• capital
I tion than in labour.
• capital intensity
1. monetary capital: the money
used for investment purposes.
I the amount of capital per unit
of labour input.
2. real or invested capital: the
capital goods needed for the I
production of goods and ser-
vlCes.
• capital account
a part of the balance of pay-
ments where flows of savings, I
investment and currency are
recorded.
A._ ...
, .... ..-......
, .... ...... ..--.......... A •• ' ....... _.. ••
.,
• capital consumption I • capital market
in national accounts, capital con- I the market in which savings are
sumption is the amount by I made available to investors.
which gross investment exceeds • capital ratio
the net investment. It is the I
a measure of a bank's capital
same as replacement lllvest- I strength used by the U.S. regu-
ment. latory agencies.
• capital deepening
14 •
Banks' core capital ratio
"
Dc __ rcW ...... 1M1 ..
.....
I
I
I
:I
an addition in capital intensity,
normally in a macro context, I
where it is measured by some-
thing analogous to the capital
stock available per labour hour I
" " 85 " .7 •• H
spent. In a micro context, it I ..... _ ...
H '1.
could mean the amount of capi-
tal available for a worker to use, I • capital structure
"
"
but this use is rare. Capital I of a firm is broadly made up of
deepening is a macroeconomic its amounts of equity and debt.
concept, of a faster-growing
magnitude of capital in produc- I
&onomics======= II
28
=================*
capi-tatUm I chaebol II
• capitation I early 1970s by Eugene Fama
a system of payment for each I among others. The data there
customer served, rather than by was so much more convenient
the service performed. I than alternatives that it drove
I the study of security prices for
decades afterward. It did not
• causation
relationship which results when I
a change in one variable is not I
only correlated with, but actu-
ally causes the change in an- I
other one.
have volume data, which meant
that volume/volatility tests were
rarely done.
• certainty equivalent
• CBI
Confederation of British indus-
try.
.CD
Certificate of Deposit
---
-
--
---
- -
---
----
---
---
~ ~ ........
the amount of payoff (e.g .
I money or utility) which an
agent would have to receive, to
be indifferent between that pay-
I off and a given gamble is called
I that gamble's '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
gamble because the agent pre-
I 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 and
a standard database of finance I centralised Korean firms,
information at the University of : owned and controlled by the
Chicago. It has daily informa- I founding patriarch's family by
tion of NYSE, AMEX, and a central holding company.
NASDAQ stocks. Started in
II ========E&tmomics
II chained I eIF
Still gorging ".'. " .
\ ", :" .. t·
• chained
29
*================
tions or customs can or should
; maintain the value of money,
: not intrinsic content of valuable
metal.
• chi-square distribution
; a continuous distribution, with
: natural number parameter r. It
I
an index number which is fre-
quently reweighted. An ex-
ample is an inflation index
made up of prices weighted by
the frequency with which they I
are paid and the frequent re-
computation of weights makes
it a chained index.
. ,

. ...
• ' .:
.
---
• chaotic
a description of a dynamic sys-
tem which is very sensitive to
initial conditions and may
evolve in wildly different ways,
from slightly different initial
conditions.
• characteristic equations
a polynomial whose roots are
eigenvalues.
• characteristic roots
is a synonym for eigenvalues.
is the distribution of sums of
squares of r standard normal
I variables. Mean is r, variance is
2r, and moment-generating
: function (mgt) is (1-2 t) -r/2 .
I .
: • chOIce
economic choices involving the
; alternative uses of scarce re-
: sources.
I
: • choke price
the rock bottom price where the
quantity demanded is zero.
l.elF
• chartalism Cost, Insurance and Freight. A
also known as 'state theory of : price quotation which covers the
money' - 19th century mon- merchandise cost, the shipping
etary theory, formulated more ; insurance and the freight
on the idea that legal restric- : charges to a particular landing
I
II
30
=================*
circuit I cluster II
place.
I • Clayton Act
• circuit
I a 1914 U.S. law on the subject
of antitrust and price discrimi-
description of a network with I
one or more loops, creating al-
ternative paths between nodes
and thus creating network re- I
dundancy.
nation.
• circular flow
the manner in which funds
move through the capital,
labour and product markets
between households, firms, the
government and the foreign
sector.
The Circular Flow
In(:omes
· .................... .
· - .
Houu··
holds

· ....................... .
-
• classical
• clears
in this context it is a verb. A
I market clears if the vector of
I prices for goods is such that the
excess demand at those prices
is zero. That is, the quantity
I demanded of every good at
those prices is met.
• cliometrics
the study of economic history.
• closed I/O model
an input-output model is ei-
I ther open or closed with re-
spect to certain sectors or ac-
tivities.
• cluster
according to Lucas (1998), a
classical theory would have no I
explicit reference to prefer-
I a concept associated with
Michael Porter's work, a 'clus-
ter' is a geographically proxi-
I mate group or geographic con-
ences.
II ========&onomics
II coase theorem I coefficient of specialisa; 31
centration 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 property
in 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 Production
complementarities. The geo- Function
graphic scope of a cluster can I
range from a single city or relates the productivity of
I labour to the capital intensity
state to a country or even a
group of neighbouring coun- I (capital-labour ratio) under the
tnes . condition of a constant profit
ti- - .... - _ ~ - - -
• coase theorem
informally, the theorem says
that in the presence of complete
wage ratio.
• Cochrane-Orcutt Estima-
tion
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 of
competitive markets and the I localisation, except that regions
absence of transactions costs, an become industries and indus-
efficient set of inputs to produc- I tries become regions.
Econornics====================== II
""3""2==========""C,,,,oeffic= .ient ojllamtWn I concentratWn ratio II
• coefficient of variation
an attribute of a clistribution,
i.e. its standard deviation di-
vided by its mean.
Coefficient of Variation
%CV Definition = Sl.Dc\' x 100
MEAN
/\CV=l O
( \
I' \ CV=.l.O

: J" "-
Crucial in establishing:
• Ahgmnent
• AUldi c st.'1bility
• SlalOmJ!' of cell,
• cohort
a group of persons experienc-
ing the Sartle event during the
I • collusion
I an agreement between parties
to refrain in participating in an
activity which they normally
I would in order to reduce com-
petition and gain higher prof-
its.
• sets
I a closed and bounded set.
I • competitive equilibrium
price
the price at which the quantity
supplied and the quantity de-
I manded are equal to each other.
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. The
analysis traces those persons I assumption is to hold in some
born during the same time pe- principal-agent models so as to
riod, as they age and live make certain conclusions pos-
through common time-specific I sible.
experiences and life stages. The
most important experiences of
an aging cohort are the cohort I
birth rates and cohort death
rates.
• concentration ratio
a way of measuring the concen-
tration of market share held by
particular suppliers in a market.
I It is the percentage of total
market sales accounted for by
II =========E&onomi&s
II conceptual framework for economicge:;aphy I conditional foetor demands 33
a given number of leading
firms.
• conceptual framework for
economic geography
I the smallest characteristic
I root is S (both being pre-
I gamma = (L/S)·s
; Values larger than 20, according
: to Greene (93), are observed if
~ and only if the matrix is 'nearly
I singular' .
the structure that serves to hold
the conceptual parts (concepts) I
together and within which the
ideas, facts, principles, insights
and circumstances of Economic
Geography exist and are related
sumed to be positive here, that
I is, the matrix being diagnosed
I is presumed to be positive
definite), then the condition
number is:
to each other.
• condition number
a measure of how close a ma- I • conditional
trix is to being singular. Rel ; it has a special use in finance,
,-------- --------, : when used without other
Condition HUla It., v • . S Ize f.r '1ul.u • .,1.
~ 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 = = = = = = = = = = = ~ I
evant in estimation if the ma-
trix of regressors is nearly sin-
gular, the data are nearly col-
linear and (a) it will be hard to
make an accurate or precise in-
verse (b) a linear regression will
have large standard errors.
The condition number is cal-
culated from the characteris-
tic roots or eigenvalues of the
matrix. If the largest charac-
teristic root is denoted Land
: • conditional factor de-
I
mands
I a collection of functions which
; give the optimal demands for
: each of the several inputs as a
~ function of the output expected
; and the prices of inputs. Often
: the prices are taken as given and
~ incorporated into the functions
; and so they are only functions
: of the output.
I
Economiel========= II
",,34===========* conformable I consumer strPereignty II
• conformable
I and local opinion indicates that
I there is support for the compo-
generally used in conjunction
with matrices. A matrix may
not have the right dimension or
shape to fit into some particu- I
lar operation with another ma-
trix. Take matrix addition - the
nent areas.
--
_N
I
matrices are supposed to have I
. the same dimensions to be
• • - * - - - - - - - - -
-
summed. If they don't, 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
multiplication.
a property of some utility func-
tions, also said to have isoelastic
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
meets the re- 1 ;:
quirements for recognition as a 300 _.
'Metropolitan Statistical Area' 200 __ :_ : _.:
, , " 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-
teria specified in the standards, I
i.e. in a perfectly free market.
II ========Economics
II consumer surplus I contractionary7=ry""P""OI""ic""'=======,,,,3=5
• consumer surplus
the difference between what a
person would be willing to pay
and what he actually ha,s to pay
for buying a certain amount of
a good.
• consumption
the individuals and corporations
which buy products and ser-
vices. In economics, consump-
tion refers only to consuming
that involves a monetary trans-
actIon.
• consumption function
the relationship between dis-
posable income and consump-
tion.
Q :::..:::.':' .. -:- .....
--.. -
CI
0,,_ .......... ..., ....

................... -
........

• contingent valuations
; the use of questionnaires about
: valuation, to estimate the will-
ingness of respondents to pay
I for public projects.
I • contract curve
the same as the Pareto set, with
the implication that it is drawn
I in an Edgeworth box.
I • contractionary fiscal policy
I a government policy of reduc-
ing the spending and raising
taxes.
Visual
Contractlonary Fiscal Polley
LRAS SRAS
AD, AD,
Real NatloNl OUtput (GOP)
• contingency theory US!.nd describe ,Iv ... clion"he government
could take in order Co decrease aggregate denW'ld
regards the design of an effec _ I from AD, 1.0 AD,
tive organisation, as necessarily • contractionary monetary
having to be adapted to cope policy
with the 'contingencies' that a government policy of raising
derive from the circumstances I interest rates charged by the
of environment, technology, : central bank. In the texts of
scale, resources, work task and I some ftrst courses in macroeco-
other factors. I nornics, it shifts the LM curve
II
controlvariabJes I corporatewelfon II
(liquidity/money curve) to the
left.
A
-::::"l'-...

-.. .. &M;"

..
• control variables
I for each data point, how far it
I is from the means of the in-
dependent variables and the
I dependent ·variable. If it is far
I from the means of the inde-
pendent variables, it may be
very influential and one can
I consider whether the regres-
sion results are similar with-
out it.
a variable in a model controlled
by an agent in order to optimise I
something.
• convergence in quadratic
mean
12 3 458789101112
-
• cCHJperative game
a kind of convergence of random
variables. If Xc converges in qua- I
dratic mean, it converges in prob-
ability but it does not necessarily
a structure where the players
I have the option of planning as
a group, in advance of choos-
ing their actions.
converge.
• convolution
the convolution of two functions
U(x) and V(x) is the function:
U*V(x) = (integral from 0 to X
of) U(t)V(x-t) dt.
• I>istance
a metric for determining
whether a particular point
alone affects regression esti-
mates much. After a regres-
sion is run, one can consider,
• corporate welfare
I when a government gives
I money or a monetary break
(like tax cuts or subsidies) to a
I business. Governments give
I money to businesses which are
very profitable to keep them
from moving to other provinces
I or countries.
II =======& __ us
11 Co'stAndFmght(CAF)
_ Cost And Freight (CAF) _ costate variables
a price quotation that includes I a Lagrangian multiplier or
both the merchandise cost and Hamiltonian multiplier.
the freight charges- for its ship-
ment to a given destination.
- cost curve
a graph of total COStS of produc-
tion as a function of total quan-
tity produced.
Toral Cost Curves
- cost function
: - cost-of-living index
,
: measures the changing cost of
a constant standard of living.
; The index is a scalar measure
: for each time period. Usually,
it is a positive number, that
; rises over time to indicate that
: there was inflation. Two in-
I .
: comes can be compared across
I time by seeing whether the in-
; comes changed as much as the
index did.
oMlCMc.e. .............
_ , ___ __ . ______ .. ---
a function of input prices and I
output quantity. Its value is the I
cost 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
countrrvailing power I Cowles CommissUm II
=================,*================
38
• countervailing power I functions are assumed to be the
J.K.Galbraith' thesis of the ten- I same for all firms.
dency of market (monopoly) I • covariance stationary
power to be reduced by the a stochastic process is covari-
emergence of countervailing I ance stationary, if neither its
groups 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 .: .•. .ur]
investments (as 'bundles') to I .. .. "jkl · ElIX,·",(X. .•
(11.11 • .-rJly 011 I.:
accomplish an objective. . We mume the oulocorrel.tion ho, the form
• Cournot Duopoly
a pair of firms which split a
market, modelled as in the
Cournot Game.
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 Models
a generalisation of the Cournot
,\k l - It; f l!ti.;:)us I.
• Cowles Commission
I a: 1950s panel on econometrics,
that focused attention on the
Game, 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 the
known decreasing function of history, this had an impact on
total output. All firms know N ; the field - other problems such
and 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 aside
functions are treated as com- or given lower priority else-
mon knowledge. Often the cost where too because of the pres-
II-==========&onomics
II Cronbach'sAJpha I
tige and influence of the Cowles
Commission.
• Cronbach's Alpha
I errors made in predicting each
I data point, by using a kernel
: regression on the others.
I
: .CSO
Central Statistical Office.
I
.• CTT
a test for a model or survey's
internal consistency. It is some-
times called .a 'scale reliability
coefficient'. Cronbach's alpha
assesses the reliability of a rat- Capital Transfer Tax.
ing, summarising a group of I • current account
test 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 the
I • current account balance
the difference between a
overall rating called a 'scale' is
defined by the sum of these I
scores over all the test items. country's 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, it
between the measured scale measures the portion of a
and the underlying factor that I country's saving invested
the scale was supposed to mea- I abroad and if it is negative, it
measures the portion of the
domestic investment financed
sure.
• cross-section data
I by foreigners' savings.
is the parallel data on many
units such as individuals, house- I
holds, firms or governments.
• cross-validation
a way of choosing the window
width for a kernel estimation.
The method is, to select, from a I
set of possible window widths,
one that minimises the sum of
Developmenta in the CUITODt IIOOOOII1t belance,
Igovernment net lending and real dispooable income
..
_ c..ntf'lllk"COl. ...
14 t.
t.
t.
t ...
2000
&onomit:s======= II
40
=================*
current balance I deductive II
• current b a 1 a n c ~
difference between total exports
and total imports.
• CWO
I decision or choice.
I 2. a mapping from the ex-
pressed preferences of each of
a group of agents to a group
I decision.
Cash With Order.
The first is more relevant to
• de minimis decision theory and dynamic
a legal term for an amount I optimisation, while the second
which is small enough to be ig- I is relevant to game theory.
nored, too small to be taken I • decouple
seriously. Used to restrict legal
provision of support to an en-
provisions, including laws re- I
garding international trade, to terprise, usually a farm, in a
amounts of activity or trade that I manner that does not provide
" all all an incentive to increase produc-
are not tflVl y sm .
tion. Farm subsidies that are
• deadweight loss I decoupled are included in the
the net loss in economic welfare I green box and are therefore
which is caused by a tariff or permitted by the WTo.
other source of distortion, de- I • deduction
fmed as the total losses to those I
also known as deductive reason-
I ing. A process of inference,
which leads from general prin-
ciples or universal premises via
I logical reasoning to expecta-
tions or conclusions about par-
ticular cases.
who lose, minus the total gains
to those who gain. Usually iden-
tified in a supply-and-demand I
diagram in terms of change in
consumer and producer sur-
plus, together with government I
revenue. The net of these ap-
pears as one or two welfare tri- • deductive
angles. I characterises a reasoning pro-
• decision rules I cess of logical reasoning from
1. a function which maps from I the stated propositions.
the current state to the agent's
II ========&onomics
II deep itltror
4tUm
I de-itulustrialisatUm .. ==========",,4=1
- deep integration ~ - deficit ,
I in the balance of payments or
: in any category of international
~ transactions within it, the defi-
I cit is the sum of debits minus
~ the sum of credits or the nega-
economic integration which
goes well beyond the removal
of formal barriers to trade and
includes various ways of reduc-
ing the international burden of
differing national regulations,
such as mutual recognition and I
harmonisation. Contrasts with
tive of the surplus.
I _ .. --....... ".. ........
I 2DO r--------------------IL---
shallow integration.
- deep markets
a capital market may be said to
be deep if it has great depth.
May less formally be used to
describe a market with a large
total market capitalisation.
- default
failure to repay a loan. Interna-
tional loans by governments
and private agents lack mecha-
nisms to deal with default, com-
parable to the legal mecha-
nisms that exist within coun-
tries.
- deficiency payment
payment to a producer of an
amount equal to the difference
between a guaranteed price and
the market price, with the lat-
ter often determined on the
world market. A form of sub-
sidy to production.
I
: f = = ~ ~ ! : ~ ~ ~ ~ ~ = ~ = = = = ! ~
400 -4r--'-r--r--,- I ! i \ -i--"'l-;---r-r' 11111 __ 1 __ 11 __ 1171_
I = I::::. Ci .....
: - degressive
~ going down with income or
lover time. A degressive income
~ tax takes a smaller fraction of
: higher incomes. Degressivity in
~ trade policy might be a tariff,
; the ad valorem size of which is
: scheduled to decline over time,
~ or a quota that is scheduled to
; expand faster than demand for
: lmports.
I
: - de-industrialisation
: a decrease, over time, . in the
I share of the manufacturing in
: an economy, usually accompa-
I .
: nied by growth in the share of
~ services. Typically, accompanied
; by an increase in manufactured
: imports.
I
E&tmOmics======= II
""4,,,,2=========== :i17eredprice I demographic transition II
• delivered price
the price which includes freight
charges to the location of the
buyer.
I • demand elasticity
I normally, the price elasticity of
demand.
• demand price
• delta
the price at which a given quan-
is used with respect to options. I tity is demanded. The demand
The rate of change of a finan- I curve viewed from the perspec-
cial derivative's price with re- tive of price as a function of
spect to changes in the price of ~ quanuty.
the underlying asset. Formally, ;
this is a partial derivative. A • demand schedule
derivative is perfectly delta- I a list of prices and correspond-
hedged if it is in a portfolio with ing quantities demanded or the
a delta of zero. Financial firms graph of that information.
make some effort to construct I Thus, a demand curve.
delta-hedged portfolios.
• demand curve
the graph of quantity de-
manded, as a function of price,
normally downward sloping,
straight or curved and drawn
with the quantity on the hori-
wntal axis and price on the ver-
tical axis.
I • demand set
I in a model, the set of the most-
preferred bundles of goods that
an agent can afford. This set is
I a function of the preference re-
lation for this agent, the prices
of goods and the agent's en-
I dowment.
I • demographic transition
• demand deposit model of population change
a bank deposit which can be based on European experi-
withdrawn 'on demand'. The I ences. The model describes
term usually refers only to I the effects of changes in fer-
checking accounts, even though tility and mortality, associated
depositors in many other kinds I with industrialisation,
of accounts may be able to write I urbanisation and health care
cheques and regard their depos- lmprovements.
its as readily available.
II =======Eeonomics
II dependency theory I deriveddematul ..
The Demographic Transition
Rata_ ,er 1101
..
I\. ...........

...
..
DnthRak
.........
,
SOote SOote 2 SOot·, SOote
• dependency theory
the theory that states that the
less developed countries are
poor because they allow them-
selves to be exploited by the
developed countries through
international trade and invest-
ment.

.. "
" DependenclI Theorv

'-. . Blami"« Ille sYSlem

,110. • Glullal cconomv rIch COUlilfles
... "" • G10hal economu cKPloils 11001 natIOns
• RIch nahons mlclillonalfy keep lIoor
113110ns llOor
. RIch lIallOlIS eKlllolfS natural resources
.. and labor to tloor coUnltteS
.. -. . Core· SeIDl pentl/wry·· Periphery
• dependent variable
Thus, the relationship is often
; expressed as: a dependent vari-
: able is a function of one or more
'independent' variable(s).
• depth
I an attribute of a market. In se-
curities markets, depth is mea-
sured by the size of an order
flow innovation, required to
; change prices by a given
: amount.
I
: • derivatives
securities whose value is de-
I rived from the some other
: time-varying quantity. Usually,
that other quantity is the price
I of some other asset such as
bonds, stocks, currencies or
commodities. It could also be
I an index or the temperature.
I • derived demand
the demand that arises or IS
ActIvIty
the variable to be 'explained'
with the help of 'independent
variables'. These independent I
variables serve as the 'explana- I
tory' variables, however, the
extent to which this relationship I
or 'explanation' actually implies I
'causality' varies. It may merely
refer to a statistical relationship.
defined indirectly from some
I other demand or underlying
Economics======= II
",,44===========* de-skilling I digital nervous system II
behaviour.
• de-skilling
I ics specialising in the processes
I of long term growth and
change, especially in the case of
the less developed economies.
I. DFS Model
lone of the continuum-of-goods
models of Dornbusch, Fischer,
and Samuelson (1977, 1980).
• differentiated product
I 1. a firm's product which is not
I identical to the products of
a decrease in the level and scope I
of skills within a local/regional
labour market, resulting from
mainly two corporate strate-
gies: (1) mechanisation and
computerisation of production
and office activities (2) trunca- I
tion of corporate acti vi ties
within the region.
• destabilising speculation
speculation which increases the
movements of the price in the
market where the speculation
occurs. Movement may be de-
fined by amplitude, frequency I
or some other measure.
other firms in the same indus-
try. Contrasts with homoge-
I neous product.
• deterioration
2. sometimes applied to prod-
ucts produced by a country, even
though there are many firms
within the country whose prod-
ucts are the same, if buyers dis-
I tinguish products based on the
the process or occurrence of an
asset's declining productivity as ~ country of origin. This is called
it ages. This is a component of ; the Armington assumption.
depreciation. . • digital nervous system
• deterministic functions the digital processes which en
and variables
not random. A deterministic I
function or variable often
means one that is not random,
in the context of other variables I
available.
• development economics
a sub-discipline within econom-
II ========&cmomics
II direct foetor content I discrete choice mmlels 45
able a company to perceive and the expiry date of the bond. In
react to its environment, to : difference to coupon bonds, dis-
sense competitive challenges . COWlt bonds only pay the bearer
and customer needs, and to once, when the bond expires.
organise timely responses. • discount factor
• direct factor content I in a multi-period model, agents
a measure of factor content may have different utility func-
which includes only the factors tions for consumption (or other
used in the last stage of produc- experiences) in different time
tion, 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-
a measure of factor content
Which includes factors . used in
producing the intermediate in-
puts and so forth. That is, it in-
cludes all the primary factors
that contributed, however indi-
rectly, to the production of a
good.
• discoUnt bonds
a bond perchased at a discount
or at a price less than its face
Bents Issued at a [lscomt
I:; I CIIIII ",149
Ua ___ .U-t 3,151
_PllJlltk 111,_
1<14 11llC,ooo o!
... N.lAg

I.t.JV=_)ri&:.
t'"l:.c:a .....
$1",_
...JW!
..
value. The face value is the
amount of money that the
holder of the bond receives at
: ity, the factor by which they dis-
count next period's utility may
; be a constant between zero and
: one and if so, it is called a dis-
count factor.
I di
.• scount rate
I the interest rate at which an
; agent discounts future events in
: preferences, in a multi-period
model. Often denoted as 'r'. A
; present-oriented agent dis-
: counts the future heavily and so
has a 'High' discount rate.
• discrete choice linear
models
Pr(Yj=!) = F(Xj'b) =
: an econometric model in which
the actors are presumed to have
; made a choice from a discrete
: set. Their decision is modelled
I
II
mmiels I dispute settlement body 11
as endogenous. Often the 1 tion or economic activities.
choice is denoted Yi.
• discrete regression models
econometrics models in which
the dependent variables assume
discrete values.
I • disembodied technological
change
alters the production function
without requiring gross invest-
I ment to carry it into place.
• discrete time I • disintermediation
the division of time into indi- the prevention of banks from
visible units. In economic mod- flowing money from savers to
els, these units represent peri- I borrowers as an effect of regu-
ods, such as days, quarters or I lations.
years .
• diseconomies of scale
similar to economies of scale,
but with the implication that
they are negative, so larger scale
would increase the cost per unit.
ATC I I I I
t--Olseconomin occur
f--- whon output gO" I
beyond the minimum
Imr.m.
I--point of tho long run
--r-
t-- average cost curve
i-"'"
V
,I
t-,..
/'
-
Output
I • dismal science
refers to economics, which be-
cause it is so often used in ref-
I erence totradeoffs, is widely
thought to be depressing to
study.
• dispute settlement
I in the GAIT, the adjudication
I of disputes among parties. In
the WTO this is done by the
dispute settlement mechanism.
• dispute settlement body
I the entity within the WTO
which formally deals with dis-
• diseconomies of scale, putes between members. It con-
scope or agglomeration I sists of all WTO members
cost increases or other disadvan- I meeting together to consider
tages 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
II dissaving I dumestic
• dissaving
when individuals or households
spend more than their current
income.
• dissipate rent
47
*================
I eludes taxes and subsidies, tar-
I iffs and NTBs, externalities, in-
complete information and im-
I perfect competition.
I • Dixit-Stiglitz utility
I the Dixit-Stiglitz function used
as a utility function.
• dollar standard
to use up, in real resources, the
full value of the economic rents
that are being sought by rent
seeking.
an international financial sys-
• distance decay I tem in which the U.S. dollar is
the diminishing level of inter- I used by most' countries as the
action or value of a variable, primary reserve asset, in con-
with increasing distance, largely . trast to the gold standard m
resulting from the effect ofvari- I which gold played this role.
ous forms of distance-sensitive
transaction costs on demand or
cost patterns or functions.
• distance elasticity of
demand
I • dollarisation
official adoption by a country
o u ~ e r than the United States of
I the U.S. dollar as its local cur-
I rency.
• Domar Aggregation
the principle where the growth
rate of an aggregate is the
the relative response of effec-
tive demand to a change in the
distance (or transport costs) I
which a consumer (or consum-
ers) has (have) to overcome, in
order to purchase a good or ser- I
I weighted average of the growth
rates of its components, where
each component is weighted by
I the share of the aggregate it
vice at a given price.
• distortion
any departure from the ideal of
perfect competition which in-
terferes with economic agents,
maximising social welfare when
they maximise their own. In-
makes up. The idea comes up
in the context of national ac-
I counts and national statistics.
I • domestic
; within one's own country. A
domestic producer is one that
&onomics====================== II
""4""8=========,,,,dome.=:: content requirement I dual economy II
produces inside the home coun-
try. A domestic price is the price
inside the home country. Oppo-
site of 'foreign' or 'world'.
• domestic content require-
ment
I ture of a product or process
I which becomes the accepted
market standard. Dominant
I designs may not be better than
I the alternatives nor can it be
promised that they will be in-
novative. They have the bench-
I mark features to which subse-
in a country contain a certain quent designs are compared.
minimum of domestic value I
a requirement where goods sold
added.
• double coincidence of
• domestic credit
wants
I a problem that is generally re-
I lated to the Barter System. Re-
credit extended by a country's
central bank to domestic bor-
rowers, including the govern-
ment and commercial banks. In
the United States, the largest
component by far is the Fed's I
holdings of U.S. government
bonds, but it also makes some
short-term loans to banks to use
fers to a situation where the
I supplier of good X wants good
I Y and the supplier of good Y
wants good X.
• drawback
rebate of import duties when
I the imported good is re-ex-
ported or used as input to the
production of an exported good.
as their reserves.
3D
'"
10
·1.
--_ ... ---
---
-20 ...... _ ............
·lD
...
.,.
...
1/01 4/01 7/01
... --- ...
----
10/01
- eom.ucO"MlIt .. - -
___ •
• dominant designs
• dual economy
I an economy that is supposed to
I consist of two relatively distinct
parts, in terms of specific dis-
tinguishing attributes. In the
I development literature, numer-
ous theories use this proposed
dualism to isolate relationships
I between the two parts, which
are suggested to reinforce the
dualism.
after a technological innovation
and a subsequent era of ferment
in an industry, a basic architec- I
1/ ========&anomics
49
II duallabourmarket I dynamicgainsfromtrade
*===============
DualF.ronomy \fOO.I: RuralAgrladturalSeclor implicit citation is to Durbin
I (1 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
.1'0' a test for first-order serial cor-
• dual labour market : relation, in the residuals of a
a segmented labour market in time series regression. A value
one part is, usually and ; of 2.0 for the Durbin-Watson
terms, characterised by : statistic indicates that there is
high skills and wages, job secu- no serial correlation. This re-
rity and desirable working and ; sult is biased towards the find-
development conditions, : ing that there is no serial corre-
WhIle the other part has low lation if lagged values of the
wages, no or inferior benefits, regressors are in regression.
a temporary or unstable nature, ; • dynamic effects
no or little chance of advance- .
; certain effects of trade and trade
ment and otherwise poorer I b
: i eralisation that are poorly
working conditions. d
un erstood, including both
• dummy variables ; multilateral and preferential
In an econometric model a : trade agreements, that extend
variable which marks or beyond the static gains from
codes a particular attribute. A I trade. Such dynamic effects are
dummy variable has the value : thought to make the gains from
zero or one for each observa- trade substantially larger than
tion, e.g. 1 for pass and 0 for I in the static model.
fail . ; • dynamic gains from trade
• Durbin's h test the hoped-for benefits from
an detecting : trade which accrue over time
autocorrelanon ill the errors of in addition to the conventional
a time series regression. The ; static gains from trade of trade
EconomiCS=======1I
Economic Overhead Capital (EOC) 1\
theory. 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 is
exist a variety of possible theo- I used extensively in international
retical reasons for them and I economics, to estimate the
some empirical evidence that causes and effects of interna-
countries have benefited more tional trade, exchange rates and
than the static gains alone I international capital move-
would suggest. ments .
• dynamic multipliers
the impulse responses in a dis-
tributed lag model.
• dynamic optimisations
• Economic and Monetary
Union (EMU)
I a currency area formed in 1999,
I as a result of the Maastricht
Treaty. Members of the EMU
share the common currency, the
I Euro.
the maximisation problems to I
which the solution is a function.
• dynamic programming
I • economic freedom
freedom to engage in economic
transactions, without govern-
I ment interference, but with the
support of the government in-
stitutions necessary for that
I freedom, including rule of law,
the study of dynamic
optimisation problems through I
the analysis of functional equa-
tions like value equations. This
phrase is normally used, analo- I
gously to linear programming,
to describe the study of discrete
problems.
I sound money and open mar-
• early harvest
kets.
• Economic Overhead
Capital (EOC)
a term, in trade negotiations, I
for agreeing to accept the re-
sults of a portion of the nego-
tiations, before the rest of the I
negotiations are completed.
I economic infrastructure, such as
roads, railways, port facilities,
power facilities.
• econometrics
the application of statistical
" __ ====================Economics
II economic rent I e.ffictive protection .. ============5=1
• economic rent I diseconomies of scale, which
f I
: occur when an increase in all the
any rerum which a factor 0 pro-
duction receives, in excess of its : inputs brings about a less than
opporrunity cost. ~ proportionate increase in out-
O'scoa .. tdIKCftClmfCrWpne .... dUfldltota""bI.andbed
q,tot ........ iDUI ...... o1qlfot.
I put.
· .
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. as
policies: monetary, fiscal, wel- used in agglomeration econo-
fare, are also harmonised across : mies, scale economies,
the member countries. ~ localisation economies.
• economies of flexibility
the advantages accruing to a
producer with many plants of
different sizes, in allocating in-
creases or decreases in opera-
tions to that plant whose size is
such as to handle the total out-
put change of the producer
most efficiently.
• economies of scale
if all the inputs in a production
process are increased and the
output increases proportion-
ately, by more amount than the
increase in the inputs, econo-
mies of scale are being realised.
There may also be
I • effect of trade
; the effect of a change in some
: policy or other exogenous vari-
~ able which will increase the
; quantity of trade. Since in trade
: models trade itself is endog-
~ enous the effects associated
· ,
I with a change in trade depend
~ on what caused it.
~ • effective protection
: the concept in which the protec-
~ tion provided to an industry
; depends on the tariffs and other
: trade barriers on both its inputs
~ and its outputs, since a tariff on
I inputs raises cost. Measured by
· the effective rate of protec-
Economics======= II
",,52=========Effec=ti; Rate ofProteetion (ERP) I eltuticity II
tion.
- Effective Rate of Protec-
tion (ERP)
I efficient, which in turn implies
I that future exchange rates can-
not profitably be predicted.
a measure of the protection - elastic
provided to an industry by the having an elasticity greater than
entire 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. For
outputs. I income elasticity, it means that
EtTectIVera!eofprotectJon.ERP expenditure share rises with in-
VIII_..wcd( __ pn"'").vaI ... • d
........... _ .. _ .. -_ .... -........ _ ....... _ ........ _ ...... _ .. ····.M come, a supenor goo .
vllluc-addcd: (world pncel)
EN' jh:!'!L:[}!,:2d 1',,-__ "") ., [,,,to:"'!.

P4' p"" ....... 4Dmctflc __ ldpm:coJGUtpul.
<Ii:!, c", _abe UIlIf colt ofmt.-dullc luputr II """nclt,,: oDd
-td pnM' , .. ,cctn'dy. "'"
t, ........ t.nffr1k oarput Mid..,( mtermcdaatc II!pl,lls , .. pedavdl·
o."lIIi"'lbyp .. ",ddf*IIaomd.lntcm.etlll,n,h"lltpUlClldficwnti "
ERP !'2!!::"'-C.:!!!. =
Pw·C...
- effective tariff
effective rate of protection.
- efficient allocation
an allocation where it is impos-
sible unambiguously to im-
prove upon, in the sense of pro-
ducing more of one good with-
out producing less of another.
- efficient market
- elastic offer curve
I an offer curve along which im-
I port demand is always elastic.
It is therefore not backward
bending.
- elasticity
I 1. when used without a modi-
fier (such as 'cross' or 'income'),
elasticity usually refers to price
I elasticity, that is the percentage.
I change in the quantity de-
manded of a good or service,
I divided by the percentage
I change in its (own) price.
2. a measure of responsiveness
of one economic variable to an-
I other. Usually, the responsive-
ness of quantity to price along
a supply or demand curve -
I comparing percentage changes
a market in which, at a mini- I
mum, current price changes are
independent of past price
changes or, more strongly, price I
reflects all (publicly) available
information. Some believe the
foreign exchange markets to be I
(%D) or changes in logarithms
(d In).
II ========Economics
II elasticity of demand for exports I e m P l ~ t argument for protection
53
• elasticity of demand for
exports
the price elasticity of demand
for exports of a country, either
for a single industry or for the
aggregate of all imports.
Equals the rest of world's elas-
ticity of demand for imports.
• elasticity of demand for
imports
this is normally the price elas-
ticity of demand for imports of
~ ticity with respect to their price
.1 ratio.
; - elasticity of supply
: the (price) elasticity of supply
~ is the percentage change in the
1 quantity supplied of a good or
~ service divided by the percent-
: age change in its (own) price .
1
: - embeddedness
1 the idea that economic
1 behaviour is influenced by the
a country, either for a single in- 1
dustry or for the aggregate of
all imports. The latter plays a
critical role in determining how
the country's balance of trade
responds to the exchange rate.
dominant norms, institutions
and social practices which, in
1 turn are culturally embedded.
; - empirical finding
~ something which is observed
from real-world observation or
- elasticity of substitution
1 data, in contrast to something
that is deduced from theory.
the elasticity of the ratio of two 1
inputs to a production (or util 1
• employment argument for
protection
L
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 the
ratio of their marginal products ; same effect at lower economic
(or utilities). With competitive cost.
demands, this is also the elas-
Economics======== II
54
=================*
enabling clause I mmplltmule 1/
• enabling clause
the decision of the GAIT in
1979 to give developii!lg coun-
tries special and differential
treatment.
• endogenous growth
economic growth whose long-
nm rate depends on behaviour
and/or policy.
I accumulated.
I • Engel's Curve
I a general reference to the line
that shows the relationship be-
tween various quantities of a
I good that a consumer is willing
to purchase at varying income
levels (ceteris paribus).
I With rising incomes, the share
I of expenditures for food prod-
ucts declines. The resulting shift
in expenditures affects demand
I patterns and employment struc-
• endogenous protection
protection which can be ex- I
plained as the outcome of eco-
nomic and/or political forces.
tures. It suggests that consum-
• endogenous variable ers increase their expenditures
an economic variable which is I for food products at a percent-
determined within a model. It age rate, which is lower than
is therefore not subject to direct that of their increases in in-
manipulation by the modeller, I come. Poorer families will
since that would override the I spend a larger share of their
model. In trade models, the total expenditures on food than
quantity of trade itself is almost I the wealthier families.
always endogenous. I • engine of growth
• endowment I sometimes used to describe the
the amount of something which role that exports may have
a 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 the
Model of trade theory, endow- nineteenth century and of
ments refer to primary factors I today's NICs.
of production, ignoring the fact I • entrepot trade
that some of them, especially
capital and skill, are deliberately I the import and then export of a
good without further process-
II =======&onomics
II en:'Pelope I etJ.uilibriutnlJuantity
ing, usually passing through an
entrep6t, which is a storage fa-
cility from which goods are dis-
tributed.
• envelope
the outermost points traced out
by a moving curve.
• envelope eurve
a curve enclosing, by just touch-
ing, a number of other curves.
• environmental dumping
export of a good from a coun-
try with weak. or poorly enforced
environmental regulations, re-
flecting the idea that the
exporter's cost of production is
below the true cost to society,
providing an unfair advantage
in international trade. Also
called eeo-dumping.
• Environmental Kuznets
Curve
55
*================
~ a situation in which there is no
I tendency for change. For ex-
: ample, in the Keynesian expen-
~ diture model, the equilibrium
; condition is that planned spend-
: ing just equals the current level
~ of national income. Once that
I condition is satisfied, there is no
: tendency for the level of na-
~ tional income to change.
~ • equilibrium price
I a price at which the quantity
; supplied equals the quantity
: demanded. At this price, there
~ is no excess of quantity de-
; manded or supplied, nor is
: there any deficiency of either
~ and consequently, the price will
I remain at this level.
I
l '
L
i
an inverse V-shaped relation- I
ship hypothesised between per
capita income and environmen-
tal degradation. Named after I
the Kuznets Curve dealing with
inequality.
• equilibrium condition
a condition that must be satis-
fied for the equilibrium to ex-
ist, equilibrium being defmed as
~ • equilibrium quantity
; the quantity of a good de-
: manded and supplied at the
~ equilibrium price.
&onomit;s======= II
56 equivalent variation I Europeal1. Free TradeAssociation (EFTA) II
~ = = = = = = = = = = = = = = * = = = = = = = = = = = = = = =
- equivalent variation I country, denominated in a
the amount of money which, I eurocurrency.
paid to a person, group or _ Europe Agreement
whole economy, would make an agreement between the EU
them as well off as a specified I and each of the ten Eastern
change in the economy. Provides I European countries (starting
a monetary measure of the wel- with Hungary and Poland in
fare effect of that change, which I 1994), creating free trade areas
is similar to, but not in general I and establishing additional
the same as the compensating forms of political and economic
variation. cooperation in the preparation
- escape clause
I for these countries' eventual
membership in the EU.
1. the portion of a legal text ~
which permits departure from ; _ European Economic
its provisions in the event of: Community (EEC)
specified adverse circum- I a customs union formed 111
stances. I 1958 by the Treaty of Rome,
2. the US statute (section 201, among six countries of Europe:
. I
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 have
caused injury to US firms or I
workers.
_ European Free Trade
Association (EFTA)
I a free trade area, comprising of
- Euro Interbank Offered countries in Europe that did not
Rate (EURIBOR) join the European Economic
a 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,
it includes Iceland,
Liechtenstein, Norway, and
a bond which is issued outside I
of the jurisdiction of any single
Il=======E&onomics
II EftropeanMonetaryAgreement
Switzerland.
- European Monetary
Agreement (EMA)
I in relation to its deposit liabili-
I ties and the amount it actually
holds.
I
: - excess supply
'supply minus demand. Thus, a
I country's supply of exports of a
an intergovernmental organisation,
administered by the OEeD which
facilitated settlement of balance of
payments accounts among its
member states from 1958 to
1972. It replaced the EPU and I
its functions were taken over by
the IMF in 1972.
homogeneous good is its excess
supply of that good.
- exchange control
I rationing of foreign exchange,
I usually used when the exchange
- excess demand
demand minus supply. Thus, a
country's demand for imports
of a homogeneous good is its
excess demand for that good.
rate is fixed and the central
bank is unable or unwilling to
I enforce the rate by the ex-
change-market intervention.
- exchange market
- excess profit 1. the market on which national
the profit of a firm over and I currencies are exchanged for
above what provides its owners one another.
with a normal return to capital. 2. the actual exchange market,
_ excess reserves which exists primarily among
the 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 .

I 3. the theoretical representation
of the exchange market as, ei-
I ther the interaction of supply
I and demand arising from ex-
change-market transactions, or
as an asset market equilibrium
I between currencies.
1500 \----+
100(1
·""""A ___ Seo01
wlsnes or IS reqwrea to nolO,
&onomics======= II
58
exchangerateuvershooting l&XOgenousgt'l1Wth II

• exchange rate overshoot- I eign currency.
ing I • exchange stabilisation
the response of an fund
rate to a shock, by first movlllg a government institution some-
beyond the point where it will I times used to handle exchange
ultimately settle. Thought to I market intervention, charged
help explain exchange rate vola- with the explicit function of
tility, 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 tion
country's exchange rate is deter- usually done by a country's cen-
mined, especially the way the tral bank, this is the purchase
monetary or other government and sale of the country's cur-
authorities do or do not inter- rency on the exchange market,
vene in the exchange market . I in order to influence or fully
Regimes include floating ex- determine its price. These
chano-e rates, pegged exchange transactions, unless they are
b 1. I
rate, managed float, craw mg sterilised, change the monetary
peg, currency board, and ex- I base of the country and thus, its
change controls. money supply.
• exchange risk I • exogenous growth
uncertainty about the value of : economic growth that occurs
an asset, liability or commit- I without being the result of de-
ment, due to uncertainty about liberate policy or behaviour.
the future value of an exchange term arises because neoclassl-
rate. Unless they cover them- I cal growth models converge to
selves in the forward market, I a steady state, in which per
traders, with commitments to capita income is constant
payor receive foreign currency I time. Growth, then reqUlres
in the future, bear exchange I exogenous technical progress.
risk. So do holders of assets and
liabilities denominated in for- I
II =======Eeonomics
II exogenous varillble I export bias
• exogenous variable
a variable which is taken as
given by an economic model. It
therefore is subject to direct
manipulation by the modeller.
In most models, policy vari-
ables such as tariffs and par val-
ues of pegged exchange rates
are exogenous.
• expectation
59
*================
The EV principle actually con-
; sists of a family of principles.
: These principles differ by the
way probabilities and the val-
; ues (or payoffs) are generated
: or interpreted (namely either
objectively or subjectively).
Thus, the following possibili-
; ties are there:
Objective Subjective
Payoffs Payoffs
the expectation of a variable is
the same as its expected value I
and is also used with both ; Objective Objectivdy Ex- Expected
meanings. : 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 I
in decision theory. It suggests
that the option with the larg- • experience good
est expected value should be a product whose value can be
chosen-. Calculation of the ex- ; better after having con-
Rectedvalue of a decision op- : sumed It. Producers of expe.ri-
tIon requires the availability of ence goods. may temporanly
the probabilities attached to ; a pnce lo:w
er
than the
each possible environmental : margmal cost, to mduce buyers
state (e.g. probability of any to try the Done with
specific action taken by the I an this be legally
out of all possible conSIdered dumpmg.
actlons). Thus, the EV is the : - export bias
s,:m of the products of any bias in favour of exporting.
states multIphed ; Most often applied to growth
theIr respective probabili- : that is based disproportionately
ties. I ul .
: on accum atlon of· the factor
&onomics======= II
60
================*
used intensively in the export I
industry and/or technological I
progress favouring that indus-
try.
• export credit
exportcrr:dit I e.xpurtrequirement II
willingness (expressed via pro-
tection) of developed countries
to absorb these exports.
• export platform
describes the role of a host coun-
I try; as a production location de- a loan to the buyer of an export,
extended by the exporting firm
when shipping the good prior
to payment or by a facility of ~
the exporting country's govern-
ment. In the latter case, by set-
ting a low interest rate on such I
loans, a country can indirectly I
subsidise exports.
signed to serve international
markets, possibly including the
home market of the parent
firm.
• export price index
price index of the goods which
a country exports.
• export promotion
• export credit insurance
a program to guarantee pay-
ment to exporting firms who I
I a strategy for economic devel-
opment which stresses on ex-
panding exports, often through
I policies to assist them, such as
extend export credits.
• export limitation
export subsidies. The rationale
is to exploit a country's com-
I parative advantage, especially in
I the common circumstance,
• export multiplier
where an over-valued currency
any policy which restricts ex-
ports.
the multiplier for a change in I would otherwise create bias
exports, i.e., the increase in .
GDP caused by one-unit m-
I agamst exports.
crease ill exports.
• export pessimism
• export requirement
a requirement by the govern-
ment of the host country for
I FDI, where the investor should
the view that efforts to expand
exports by the LDCs will lead
to a decline in their terms of ~
trade because of an inability ;
(due to weak demand) or un-
export a certain amount or per-
centage of its output.
II ========&cmomics
I
I t$JHIrt fUhstitutilm-IF Distributilm / F-Distributilm
; *==============
61
• export substitution ~ fect of production or consump-
a shift to the export of increas- I llon.
ingly processed products. The ; • externality
export of more or less- pro- : an effect of one economic
cessed raw materials is substi- ~ agent's actions on another, such
tuted for the export of raw or I that one agent's decisions make
relatively unprocessed materi- : another better or worse off, by
als contributing to local (or na- ~ changing their utility or cost.
tionaf) employment and the I Beneficial effects are positive
creation of value added. : externalities, while the harmful
• external balance ~ ones are negative externalities.
1. balance of payments equilib- ~ • F Distribution / F-Distri-
num. bution
2. 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 independently
ance of payments.
• external economies of scale I
a form of increasing returns to
scale, in which productivity and
thus costs of individual firms I ,
depend on the output of ~ e i r
entire industry, rather than Just
their own. Unlike more con-
ventional (internal) scale econo-
mies these are consistent with ,
perfect competition.
• externalities
a benefit or cost associated with
an economic transaction, that is
not taken into account by those
directly involved in making it.
A beneficial or adverse side ef-
2 .. 6
2.35 3.31
~ distributed chi -squared vari-
: abIes with u
l
and VI degrees of
~ freedom, respectively.
; Then, the statistic: F = (u/u
l
) /
~ (v/v
l
) has an F distribution with
· (u v) degrees of freedom.
· l' I
~ As can be computed from the
; definition of the t distribution,
: the square of a t statistic may
I be .
· wntten:
Eeonomics======= II
" , , 6 2 = = = = = = ~ = = = .. F Test/ F-Tests I foctorofproductiun II
t
2
=(z2/1)/(v/v
1
) I • factor endowment
where 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,
the square of a t variable with I
v 1 degrees of freedom is an F I
variable with (l,vJ degrees of :
freedom, that is: I
• factor intensity
the relative importance of one
factor versus others in produc-
tion, in an industry, usually com-
pared across industries. Most
t
2
=F(1,v
1

• F Test/ F -Tests
I commonly defined by ratios of
I factOr quantities employed at
a test for the joint hypothesis
where a number of coefficients
common factor prices, but
sometimes by factOr shares or
by marginal rates of substitu-
tion between factors.
• factor intensity reversal
are zero. Large values generally I
reject the hypothesis, depend-
ing on the level of significance
required.
a property of the technologies
• factor abundance I for two industries such that their
this is fundamental to the H -0 I ordering of relative factor inten-
sities is different at different
I factor prices. For example, one
I industry may be relatively capi-
Model, the abundance or scar-
city of a primary factor of pro-
duction. Because, in the short
run at least, the supplies of pri-
mary factors are more or less
fixed, this can be taken as given I
for determining much about a
couiltry's trade and other eco-
nomic variables.
• factor augmenting
a technological change or tech-
nological difference, if produc-
tion functions differ by scaling
of a factor input only.
tal intensive compared to the
other at high relative wages and
labour intensive at low relative
wages.
• factor intensity uniformity
the absence of factor intensity
I reversals.
I • factor of production
I the input or resource that is
combined with other factOrs of
production in a production pro-
II ========&onomics
63
II foetor price I foetor share
*===============
cess, to produce a good or ser- wages, are driven towards
; equality in the absence of bar-
: riers to trade. This happens
• factor price I am on er other reasons because
the price paid f?r the services price cause countries
of a unit of a pnmary factor of : to choose to specialise in the
production per unit time. It production of goods whose fac-
takes into consideration the I tors of production are abundant
wage or salary of labour and : there which raises the prices of
rental prices of land and capI- the factors towards equality,
tal. Does not normally refer to I with the prices in countries
the price of acquiring owner- : where those factors are not
ship of the factor itself, which abundant.
might be called the 'purchase I .
Vlce.
: • factor price frontier
price'.
a curve in fact or space
• factor price equalisation ; iner the minimum combinations
ili b .th
eorem : of factor prices consistent WI
one of the major theoretical re- the absence of profit in produc-
sults of the Heckscher-Ohlin ; ing one or more goods, given
Model, with at least as many : their prices. Since, with perfect
goods as factors, shewing competition, profit implies dis-
free and frictionless trade WIll I equilibrium, this shows a lower
cause factor price equalisation bound on equilibrium factor
between two countries, if they : prices.
have identical, linearly homoge- I
'. • factor proportions model
neous technologies and their
factor endowments are suffi- the Heckscher-Ohlin model of
ciently similar to be in the same ; trade.
diversification cone. ; • factor share
• factor price equalisation : the fraction of payments to
an effect observed in models of value added, in an industry, that
international trade - that the goes to a particular primary fac-
prices of inputs to ; tor.
in different countnes, hke
.&:onomus======= II
64
" ' - - - - - - - - - - ~ = *
factor space I Fed Funds Rate II
• factor space
a graph in which the axis mea-
sure the quantities of factors .
• factor-price space
a graph with factor prices on
the two axis.
I loading onto a ship.
I • fast track
a procedure adopted by the US
Congress, at the request of the
President, committing it to con-
I sider trade agreements without
• factor-saving
disproportionately in favour of I
using less of a particular fac-
amendment. In return, the
President must adhere to a
specified timetable and other
procedures.
tor.
• factor-using
biased in favour of using more
of a particular factor.
• factory systems
the idea where factories may
have been more efficient by re-
ducing transactions costs.
• fads
the conjecture that market
prices for securities take long
swings away from their funda-
mental values and tend to re-
turn to them.
• Fama-MacBeth Regression
a panel study of stocks to esti-
mate CAPM or APT param-
eters.
.FAS
• fat-tailed distributions
describes a distribution with
I excess kurtosis.
I • favourable exchange rate
I an exchange rate different from
the market or official rate, pro-
vided by the government on a
I transaction as an indirect way
of providing a subsidy.
• Feasible Generalised Least
Squares (FGLS)
I the generalised least squares es-
I timation procedure, but with an
estimated covariance matrix, not
an assumed one.
• Fed Funds Rate
I the interest rate at which US
banks lend to one another, their
excess reserves held on deposit
I at the US.
Free Alongside Ship. Same as
FOB, but without the cost of ~
II =======Bconomics
II Federal In.tornu:tion Processing S t 4 ~ r t l s (PIPS) I first mover iUl'PllnttlB
e
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 by
by the US government and ~ consumers, investors or gov-
used to encode some data ; ernment.
(like states and counties) 10 .• . • financial capital
US data sets.
: financial assets, such as stocks,
• fiat money
1. a money whose usefulness
results, not from any intrinsic
value or guarantee that it can
be converted into gold or an-
other currency, but only from a
government's order (fiat) that
it must be accepted as a means
of payment.
2. money which is intrinsically
useless and is used only as a
medium of exchange.
• filters
a way of treating or adjusting
data before it is analysed.
More exactly, a filter is an al-
gorithm or mathematical op-
eration that is applied to a
time series sample to get an-
other sample, often called the
'filtered' data. For example, a
filter might remove some
high-frequency effects from
the data.
~ bonds, bank deposits, etc., as
; opposed to real assets such as
: buildings and capital equip-

· ment.
~ • financial intermediary
~ an institution which provides
; indirect means for funds from
: those who wish to save or lend,
~ to be channelled to those who
; wish to invest or borrow. Ex-
: amples include banks and other
~ depository institutions, mutual
; funds and some government
: programs.

: • FIR
~ Factor Intensity Reversal.

: - first degree homogeI1eous
~ homogeneous of degree 1.
~ • first mover advantage
; the advantage which a firm may
: derive from being the first to
~ enter a market or from being
• the first to use a new technol-
~ ogy, advertising technique, etc.
Eetmomics======= II
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-
sary condi tions for
maximisation, used routinely in I
solving economic models. Typi-
cally, it consists of setting equal
to zero the derivative of the I
function being maximised (or
its Lagrangian), with respect to
volving the levels of govern-
ment purchases, transfers or
taxes, usually implicitly focused
on domestic goods, residents or
firms. A fiscal stimulus is an
increase in purchases or trans-
fers or a cut in taxes.
• fiscalist view
a variable that can be con- I
trolled.
an extreme Keynesian view,
that money doesn't matter at all
I as aggregate demand policy.
• first welfare theorem of
economics / first theorem
of welfare economics
Assumes that investment dc-
mand does not respond to in-
terest rate changes. Relevant
only in depression conditions.
• Fisher Consistency / Fisher
Consistent Estimation
I a necessary condition for maxi-
mum likelihood estimation to
the statement which states that I
a Walrasian equilibrium is
weakly Pareto optimal. Such a
theorem is true in a large and I
important class of general equi-
librium models (usually static
ones). The standard case is if ~
every agent has a positive quan- ;
tity of every good and every
agent has a utility function that
is convex, continuous and I
strictly increasing, then the First
Welfare Theorem holds.
be consistent. Maximising the
likelihood function L gives an
I estimate for parameter b that
is Fisher-consistent if:
E[d(ln L)jdb]=O at b=b
o
,
I where b
o
is the true value of b.
• first-order stochastic
dominance
usually means stochastic domi-
nance.
I Another interpretation or
phrasing: 1\n estimation proce-
dure is Fisher consistent if the
I parameters of interest solve the
population analog of the esti-
mation problem.'
" ======================;;;;Economics
II Fisher Effict I jk&ibility strategy
_ Fisher Effect
the theory where a change in the
expected rate of inflation will
lead to an equal change in the
nominal interest rate, thus
keeping the real interest rate
unchanged.

"- UwUMIIMJ Ic..-
U")I'")I)
R"';;;:;l'=:tl')(;k
PI'IOCl, (Fal ir\
t:>f
l..Iturecesn tIo .... ->
- Fisher Equation
nominal of interest = real
interest rate + inflation
- Fisher Hypothesis
the real rate of interest is con-
stant. Hence, the nominal rate
moves with inflation. The real
rate of interest would be de-
termined by the time prefer-
ences of the public and tech-
nological constraints deter-
mining the return on real in-
vestment.
- Fisher Index
is a price index, calculated for a
given period by taking the
square root of the product of the
Paasche index value and the
Laspeyres index value.
67

- Fisher Information
; an attribute or property of a
: distribution with known form
but uncertain parameter values.
I It is only well-defined for dis-
tributions satisfying certain as-
: sumptions.
I
: - Fisherian Criterion
for optimal investment by a
; firm - that it should invest in
: real assets until their marginal
internal rate of return equals the
I appropriately risk -adjusted rate
: of return on securities.
I
: - Fixed Effects Estimator /1
Fixed Effects Estimation
(FE)
a linear regression in which cer-
tain kinds of differences are sub-
tracted out, so that one can es-
; timate the effects of another
: kind of difference.
I
: - flexibility strategy
I
: could be considered a strategic
'response to uncertainty'. A flex-
; ible firm, investment, set of
: skills, residential arrangement,
etc. is more responsive to un-
; predictable futures than a rigid
: firm, etc. Pursuing a flexibility
strategy would mean to build
; appropriate flexibilities into
: projects and organisations, '
I '\
II
68 • .flexib
le
exchange rate I FOB pricing /I
even if that means higher I jobs, whereas the other part of
project or organisational costs, I the labour force can be hired and
as long as the benefits of pos- fired with ease or employed
sible future adjustments out- I with variable hours as needed.
weighs these costs. I _ flexible-accelerator model
- flexible exchange rate
I a macro model where there is a
same as floating exc hange rate. variable relationship between
the growth rate of output and
the level of net investment. The
relation between the change in
output and the level of net in-
I vestment is the accelerator prin-
I ciple.
- flexible specialisation I
a company- level strategy of :
'permanent innovation', 'accom- I
modation to ceaseless change'
(rather than to control it). This
strategy is based on flexible
multi-use equipment, skilled
workers and the creation,
through politics, of an industrial
community that restricts the
forms of competition to those
favouring innovation.
I-FOB
the price of a traded good ex-
cluding the transport cost. It
I stands for 'free on board', but
is used only as these initials. It
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 costs
I needed to get a good from one
I country to another. Contrasts
with elF and FAS.
adapted to changing circum-
stances. In the context of seg-
mented, dual labour markets,
it's been suggested that a flex- I
ible work force may have two
meanings: One part of the
labour force is given the chance
to be flexible itself, i.e. to be
considered functionally suffi-
ciently diversified so that em-
ployees can be used for differ-
ent functions or in different
- FOB pricing
Free On Board Mill base pric-
I ing. A pricing system in which
prices are quoted for delivery at
the point of production, with
I the buyer to pay freight from
that point.
II ========Bcon"",ies
II FOGS Negotiations
• FOGS Negotiations • foreign asset position
in 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
wro and its dispute settlement
mechanism.
• footloose activity
• foreign direct investment
; 1. acquisition or construction of
: physical capital by a firm from
one (source) country in another
; (host) country. an activity that is viable at many
different locations. It does not
depend on any specific location
factor. An industry is footloose I
if its long run profitability is the
same for any location in an
SlIUCRlllEalRIIITOCIlIlCRYlll_tLCMIM __
..............
-...
--
-
economy.
• footloose factor
a factor which can move easily
across national borders, in con-
trast to one that, due to inclina-
tion or constraints, cannot.
Footloose factors are some-
times thought to have an advan-
tage in a globalised economy.
• footloose industry
an industry which is not tied to
any particular location or coun-
try and can relocate across na-
tional borders, in response to
changing economic conditions.
Many manufacturing industries
seem to have this characteris-
tic.
I
: 2. investments undertaken by
multinational firms in pursuit of
I their own organisational objec-
; tives
: 3. a component of a country's
national fmancial accounts. For-
; eign direct investment is the
: investment of foreign assets into
domestic structures, equipment
I and organisations. It does not
: include foreign investment into
the stock markets. Foreign di-
I rect investment is believed to be
; more useful to a country than
: investments in the equity of its
companies because equity in-
; vestments are potentially 'hot
: money' which can leave at the
I
Beonomies======= II
70
foreign investment af3;ment for protecticm I forward linkages II
first sign of trouble, whereas
FDI is durable and generally
useful whether things go well
or badly.
• foreign investment argu-
ment for protection
the use of protection, to attract
FDI from abroad. It does work,
I bates to American exporters, if
I they form what may be a largely
artificial foreign subsidiary
I called an FSC. This has been the
I subject of a trade dispute with
the EU which complained to the
WTO that this constitutes an
I illegal export subsidy.
since much FDI has been moti- I • foreign trade zone
vated by firms trying to get be- an area within a country where
hind a tariff wall to sell their imported goods can be stored
products. In an otherwise I or processed without being sub-
nondistorted economy, how- I ject to import duty. Also called
ever, the cost in terms of more a 'free zone', 'free port', or
expensive goods is higher than I 'bonded warehouse'.
the benefit from additional capi-
tal.
• foreign repercussion
I • formula approach
I a procedure for organising mul-
tilateral trade negotiations, us-
ing a formula for tariff reduc-
I tions as a starting point.
I • forward
the feedback effect on a domes-
tic economy, when its macro-
economic changes cause large
enough changes abroad for
those in turn to cause further I on the forward market.
I • forward discount changes at home. Most com-
monly, a rise in income stimu-
lates imports, causing an expan- I
sion abroad that in turn raises I
demand for the home country's
opposite of forward premium.
• forward linkages
linkages between a producer or
I supplier and their customers.
exports.
• Foreign Sales Corporation
(FSC)
a provision of the US tax code
which grants income-tax re-
As different from backward
linkages, forward linkages are
I output-oriented and, in the ma-
I trix-context of input-output
analysis, are conventionally
II ========E&cmomics
II forward market I free entry
traced in rows.
- forward market
a market for exchange of cur-
rencies in the future. Partici-
pants in a forward market en-
ter into a contract to exchange
currencies, not today, but at a
specified date in the future,
typically 30, 60 or 90 days from
now and at a price (forward
exchange rate) that is agreed
upon today.
_ forward premium
the difference between a for-
ward exchange rate and the spot
exchange rate, expressed as an
annualised percentage return on
buying foreign currency spot
and selling it forward.
- forward rate
also called the forward exchange
rate, this is the exchange rate on
a forward market transaction.
_ four-firm concentration
ratio
the percent of an industry's sales
which accrue to the largest four
firms, a measure of industrial
concentration.
- fragmentation
the splitting of production pro-
cesses into separate parts which
71
*================
~ can be done in different loca-
; tions, including in different
: countries.
I
: - free cash flow
~ cash flow to a firm, in excess of
I the req uirement to fund all
~ projects that have positive net
: present values when discounted
~ at the relevant cost of capital.
; Free cash flow can be a source
: of principal-agent conflict be-
~ tween shareholders and manag-
I ers, since shareholders would
: probably want it paid out in
I
: some form to them and man-
I agers might want to control it,
~ e.g. to use it for unprofitable
: projects, for perquisites, to
~ make acquisitions, to create jobs
; for friends and allies' and so
: forth.
I
: - free enterprise
I a system in which economic
I agents are free to own property
and engage in commercial
transactions.
I
: - free entry
~ the assumption where new
; firms are permitted to enter an
: industry and can do so without
~ any costs whatsoever. Together
; with free exit, it implies that
: profit must be zero in equilib-
I
Economics======= II
72
========*
.free entry condition l.free trade II
num. I • free reserves
• free entry condition
I excess reserves minus borrowed
an assumption posted in d. I
reserves.
search 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 without
straint on firms entering the ~ bearing the cost. An example,
market (e.g. to hire workers). : in trade policy, is that trade
There is no fixed number of ~ liberalisation benefits the ma-
firms. The number of firms is ; jority of consumers without
determined in equilibrium, by their lobbying for it. This may
the costs of starting up. I tip the policy in the direction of
• free exit I protection, for which there are
fewer free riders.
the assumption where firms are I
permitted to leave an industry
and can do so costlessly.
• free spatial demand curve
demand schedule (pricejquan-
I tity of demand function) of con-
sumers, distributed in space
with varying distances from a
I given, central location, aggre-
• free good
goods that are unlimited in sup- I
ply and which therefore have no
opportunity cost.
• free market economy / free
market economies
gated for a supply location with
'price' (in the mind of consum-
I ers) to include transport costs
I from this location to the con- an economy in which the allo-
cation for resources is deter-
mined only by their supply and
the demand for them. This is I
mainly a theoretical concept as
every country, even capitalist
ones, places some restrictions I
on the ownership and exchange
of commodities.
sumers.
• free trade
a situation in which there are no
I artificial barriers to trade, such
as tariffs and NTBs. Usually
used, often only implicitly, with
I frictionless trade, so that it im-
I plies that there are no barriers
to trade of any kind. For a
II =======Bconomks
II Free TradeArea (FrA) 1JUture-orien:"",RO""e'1""Jt=========7=3
traded homogeneous product,
it follows that domestic and
world price must be equal.
- Free Trade Area (FTA)
a group of countries which
adopt free trade (zero tariffs
and no other restrictions on
trade) on trade among them-
selves, while not necessarily
changing the barriers that each
member country has on trade
with the countries outside the
group.
- Free Trade Area of the
Americas (FTAA)
a preferential trading arrange-
ment being negotiated among
most of the countries (all but
Cuba) of the western hemi-
sphere.
- frequency
the speed of the up and down
movements of a fluctuating eco-
nomic variable, that is, the num-
ber of times, per unit of time,
which the variable completes a
cycle of up and down move-
ment.
- frictional unemployment
unemployment which comes
from people moving between
jobs, careers and locations.
~ - frictionless trade
; the absence of natural barriers
: to trade, such as transport
I
: costs.
~ - Friedman Rule
~ in a cash-in-advance model of a
; monetary system, the Friedman
: rule for monetary policy is to
~ deflate so that it is not costly for
; those, who have money, to con-
: tinue to hold it. Then, the cash-
~ in-advance constraint isn't bind-
I ing on them.
; - Full Information Maxi-
mum Likelihood (FIML)
~ an approach to the estimation
~ of simultaneous equations.
~ - functional I functionals
; a mapping from paths of func-
: tions to the reals (e.g. a value
~ function defmed by a mapping
~ from possible paths of choices.
; - functional distribution of
I
income
: how the income of an economy
~ is divided among the owners of
; different factors of production,
: into wages, rent, etc.

: - future-oriented agent
~ discounts the future lightly and
• so has a low discount rate or
; equivalently a high discount fac-
&onomics==-====== II
74
futures market I on Tariffi and Trade (GATT) "
tor.
- futures market
I small enough that each has a
I perceptible influence on the oth-
a market for exchange (of cur- I
rencies, in the case of the ex-
change market) in the future.
ers.
- gamma index
a measure of the connectivity of
a network comparing (through
a ratio) the actual number of
i.e., participants contract to ex- I
change currencies, not today,
but at a specified calendar date
in the future, and at a price (ex-
change rate) that is agreed
upon today.
links with the maximum num-
I ber of possible links (edges) in
this network.
Gamma Index Formula =
- gains from trade theorem
actual number of links
the theoretical proposition ------------
where (in the absence of distor- I
tions) there will be gains from
trade for any economy that
moves from autarky to free I
trade, as well as for a small open
half the number of nodes
(number of nodes - 1)
- gastarbeiter
a guest worker.
economy and for the world as a _ GATT Articles
whole if tariffs are reduced ap- I the individual sections of the
propriately.
- game
I GAIT agreement, convention-
ally indentified by their Roman
numerals. Most were originally
I drafted in 1947, and are still
included in the WTo.
a theoretical construct in game
theory in which players select
actions and the payoffs depend I
on the actions of all the play- _ General Agreement on
Tariffs and Trade (GATT)
ers.
- game theory-
the modelling of strategic inter-
actions among agents, used in
economic models where the
I a multilateral treaty entered
I into in 1948 by the intended
members of the International
I Trade Organisation. The pur-
I pose of the same was to imple-
ment many of the rules and ne-
numbers of interacting agents
(firms, governments, etc.) is I
II ========Bconomics
II GeneralAgreementon Trade in Servic; (GATS) I Gini Coefficient
75
gotiated tariff reductions that
would be overseen by the ITO.
With the failure of the ITO to
be approved, the GATT be-
came the principal institution
regulating trade policy, until it
was subsumed within the wro
in 1995.
_ General Agreement on
Trade in Services (GATS)
the agreement, negotiated in
the Uruguay Round, which
brings international trade in
services into the wro. It pro-
vides for countries to provide
national treatment to foreign
service providers and for them
to select and negotiate the ser-
vice sectors to be covered un-
der GATS.
- general equilibrium
equanimity of supply and de-
mand in all markets of an
economy simultaneously. The
number of markets does not
have to be large. The simplest
Ricardian model has markets
only for two goods and one
factor, labour, but this is a
general equilibrium model.
Contrasts with partial equilib-
rium.
~ - generalised system of
; preferences
: tariff preferences for develop-
~ ing countries, where some de-
I veloped countries let certain
~ manufactured and semi-manu-
: factured imports from develop-
~ ing countries enter at lower tar-
; iffs than the same products
: from developed countries.
I
: - gentrification
~ the widespread emergence of
I middle-and upper middle-class
: enclaves in formerly deterio-
~ rated-inner-city neighbourhoods.
I
: _ geobase
I database or index of the inter-
; national literature of geography,
: ecology, earth science and ma-
~ rine science.
~ - Giffen good
I a good which is so inferior and
: so heavily consumed at low in-
I .
: comes that the demand for It
I rises when its price rises. The
~ reason is that the price increase
: lowers income sufficiently that
~ the positive income effect (be-
; cause it is inferior) outweighs
: the negative substitution effect.
I
: - Gini Coefficient
~ a measure of income inequal-
:&onomics======= II
76
=================*
global I globa/isation "
ity within a population, rang-
ing from zero for complete
equality, to one if one person
has all the income. It is de-
fined as the area between the I
, interdependencies.
I • global competitiveness
I competitiveness applied inter-
nationally.
Lorenz Curve and the diago-
nal, divided by the total area
under the diagonal.
GW c.wl'lkk., aMI GDP po-r ~ . p l b o ~ teIedtd ~
or lb DCAF rec- (latnt a¥aUabie )'far)
i :: ::":."
3
111
_
r, 1 : I ~ ~ (. ' I • ill II I ~ 11 14
• global optimum
an allocation that is better, by
I some criterion, than all others
possible.
• globalisation
1. the increasing integration of
world markets for goods, ser-
I vices and capital that attracted
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 were
age) distributions correspond. perceived to occur at about the
The Gini coefficient is a num- I same time, such as an increased
ber between 0 and 100 (or 0 I role for large corporations
and 1), where 0 means perfect (MNCs) in the world economy
equality (exact correspondence, I and increased intervention into
e.g. everyone has the same in- I domestic policies and affairs by
come) and 100 (or 1) means international institutions such as
perfect inequality (one person I the IMF, WTO and World
has all the income, everyone else I Bank.
earns nothing).
• global
I 3. among countries outside
the United States, especially
I developing countries, the
I term sometimes refers to the
the world-wide presence of a
phenomenon or a world-wide
spatial pattern of locations of an
organisation and/or a pattern of ~
domination of world economic
affairs and commerce by the
United States. I
1/ ========Eeonomics
II gold standard I Grandfotherclause .. =========="",7=7
• gold standard
a monetary system where both
the value of a unit of the cur-
rency and the quantity of it in
circulation are specified in terms
of gold. If two currencies are
both on the gold standard, then
the exchange rate between
them is approximately deter-
mined by their two prices in
terms of gold.
• good
a product which can be pro-
duced, bought and sold and that
has a physical identity. Some-
times said inaccurately to be
anything that 'can be dropped
on your foot' or, also inaccu-
rately, to be 'visible' . Contrasts
with service. Trade in goods is
much easier to measure than
trade in services and thus much
more thoroughly documented
~ and analysed.
~ • government procurement
; purchase of goods and services
: by government and by state-
I d .
: owne enterpnses.
I
: • government procurement
. practice
; the methods by which units of
: government and state-owned
~ enterprises determine from
; whom to purchase goods and
: services. When these methods
~ include a preference for domes-
I tic firms, they constitute an
: NTB.
I
: • graduation
I
: termination of a country's eli-
~ gibility for GSP tariff prefer-
; ences, on the grounds that it has
: progressed sufficiently, in terms
~ of per capita income or another
; measure, that it is no longer in
: need to special and differential
~ treatment.
~ • Grandfather clause
I a provision in an agreement,
~ including the GATT but not the
: WTO, which allows signatories
~ to keep certain of their previ-
; ously existing laws that other-
: wise would violate the agree-
~ ment.
Economies======= II
I Gross National Product (GNP) II
• gravity model I • Gross domestic product
a model of the flows of bilat- I (GDP)
eral trade based on analogy 1. the total value of new goods
with the law of gravity in phys- and services produced in a given
ics : T. = AY.Y./D .. , where I year, within the borders of a
'J 'J '1
T
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 the
tional incomes,' D .. is the dis- I sense that it does not deduct
'J
tance between them and A is a depreciation of previously pro-
constant. Other constants as duced capital, in contrast to
exponents and other variables I NDP.
are often included.
• grey area measure
I 2. value of all the goods and ser-
vices produced by workers and
capital located with a country
I (or region), regardless of na-
tionality of workers or owner-
ship.
a measure whose conformity
with existing rules is unclear,
such as a VER under the GAIT I
prior to the wro.
• green box
• Gross National Product
(GNP)
1. the total value of new goods
and services produced in a given
year by a country's domestically
category of subsidies permitted
under the WTO Agriculture I
Agreement includes those not I
directed at particular products,
direct income support for farm-
ers unrelated to production or I
prices, subsidies for environ-
mental protection and regional
development.
I owned factors of production,
regardless of where. It is 'gross'
in the sense that it does not de-
I duct depreciation of previously
produced capital, in contrast to
NNP.
• green field investment I 2. total value of all fmal goods
FDI 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 GNP
ing plant or firm. I includes allowances for depre-
ciation and indirect business
II ========Economics
II gross output I GutfCooperation
taxes such as' those on sales and I central banks have met on the
occasion of the bimonthly BIS property.
3. it is the output of labour and meetings.
property of a country's : _ growth accounting
als, regardless of the locatlon of decomposition of the sources of
the labour and property. Gr<:>ss I economic growth into the con-
National Product includes m- : tributions from increases in
come earned by the factors of capital, labour and other factors.
production (assets and la.bour) I What remains, called the Solow
owned by a country's resIdents residual, is usually attributed to
but excludes income produced : technology.
within the country's borders by I •
factors of production owned by : - Grubel-Lloyd mdex
nonresidents. 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
dustry or economy without de- I M. the index IS
ducting intermediate inputs. I :: [(X;+M) IX,M,IPOOj
For a firm or industry, this is : (X, + M). This is the fractlon of
laraer than its value added, I total trade in the industry,
b .
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 Council
output which deducts the
amount' of the good itself, used I (GCC)
as an intermediate input. ; an agreement among six. coun-
: tries of Persian Gulf regIon -
Bahrain, Kuwait, Oman, Qatar,
; Saudi Arabia and the United
: Arab Eri1irates - in 1981, with
the aim of coordinating and in-
their economic poli-
- group of ten
a group of ten countries, mem-
bers of the IMP, which, together
with Switzerland, agreed to
make resources available out-
side their IMF quotas. Since
1963, the governors of the GI0
; Cles.
Economics======= II
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 in
Hirschman index, which is a I real expenditure.
way of measuring the concen- I • harmonisation
tration of market share held by I the change in government regu-
particular suppliers in the mar- lations and practices, as a result
keto The H index is the aggre- I of an international agreement,
gate of squares of the percent- I to make those of different
ages of the market shares held countries the same or more
by 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 international
number of firms with near-zero trade and for specifying the tar-
market share each, the H index iffs on those goods. It was
is approximately zero. Other I adopted at the beginning of
industry structures will have H 1989 and it replaced the previ-
indices between zero and ously used schedules in over 50
10000. I countries.
• Harberger triangle
the triangular area or areas in a
supply and demand diagram
that measure the net welfare
loss or dead-weight -loss due to
a market distortion or policy,
such as a tariff.
I • Harrod neutral
I a particular specification of
technological change or techno-
I logical difference that is labour
I augmenting.
I • Hat algebra
the Jones (1965) technique for
comparative static analysis in
• Harberger-Laursen-
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 'linear
cause a decrease in savings due I system is obtained relating
II ========Economks
II Havana I Heckscher-ohlin-;muelSlmMOdel (HOSModel) 81
small proportional changes (de- I across countries and differences
noted by carats (A), or 'hats') I in relative factor intensities
in terms of various elasticities across industries. It sometimes
and shares. refers only to the textbook or
; 2x2x2 model, but more gener-
: ally includes models with any
I
• Havana Charter
: numbers of factors, goods, and
I countries. Model was originally
Organisation. The draft was . formulated by Heckscher
completed at a conference in I (1919), fleshed out by Ohlin
the charter for the never-imple-
mented International Trade
Havana, Cuba, in 1948. I (1933), and refined by
• Headquarters services Samuelson (1948,1949,1953).
the activities of a firm which
typically occur at its main loca-
tion and that contribute in a
broad sense to its productivity
at all of its locations and plants.
These may include manage-
ment, accounting, marketing,
and R&D.
• Heavily Indebted Poor
Countries (HIPC)
• Heckscher-Ohlin Theorem
(HOT)
the prOpOSItlOn of the
; Heckscher-Ohlin Model that
: countries will export the goods
that use relatively intensively
I their relatively abundant fac-
. tors.
I
: • Heckscher-Ohlin-
I
. Samuelson Model (HOS
the to those poor; Model)
countnes. . large the. usually synonymous with the
target of lilltlatlVes bemg to for- . H k h Ohl·n M d I 1
. . ec sc er- 1 0 e, a-
gIVe that debt as a means of as- I thou h etl·mes th t .
.. d 1 . g som e erm IS
SIStmg eve opment. ; used to distinguish the more
• Heckscher-Ohlin Model : formalised, mathematical ver-
(H-O Model) sion that Samuelson used from
a model of international trade I the more general but less well-
in which comparative advantage : defmed conceptual treatment of
derives from differences in Heckscher and Ohlin.
relative factor endowments I
Economics======== II
82 Heckscher-Ohlin-*,mk Model (H;V) I high-tech imlustries or activities "
• Heckscher-Ohlin-Vanek
Model (HOV)
the Heckscher-Ohlin Model for
the case of identical techniques
of production, used to derive
the strong prediction about the
factor content of trade, known
as the Heckscher-Ohlin-Vanek
Theorem.
• Heckscher-Ohlin-Vanek
Theorem
I • Hicksian Demand Func-
tion
denoted h(p,u) and it refers to
the amount of a good that is
I demanded by a consumer given
that it costs p per unit and that
the consumer will have utility u
I from all goods, where h(p,u) is
the cost-minimising amount.
• high
in trade theory, this refers to
having more than two goods,
factors, and/or countries, or to
having arbitrary numbers of
these. Contrasts with the two-
ness of the 2x2x2 Model.
the prediction of the H-O-V
Model where a country's net I
factor content of trade equals its
own factor endowment minus :
its world-expenditure share of I
the world factor endowment. .
I • high powered money
That is, for country i, P = VI_
SIV
W
, pi is the factor con- I
tent of its trade, Vi,V
W
its and
the world's factor endowment,
and Si its share of world expen-
diture.
1. same as monetary base, in
the sense of currency plus com-
I mercial bank reserves.
I 2. the monetary base or the to-
tal of currency in circulation and
commercial bank deposits with
I the central bank.
• hedge
to offset risk. In the foreign
exchange market, hedgers use I • high-tech industries or
activities
the forward market to cover a I
transaction or open position and
thereby reduce exchange risk.
The term applies most com-
monly to trade.
the identification of those indus-
I tries considered to be high-tech
I has generally relied on a calcu-
lation comparing R&D inten-
sities. R&D intensity, in tUl'n,
I has typically been determmed by
comparing industry R&D ex-
II ========Economics
II HilbertSpace/HilbertSpaces I 83
penditures and/or numbers of where multiplying all argu-
technical people employed (i.e., ; ments by a constant changes the
scientists, 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
• Hilbert Space / Hilbert
Spaces
is a vector of arguments, 0>0
I is any constant, and g( .) is some
strictly increasing positive func-
tion. Special cases include ho-
I mogeneous of degree X and lin-
early homogeneous.
a complete normed metric I
space with an inner product. So
the Hilbert spaces are also Ba-
nach spaces. L
2
is an example I
of a Hilbert space. Any Rn with I • homogeneous of degree 1
n finite is another. : the same as linearly homoge-
• hinterland neous and, for a production
; function, constant returns to
tributary (factor-supply or : scale.
product-market) area of a I
heartland, central region, city or • homogeneous of degree X
port. A hinterland is delineated a homogeneous function where
by the inter-dependency rela- I the monotonic function is the
tionships with the core region. ; constant raised to the exponent
: X: F(OV)=OXF(V).
• home bias
I
a preference, by consumers or : • homogeneous of degree
other demanders, for products I zero
produced in their own country, ; the property of a function
compared to otherwise identi- : whose value if you scale all ar-
I
cal 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 production
the missing trade. : functions imply that marginal
• Homogeneous function
a function with the property
products have this property,
; which is critical for factor price
equalisation.
&tmomics======= II
homogeneous product I horiz6ntal intraindustry trade II
================*
84
• homogeneous product I selves literally homothetic.
the product of an industry in I • homothetic preferences
which the outputs of different together with identical prefer-
firms are indistinguishable. ences, this presumption is used
Contrasts with differentiated I for many propositions in trade
product. theory, in order to assure that
consumers with different in-
comes but facing the same
prices will goods in the
same proportlons.
• horizontal integration
production of different
ies of the same product or dif-
ferent products at the same
level of processing, within a
I single firm. This may, but need
not, take place in subsidiaries in
different countries.
• homohypallagic I
having a constant elasticity of :
substitution. One of the inven-
tors of the CES function tried ;
to christen it this in Minhas
(1962), where he also explored
its theoretical and empirical
implications for the Heckscher-
Ohlin Theorem, but the name
did not catch on.
• homothetic
a function of two or more ar- I
guments is if ra- • horizontal integration
tios of its first partlal denva- corporate mergers inv?lving
tives depend only on the ratios I competing firms producmg the
of the arguments, not lev- same or similar production at
els. For competitive consumers the same stage of production.
or producers optimising subject I Such mergers tend to reduce
to homothetic utility or produc- I competition in the market.
tion functions, this means that :
d d
• horizontal intraindustry
ratios of goods demande e- I
. trade
pend only on relative pnces, not I . .
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 vertical
demand functions are not them- ; IIT. _
II =--========Eeonurnics
II Huber-White Standard Errors I iden;"",l P"",'"",'ife7='C1"",u:es======="",8=5
• Huber-White Standard
Errors
the standard errors that have
been adjusted for specified as-
sumed-and-estimated correla-
tions of error terms across ob-
servations.
• human capital
1. the stock of knowledge and
skill, embodied in an individual
as a result of education, train-
ing and experience which makes
them more productive.
2. the stock of knowledge and
skill embodied in the popula-
tion of an economy.
• human capital accumula-
tion
the attributes of a person which
are productive in some eco-
nomic context. Often refers to
formal educational attainment,
with the implication that edu-
cation is investment whose re-
turns are in the form of wage,
salary, or other compensation.
These are normally measured
and conceived of as private re-
turns to the individual but can
also be social returns.
• Ie Constraint
stands for 'incentive compatibil-
ity constraint'. When solving a
I principal-agent maximisation
problem for a contract that
meets various criteria, the IC
~ constraints are those that re-
; quire agents to prefer to act in
: accordance with the solution. If
I the IC constraint were not im-
I posed, the solution to the prob-
: lem might be economically
~ meaningless, insofar as it pro-
I duced an outcome that met
~ some criterion of optimality but
: which an agent would choose
I not to act in accord with.
~ • iceberg transport cost
; a cost of transporting a good
: that uses up only some fraction
~ of the good itself, rather than
I using any other resources.
: Based on the idea of floating an
~ iceberg, which is costless except
I for the amount of the iceberg
~ itself that melts. It is a very trac-
: table way of modelling trans-
~ port costs since it impacts no
; other market.
; • idempotent matrix
: a matrix M is idempotent if
~ MM=M. (M times M equals
1M.)
; • identical preferences
~ the assumption that individuals,
: either within a country or in dif-
I
Eetmomics======= II
""8,,,,6===========* identitymll;trix I implicit contract II
ferent countries, have the same I Solve for the structural form
preferences. To be useful, since I parameters in terms of the re-
individuals' and countries' in- duced form parameters, and
comes may differ, the assump- I substitute in the estimates of
tion is often used together with I the reduced form parameters to
homothetic preferences. get estimates for the structural
. ones.
_ identity matrIX
a square matrix of any dimen- - immiserising growth
sion whose elements are ones I economic growth which makes
on its northwest-to-southeast the country worse off.
diagonal and zeroes everywhere Bhagwati (1958) coined the
else. Any square matrix multi- I term for growth that expands
plied by the identity matrix with I exports and worsens the terms
those dimensions equals itself. of trade sufficiently that its real
One 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 from
It is standard to denote the growth and had also, indepen-
identity matrix by 1. I dently, worked out conditions
- Illiquid Assets
assets which are not easily and
quickly converted into money.
_ ILS / Indirect Least
Squares
for Bhagwati's result.
- imperfectly competitive
refers to an economic agent
I (firm or consumer), group of
agents (industry), model or
analysis that is characterised by
imperfect competition. C o n ~
ILS stands for Indirect Least I
Squares, an approach to the es- I trasts with perfectly competi-
timation of simultaneous equa- tive.
tions models. Steps:
a. Rearrange the structural - implicit contract
form equations into reduced a non-contractual agreement
form. I which corresponds to a Nash
b. Estimate the reduced form I equilibrium, to the repeated bi-
lateral trading game other than
parameters.
II ========&onomics
II implicitpricedejlator I importpenetr:on 87
the sequence of Nash equilib- I 2. the difference between the
ria, to the one-shot trading I price just inside a border and
game. In the labour market, an : the price just outside it, espe-
implicit contract is formally r e p ~ ~ 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
and the employee works effec-
tively because they expect to
play the game again (continue
the agreement) if it goes well,
not because they have an ex-
plicit, enforceable contract.
; - import bias
~ ~ . any bias in favour of import-
: mg.
~ 2. applied to growth, it tends to
; mean a bias against importing,
: 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 used
rived 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 that
of GDP. Without ql!alification, industry.
the term refers to the GDP de- I
flator and is thus an index of : - import demand elasticity
prices 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 elasticity
sumption and includes prices of : usually means the import de-
imports. ~ mand elasticity.
- implicit tariff ~ _ import penetration
1. tariff revenue on a good or I a measure of the importance of
group of goods, divided by the I imports in the domestic
corresponding value of imports. economy, either by sector or
Often lower than the official or ~ overall, usually defined as the
statutory tariff, due both to ; value of imports divided by the
PTAs and due to failures in cus-
toms collection.
: value of apparent consumption.
I
&01Iomics======== II
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 and
country imports. the other is the import-compet-
I ing good.
• import substitute
a good produced on the domes-
tic market that competes with
imports, either as a perfect sub-
stitute or as a differentiated
product.
• import substituting
industrialisation(ISI)
I • impossibility theorem
lone of a class of theorems fol-
lowing Arrow (1951), showing
that social welfare functions
I cannot have certain collections
of desirable attributes in com-
mon.
• impulse response function
a graph of the response of the
I system over time after a shock
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 the
opment that replaces imports I percentage deviations in output
with domestic production. It I or consumption over time after
may be motivated by the infant I a one-time one percent increase
industry argument, or simply by in the money stock.
a strategy for economic devel-
opment based on replacing im-
ports with domestic production.
(lSI)
the desire to mimic the indus- I
trial structure of advanced coun-
tries. Contrasts with export pro-
motion.
• import surveillance
the monitoring of imports, usu-
ally by means of automatic li-
censmg.
• import-competing
• Inada conditions
I a function f() satisfies the Inada
conditions if: f(O) = 0, f'(0) =
infinity and f'(infInity) = O. fO
is usually a production function
I in this context.
I • inadmissibility
refers to an industry which I
competes with imports. That is,
a possible action by a player in
a game may be said to be inad-
1/ ========&onomies
II income eJfoct I indiJforence curve
89
*================
missible if it is dominated by I tity demanded divided by the
another feasible actions. The I percentage change in income.
term comes with view of a game I • incomplete specialisation
as a math problem. .An action
is 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- • indebtedness
maximising strategy for the I the amount that is owed, thus
game player. I the amount of an entity's (indi-
• income effect : vidual, firm, or government's)
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 payment
2. 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) for
income due to the price change. injuries suffered, not for the
Contrasts with substitution ef- costs of recovery. The indemnity
fect. I payment is designed not to be
• income elasticity
1. normally, the income elas-
ticity of demand; that is, the
elasticity of demand with re-
spect to income.
2. when used without another
a dependent on anything the
patient can control. From the
I point of view of the insurer, the
I indemnity mechanism avoids
the moral hazard problem of
I victim spending too much in
I recovery.
referent, income elasticity ap-
pears to mean 'of consumption'. I • indicator variable
That is for income I and con- in a regression, an indicator
sumption C: income elasticity variable is a variable that is one
= (l/C) 1t (dC/dI) I if a condition is true, and zero
• income elasticity of de-
mand
the percentage change in quan-
if it is false.
; • indifference curve
a means of representing the
Economics======= It
theory I industrialcuncentration II
preferences and well being of
consumers. Formally, it is a ;
curve which represents the
combinations of arguments in I
a utility function that yield a I
person who pays them.
• indirect utility function
denoted v(p, m) where p is a
vector of prices for goods, and
m is a budget in the same units
given level of utility.
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 • induction
mand using inditTcrence curves
and an income constraint to I
demonstrate the reason for the
a process of reasonmg
('generalising') leading from
I the observation and recording
of particular cases to general
conclusions or 'laws'.
inverse relations hi p between
price and quantity demand. An I
alternative to the older marginal I
utility explanation of this phe-
• inductive reasoning
nomenon. 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 concentration
the 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 the
taxes which are visible to the four-firm concentration ratio.
II =======================Economics
91
\1 indwelling I infrastructure
*================
Concentration is, in effect, the ~ Activities operating outside the
opposite 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 understanding
a term M. Polanyi used to sug- I of information literacy is the
gest that 'human beings create realisation that several condi-
knowledge by involving them- tions must be simultaneously
selves with objects, that is, ~ present. First, someone must
through self-involvement and ; desire to know, use analytic
commitment ... ' skills to formulate questions,
• inelastic I identify research methodolo-
I gies, and utilise critical skills to
having 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 complex
the expenditure share falls with I ways. Third, once a person has
income. Contrasts with elastic
. identified what is sought, he
and unit elastic. should be able to access it.
• inferior good
• informational cascades
economic actors improve on
; their limited private informa-
: tion by observing and mimick-
~ ing the actions of others.
a good for which the demand I
decreases when income in-
creases. When a household's
income goes up, it will buy a
smaller quantity of such a good.
• informal economy
~ • infrastructure
I the facilities which must be in
place in order for a country or
area to function as an economy
I and as a state, including the capi-
a reference to those parts of the
economy which operate with- I
out official recognition or with
only ambiguous or tenuous ties
to governmental institutions. I
tal needed for transportation,
Economics======== 1\
92
==========*
injury I interbank rate It
communication, and provision
of water and power and the in-
stitutions needed for security,
health and education.
• injury
I trolled by policy makers and
I can be used to influence other
variables, called targets. Ex-
I amples are monetary and fiscal
I policies used to achieve exter-
nal and internal balance.
harm to an industry's
and/or workers.
owners I
• enterprise
• input-output table
such enterprises that convert
I intellectual resources into a
chain of service outputs and in-
tegrate these into a form most
useful for certain customers.
a table representing all inputs
and outputs of an economy's I
industries, including intermedi - I
ate transactions, primary in-
puts, and sales to fmal users. As I • intensity of land use
developed by Wassily Leontief, I factor inputs (capital, labour,
the table can be used to calcu- fertiliser, etc.) per unit area of
late gross outputs and primary land, generally yielding high
factor inputs needed to produce I returns per unit area of land, as,
specified net outputs. Leontief e.g., in 'intensive agriculture' (as
(1954) used this to find the fac- : different from 'extensive land
tor content of u.s. trade, gen- I use' and 'extensive agriculture').
erating the Leontief Paradox. I. intensive
• institutional thickness
I of production, using a relatively
large input of an input. a reference to the institutional
structure and qualities of insti- I
• intensive agriculture
tutions of a region, more spe- I
cifically the presence, interac- system of farming
tion, collective action (lack of characterised by relatively high
inter-institutional conflict) and I levels of factor inputs (capital
legitimacy of institutions in a [including fertiliser] and/or
I labour) per unit of land.
regIOn.
• instrument
an economic variable that is con-
I • interbank rate
I the rate of interest charged by
a bank on a loan to another
II ========&onomics
II interestparity I 93
bank. to another, presumably to be
• interest parity
; used as an intermediate input.
; • internal balance
equality of returns on otherwise
identical financial assets de- : a target level for domestic ag-
nominated in different curren- gregate economic activity, such
cies. May be uncovered, with
returns including expected
changes in exchange rates, or
covered, with returns including
the forward premium or dis-
count. Also called interest rate
parity.
• interindustry trade
trade in which a country's ex-
ports and imports are in differ-
ent industries. Typical of mod-
els of comparative advantage,
such as the Ricardian Model
and Heckscher-Ohlin Model.
Contrasts with intraindustry
trade.
• intermediate input
an input to production which
has itself been produced and
that, unlike capital, is used up
in production. As an input, it is
in contrast to a primary input
and as an output, it is in con-
trast to a final good. A very
large portion of international
trade is in intermediate inputs.
• intermediate transaction
I as a level of GDP that
mInImises unemployment
: without being inflationary.
I
: • internal economies of scale
economies of scale that are in-
; ternal to a firm, that is, the
: firm's average costs fall as its
own output rises. Likely to be
I inconsistent with perfect com-
: petition. Contrasts with exter-
nal economies of scale.
I. al .
. • Intern Ise
to cause, usually by a tax or sub-
; sidy, an external cost or benefit
: of someone's actions to be ex-
perienced by them directly, so
; that they will take it into ac-
: count in their decisions.
I
: • international adjustment
I process
I 1. any mechanism for change in
international markets.
: 2. the mechanism by which pay-
ment imbalances diminish un-
; der pegged exchange rates and
: nonsterilisation. Similar to the
the sale of a product by one firm I
specie flow mechanism, ex-
&onomies======= II
94 international;-nuwement I intra-mediatetmde /I
change-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 organisation
vice 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
• international factor move-
ment I
the international movement of ~
any factor of production, includ-
ing primarily labour and capi-
tal. Thus includes migration and
foreign direct investment. Also
may include the movement of ~
financial capital in the form of ;
international borrowing and
lending.
I ability of diverse intelligent de-
vices to communicate with one
another in performing mean-
ingful tasks.
• international macroeco-
nomics
I • intra-firm (international)
trade
flow of imports and exports of
goods and services across na-
tional bOlmdaries between differ-
ent components of a corporate
I network (e.g. between home-
I country parent firms and their
foreign affiliates).
• Intraindustry trade (lIT)
trade in which a country ex-
ports and imports in the same
industry, in contrast to inter-
industry trade. Ubiquitous in
same as international finance,
but with more emphasis on the
international determination of ~
macroeconomic variables such .
as national income and the price
level.
I the data, much lIT is due to
• International Monetary
Fund (IMF)
1. an organisation formed to
help countries to stabilise ex-
change rates, but today pursu-
ing a broader agenda of finan-
cial stability and assistance. As
aggregation. Can be horizon-
tal or vertical.
• intra-mediate trade
I another term for fragmenta-
I tion. Used by Antweiler and
Trefler (2002).
1I=======&Onomics
II intra-product specialisation lIS-1M :=1==========9=5
• intra-product
specialisation
I visible.
I • invisible trade
I (imports or exports of a region
another term for fragmenta-
tion. Used by Arndt (1997).
or country) trade in non-com-
• inventories modity services such as finance
stocks of goods in the hands of I (banking, insurance etc.), com-
producers. These stocks are in- munications, transportation or
eluded in the definition of capi- toUrIsm.
tal and an increase in invento- ~ • involuntary unemploy-
ries is considered to be invest- I ment
ment. ; unemployment as result of de-
• invertible : ficiency in aggregate demand.
I
said of a matrix if its inverse : • IS-Curve
I
in the IS-LM model, the curve
I representing the combinations
of national income and interest
exists. That is, a matrix A is in-
vertible if there exists another
matrix B such that BA = I, where
I is the identity matrix.
rate at which aggregate demand
• investing I equals supply for all goods. It
creating capital goods. Acquir- I is normally downward sloping
ing or producing structures, because a rise in income in-
machinery and equipment or I creases output by more than
inventories. aggregate demand (through
• investment spending
the total amount of spending
during some period of time on
capital goods.
• invisible
with reference to international
consumption), while a rise in
I the interest rate reduces aggre-
I gate demand through invest-
: ment.
I
: • lSI
I
: Import-Substituting
I Industrialisation
trade, used as a synonym for
'service'. 'Invisibles trade' is I • IS-LM model
trade in services. Contrasts with I a Keynesian macroeconomlC
Economks======= II
""96=========L"",S"",-IM",,,:pmodel
l
Israel-US Free TradeArea II
model, popular particularly in
the 1960s, in which national in-
come and the interest rate were
determined by the intersection
of two curves, the IS-curve and
the LM-curve.
I prices are) constant, most com-
I monly in factor-price space
where it shows the combina-
I tions of prices of factors consis-
I tent with zero profit in produc-
ing a good at a specified price
• IS-LM-BP model
of the good .
• isoquant
a curve representing the com-
binations of factor inputs that
a particular version of the
Mundell-Fleming Model that I
extends the IS-LM model by
including in the diagram a third
curve, the BP-curve, represent-
ing the balance of payments
and/or the exchange market.
yield a given level of output in
I a production function.
I • isostante
I term used by Tord Palander
• isocost line (following Schilling) to refer to
a line along with the cost of ~ the boundary between two mar-
something - generally a com- I ket areas served by two market
bination of two factors of pro- centres with varying prices and
duction - is constant. Since transport costs. The isostante
these are usually drawn for I specifies the points with equal
given prices, which are therefore delivered prices from both cen-
constant along the line, an tres.
• isotim
isocost line is usually a straight I
line, with slope equal to the ra-
tio of the (factor) prices.
I line connecting points which are
I subject to equal transport cost
• isodapane for given materials (or prod-
points of equal additional trans- ucts) around a point of supply
port costs around the mini- I or around a market. Isotims
mum-total-trans port-cost are the basis for calculating ag-
point. gregate 'isodapanes' .
• iso-price curve • Israel-US Free Trade Area
a curve along which price is (or I a free trade area between the
" '========&onomics
II J-curve I Kaldor-Hicks criterion
United States and Israel that
was initiated in 1985.
- J-curve
the dynamic path followed by
the balance of trade in response
to a devaluation, which typically
causes the trade balance to
worsen before it improves, trac-
ing a path that looks like a let-
ter '1'.
- Jensen's Inequality
if X is a real-valued random
variable with E( I X I ) finite and
the function g() is convex, then
E[g(X)] > = g(E[X]). Jensen's
inequality is the inequality one
can refer to when showing that
an investor with a concave util-
ity function prefers a certain
return to the same expected re-
turn with uncertainty.
97
*===========
~ because 'pre-existing condi-
; tions' are often not covered un-
: der U.S. health insurance.
I
: - just-in-time
~ an organisational system of
I production designed to
: minimise the time and thereby
associated cost between differ-
I em stages of production as well
I as between initial expressions of
: demand and the delivery of
~ goods or services. Just-in-time
; principles and methods were
: first applied by Japanese car
~ manufacturers but have found
; wide application in other activi-
: ties.
I
: - k percent rule
I
: a monetary policy rule of keep-
~ ing the growth of money at a
; fixed rate of k percent a year.
- Jigyobusei (jp)
multidivisional system
organisation.
: This phrase is often used as
f ~ stated, without specifying the
o ; percentage.
- job lock
describes the situation of a per-
son with a U.S. job who is not
free to leave for another job
because the first job has medi-
cal benefits associated with it
which the person needs, and the
second one would not, perhaps
; - Kaldor-Hicks criterion
: the criterion which, for a change
~ in policy or policy regime to be
I viewed as beneficial, the gain-
~ ers should be able to compen-
: sate the losers and still be bet-
I ter off. The criterion does not
; require that the compensation
actually be paid, which, if it did,
&onomics===================== /I
""9",,,8=========== ;:retsu system I kitchen sink regression 1\
would make this the same as
the Pareto criterion.
I amount of money will be- a
I larger real amount.
• keiretsu system
Subsequntly, the interest rate
I would fall and investment de-
I manded rise. This Keynes ef-
fect disappears in the liquidity
trap. Contrast the Keynes effect
I with the Pigou effect.
the framework of relationships
in post-war Japan's big banks
and big firms. Related compa- I
nies organised around a big
bank (like Mitsui, Mitsubishi,
and Sumitomo) which own a lot
of equity in one another and in
the bank and do much business
with one another. The keiretsu I
I • Keynesian growth models
models in which a long run
growth path for an economy is
traced out by the relations be-
tween saving, investing and the
level of output.
• Keynesian macroeconom-
ics
system has the virtue of main- I
taining long term business re-
lationships and stability in sup- I
pliers and customers. The I
keiretsu system has the disad-
vantage of reacting slowly to
outside events since the players I
are partly protected from the
external market.
I the theory which shows how a
market-based capitalist
economy may reach equilib-
I rium with large scale unemploy-
ment and how government
• kernel estimation spending may be used to raise
the estimation of a regression I it out of this to a new equilib-
function or probability density I rium at the full-employment
function. Such estimators are level of output.
• kitchen sink regression
consistent and asymptotically ~
normal if as the number of ;
observations n goes to infinity,
the bandwidth (window width)
h goes to zero, and the product I
nh goes to infinity.
a regression where the regres-
I sors are not in the opinion of
the writer thoroughly 'justified'
by an argument or a theory.
• Keynes effect
I Often used pejoratively; other
times describes an exploratory
as prices. fall, a given nominal
regresSIOn.
II =======&onomics
/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 the
it is a kind of nonparametric : matrix OMEGA. The theorem
estimator of a function. Given ~ is that if the column space of
a data set {Xi' YJ, it estimates I (OMEGA)X is the same as the
values of Y for X's other than : column space of X; that is, that
those in the sample. The pro- ~ there is heteroskedasticity but
cess is to choose the k values of I not cross-correlation, then the
Xi nearest the X for which one ~ GLS estimator of b is the same
seeks an estimate, and average : as the OLS estimator of b.
their Y values. Here, k is a pa- ~ • kurtosis
rameter 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 s
cimate.
; is the standard deviation.
; • Kuznets curve
• knightian uncertainty
unmeasurable risk.
~ a graph with measures of in-
• knots : creased economic development
if a regression will be run to ~ (presullled to correlate with
estimate different linear slopes ; time) on the horizontal axis, and
for different ranges of the in- : measures of income inequality
dependent variables, it's a spline ~ on the vertical axis,
regression, and the endpoints of ; hypothesised by Kuznets
the ranges are called knots. The : (1955) to have an invened-U-
spline regression is designed so ~ shape. That is, Kuznets made
that the resulting spline func- I the proposition that when an
cion, 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
~ inequality increases over time,
~ then at some critical point it
• Kruskal's theorem
let X be a set of regressors, y
be a vector of dependent vari-
Economies======== /I
100 labour ;ket outctJ1MS I laissez foin economics II
starts to decrease over time. I where mO is a guess at the con-
Kuzners (1955) showed evi- I ditional median function.
dence for this.
• labour market outcomes
shorthand for worker (never
employer) variables that are
often considered endogenous in
I • lag operator
denoted by L, a lag operator
operates on an expression by
I moving the subscripts on a time
series back one period, so:
a labour market regression.
Such variables, which often ap- I
pear on the right side of such
Le = e
t t-l
• lagging indicator
a measurable economic variable
regressions: wage rates, em-
ployment dummies or employ-
ment rates.
• labour-using
a technological change or w;:h-
nological difference that is bi-
ased towards usage of more
labour, compared to some defi-
nition of neutrality.
• LAD estimation / LAD
I that varies over the business
cycle, reaching peaks and
troughs somewhat later than
I other macroeconomic variables
such as GDP and unemploy-
ment. Contrasts with leading
I indicator.
I • Lagrangian
I a function constructed in solv-
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 equals
function, that is an estimator I the objective function minus, for
for the median of the process I each constraint, a variable
given the data. Say the data are 'Lagrange multiplier' times the
stationary {Xt' Yt}' The depen- amount by which the constraint
dent variable is y and the inde- I is violated.
pendent variable is x. The cri-
terion function to be minimised
in LAD estimation for each ob-
servation t is:
q(xt,Yt,D) = I Yt =m(xt,D) I
I • laissez faire economics
I a school of economics inspired by
Adam Smith who believed that
if we would just let the market
II ========Eeonomics
II JA,issez-foire IlRw oftliminishinomu;==========""l""O""l
function without any son of in- ~ tion.
tervention, competition would
create order and eventually pros-
perity for all.
• Laissez-faire
a economic theory advocating
minimum role for government
in the economy, such as provid-
ing for defence against external
enemies, a system of law to pro-
tect individuals and their prop-
erty, and production of such
. goods and services which for
some reason are needed, but
would not be produced by pri-
vate firms.
• large country
a country that is large enough
for its international transactions
to affect economic variables
abroad, usually for its trade to
matter for world prices. Con-
trasts with a small open
economy.
• Latin American Free Trade
Association (LAFTA)
a group of Latin American
countries formed in 1960, with
the aim of establishing a free
trade area. This aim was never
achieved, and LAFTA was re-
placed in 1980 with the Latin
American Integration Associa-
~ • Latin American Integra-
; tion Association (LAIA)
: an organisation of Latin Ameri-
~ can countries which replaced the
I failed LAFTA. LAIA_ has the
~ more limited goal of encourag-
: ing free trade but with no time-
~ table for achieving it.
~ • law of comparative advan-
; tage
: the principle which, given the
~ freedom to respond to market
I forces, countries will tend to
: export goods for which they
~ have comparative advantage
I and import goods for which
; they have comparative disad-
: vantage, and that they will ex-
~ perience gains from trade by
; doing so.
; • law of diminishing tlnar-
ginal utility .
I . h
. as a person mcreases er con-
; sumption of a good or service
: (other consumption being held
~ constant), the marginal utility
I of the good or service eventu-
; ally will tend to decline.
; • law of diminishing returns
: the principle that, in any pro-
~ duction function, as the input of
EeonomuS======-4== II
"",10"",2===========.. law alone price I learning objective II
one factor rises, holding other
factors fixed, the marginal
product of that factor must
eventually decline.
-
-
..
- law of one price
I which varies over the business
I cycle, reaching peaks and
troughs somewhat earlier than
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
I nses.
the principle where identical
goods should sell for the same ~ - learning curve
price 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-
cumulated output produced.
Usually reflecting learning by
I doing, the learning curve shows
veloped Country, which was cost falling, or average product
more or less the same as de-
nsmg.
-LDC
for many years, the acronym I
LDC has stood for Less De-
veloping country. However, in I
recent years, LDC has also
been used for Leas t Devel-
oped Country, which has a I
narrower and more formal
definition.
- learning curve effects
cost reductions resulting from
skill improvements based on
repetitive (usually production"
related) experiences.
_ leading indicator - learning objective
a measurable economic variable I a written statement describing
II ========Economics
II learning organisation 103
measurable achievements you Akerlof's 1970 paper, in
hope can be accomplished dur- ; which the fact where a good
ing your class experience or any : is available suggests that it is
other definable learning activ- of low quality. For example,
ity. ; why are used cars for sale? In
- learning organisation
an organisation that is continu-
ally expanding its capacity to cre-
ate its future. A learning
organisation is not merely trying
to survive, i.e. engage in adap-
tive learning, but it adds 'genera-
tive learning'.
- learning web
an integrated system of
Internet- based, hypertextually
organised course or program
materials, resources, Jinks to
resources and communication
opportunities designed to facili-
tate learning environments and
processes.
- least squares learning
the kind of learning that an agent
in a model exhibits by adapting
to past data, by running least
squares on it to estimate a
hypothesised parameter and be-
having as if that parameter were
correct.
- lemons model
: many cases because they are
'lemons', that is, they were
problematic to their previous
. owners.
I
: - lender of last resort
I
: the function whereby the
tral bank readily makes cash
; advances to commercial banks
: in the event they misjudge
their cash reserve require-
I ments.
; - Leontief composite
: a composite of two or more
goods or factors which includes
I them in fixed proportions,
I analogous to the Leontief tech-
: nology.
I
: - Leontief paradox
the fmding of Leontief (1954)
; that u.s. imports embodied a
: higher ratio of capital to labour
than U.S. exports. This was sur-
I prising because it was thought
; that the U.S. was capital abun-
: dant, and the Heckscher-Ohlin
Theorem would then predict
describes models like that of I
II
that u.s. exports would be rela- I
tively capital intensive.
• Leontief Production
Function
has the form q=min{xl,x2}, I
where q is a quantity of output I
and xl and x2 are quantities of :
· c. I
mputs or lunctions of the quan- :
tities of inputs.
Leptokurtic
• Leontief technology • Lerman Ratio
a production function in which a government benefit to the
?O between inputs lmderemployed will presumably
IS possIble: F(V) = mini(Vi/ I reduce their hours of work. The
ai), where V is a vector of in- ratio of theil, actual increase in
puts Vi, and ai are the constant income to the benefit is the
per unit input requirements . . Ler.man ratIo, which is ordi-
Isoquants are L-shaped. ; nanly zero and one.
• leptokurtic
: Moffitt estimates it in
I regard to the U.S. AFDC pro-
gram at about .625.
an adjective describing a distri-
bution with high kurtosis.
'High' means the fourth central • Lerner Diagram
moment is more than three thi.s diagram, drawn for given
times the second central mo- pnces and technology, uses
ment, such a distribution has I unit-value isoquants of two or
greater kurtosis than a normal more goods to deduce patterns
distribution. This term is used of specialisation and factor
in Bollerslev-Hodrick 1992 to I prices as they depend on factor
characterise stock price returns. endowments. Due originally to
Lepto- means 'slim' in Greek Lerner (1952) and popularised
arid refers to the central part of by Findlay and Grubert (1959).
the distribution. I • Lerner Index
I a measure of the profitability of
11=======&011"","'
a firm that sells a good: (price-
marginal cost) / price.
105
*================
~ to the Lerner Diagram. In fact,
; Pearce's (1952) diagram uses
: unit isoquants r a t h ~ r than · unit
~ value isoquants and is much
; more cumbersome.
; _ leverage ratio
~ often, the ratio of debts to total
- Lerner paradox : assets. Can also be the ratio of
the possibility, identified by ~ debts (or long-term debts in
Lerner (1936), where a tariff; particular, excluding for ex-
might worsen a country's terms : ample accounts payable) to eq-
I .
of trade. This can happen only: wry.
One estimate, from Domowitz,
Hubbard, and Petersen (1988)
is that the average Lerner in-
dex for manufacturing firms in
their data was .37.
if the country spends a dispro- I Normally used to describe a
portionately large fraction of : firm's accounts but could de-
t h ~ tariff revenue on the im- ~ scribe the accounts of some
ported good, and it will not hap- I other organisation or an indi-
pen (from a stable equilibrium) ~ vidual or a collection of
if the tariff revenue is redistrib- : organisations
uted. 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 with
all imports has the same effect ~ revenues from bonds and using
as an equal ta.x 011 all exports, if I the revenues of the company to
the revenue is spent in the same : payoff the bonds.
way. The result depends criti- I
: - Leviathan
cally on balanced trade, as in a I
real model, so that a change in : the all-powerful kind of state
imports leads to an equal ~ that Hobbes thought 'was nec-
change in the value of exports. ; essary to solve the problem of
Due to Lerner (1936). ~ social order.
: - Likert Scale
~ measures the extent to which a
- Lerner-Pearce Diagram
this name is' sometimes given
Eetmomics======= II
",1=06==========I=im; dependent variable I linking scheme II
person agrees or disagrees with I erally involving the variables
the question in a survey (e.g. I like the total transport costs and
1 = strongly disagree, 2 = dis- the distance. The function
agree, 3=not sure,4=agree, I would be linear ifit is suggested
and 5=strongly agree). I that the increase in transport
cost is proportional to the in-
crease in distance. Linearity
I may exist with or without ter-
minal (or distance-fixed) cost.
The latter would result in a
• limited dependent variable I
a dependent variable in a model
is limited if it is discrete (can
take on only a countable num- I
ber of values) or if it is not al-
ways observed because
truncated or censored.
I curvi-linear, downward sloping
it IS average transport-cost func-
tion.
• linear model / linear
econometric model
an econometric model is linear
if it is expressed in an equation
in which the parameters enter
linearly, whether or not the data
require nonlinear transforma-
tions to get to that equation.
• linear pricing schedule
I In general, non-linear total
I transport costs with declining
marginal distance costs would
tend to make long-haul trans-
I portation relatively inexpen-
sive and might create the in-
centive to select locations
I which reduce the number of
short-haul links and take ad-
vantage of the 'distance-
economies' of (fewer but)
long hauls.
say the number of units, or I
quantity, paid for is denoted q
and the total paid is denoted ~
T(q), following the notation of ; • linearly homogeneous
Tirole. 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 certain
ear mathematical function, gen- I
II ========Eeonomics
IIlUJUidity I locality
amount of the same product
from local producers.
• liquidity
the capacity to turn assets into
cash, or the amount of assets in
a portfolio that have that capac-
ity. Cash itself (i.e., money) is
the most liquid asset.
• liquidity constraint
many households or families,
e.g. young ones, cannot borrow
to consume or invest as much
as they would want, but are con-
strained to current income by
imperfect capital markets.
• little giants
a reference to those medium-
sized firms which are techno-
logically and organisationally
particularly innovative and for-
ward-looking in terms of em-
ployee relations. In contrast to
corporate giants, such medium-
sized firms are more entrepre-
neurial, less bureaucratic, with
fewer managerial layers.
• living wage
a wage which allows families to
meet their basic needs without
resorting to public assistance
and provides them some abil-
ity to deal with emergencies and
107
*================
~ plan ahead. It is not a poverty
I wage.
; • Ljung-Box Test
: the same as the portmanteau
I
. test.
I
.• LM-Curve
~ in the IS-LM model, the curve
; representing combinations of
: income and interest rate at
~ which demand for money
; equals the money supply in the
: domestic money market. It is
~ normally upward sloping be-
I cause an increase in income in-
: creases the demand for money
~ while an increase in the inter-
I est rate reduces the demand for
; money.
~ • local optimum
: an allocation where by some
~ criterion is better than all those
; in its neighbourhood.
; • locality
: localisation economies or exter-
~ nal economies of localisation.
I Agglomeration economies
~ (benefits, cost reductions) re-
: sulting from the concentration
I of the same or similar activities:
; ego benefits resulting from the
: local access to a specialised
~ work force or the specialised
Beonomics========= II
108
Locally A.rymptotica; Normal (£AN) Ilocational triangle II
reputation of a locality to which
some but maybe not all of these
specialised activities contribute.
• Locally Asymptotically
Normal (LAN)
I • location quotient
I a measure of the relative sig-
nificance of a phenomenon (e.g.
employment in software activi-
I ties) in a region compared with
a characteristic of many ('a fam- I
ily of') distributions.
its significance in a larger
('benchmark') region. A high
I location quotient for a specific
• locally identified
activity implies specialisation
and the export of the goods or
I services produced by the activ-
I ity.
linear models which are either
globally identified or there are
an infinite number of observ-
ably equivalent ones. But for
models that are nonlinear in
parameters, 'we can only talk I
about local properties'. Thus,
the idea of locally identified
models, which can be distin- I
guished in data from any other
'close by' model. 'A sufficient
condition for local identification I
....... _ ........ --........
"----------------
::" * ee
u ;:s eo
t. --------______ __
t1 .. M+t" 'tit, to4II;, Mot} .. .,
is that' a certain Jacobian ma- I .locational advantage
trix 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 agent's preferences are 10- I such as availability of a natural
cally nonsatiated if they are con- resource, transport cost, or bar-
tinuous and strictly increasing I riers to trade. May explain why
in all goods. a country's firms succeed in
trade, or why a multinational
I firm locates there.
• location decisions and
locational decision -making
decisions and behaviours re-
lated to locational choices.
I • locational triangle
I the triangle which has been de-
vised and used by Wilhelm
II ========&onomus
IllOComDtive effect I log convexity
Launhardt and Alfred Weber to
construct their basic locational
modeL This model was used to
demonstrate the impact of the
forces of attraction of three (in
a polygon more) reference lo-
cations (originally 2 raw mate-
rial locations and one market)
vis-a-vis the (dependent) opti-
mal (=least-transport-cost) lo-
cation of a processing plant.
Subsequently, the triangle was
used by Isard and Moses to
demonstrate the impact of sub-
stitution benveen distances
and/or materials, and by Beyers
and Krumme substitution be-
tween products (outputs) on
optimal locations.
- locomotive effect
the effect that economic expan-
sion in one large country can
have on other parts of the world
economy, causing them to ex-
pand as well, as the large coun-
try demands more of their ex-
ports.
- log concavity
a function f( w) is said to be log-
concave if its natural log,
In(f(w)) is a concave function;
i.e., assuming f is differentiable,
f"(w)/f(w) - f'(w)2 < = 0 Since
log is a strictly concave function,
109
*================
any concave function is also log-
I concave.
: A random variable is said to be
log-concave if its density func-
I tion is log-concave. The uni-
: form, normal, beta, exponen-
tial, and extreme value distribu-
tions have this property. If pdf
; fO is log-concave, then so is its
: cdfFO and I-FO. The trUncated
version of a log-concave func-
; tion is also log-concave. In prac-
: tice, the intuitive meaning of
the assumption that a distribu-
; tion is log-concave is that (a) it
: doesn't have multiple separate
maxima (although it could be
I flat on top), and (b) the tails of
: the density function are not 'too
thick.'
An equivalent definition, for
; vector-valued random variables,
: is in Heckman and Honore,
I Random vector X is log-concave
I iff its density
fO satisfies the condition that
f(ax
1
+(I-a)x
2
)·[f(x
1
)
for all xl' and
; x
2
in the support of X and all a
: satisfying O.a.l.
I
: - log convexity
a random variable is said to be
I log-convex if its density function
Economics=====================
II
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 of
ances have this property, and so real-valued random variables
do gamma densities with a co- I that have variances. This is an
efficient of variation greater I infinite dimensional space.
than one.
I.Ln
A log-convex random vector is
one whose density fO satisfies I
the condition that f( aX
I
+ ( 1-
a)x
2
). for all
Xl' and in the support of X
and all a satisfying O.a.I.
the set of continuous bounded
functions with domain RN.
• logistic distribution
a logistic distribution has the cdf
I F(x) = 1/(1 +e"X)
• log or natural log
in-economics, log always means
'natural log', that is loge' where
e is the natural constant that is
approximately 2.718281828. So
x=log Y < = > eX=y.
• logical omniscience
This distribution is quicker to
compute than the normal dis-
I tribution but is very similar.
I Another advantage over the
normal distribution is that it
I has a closed form cdf.
I pdf is f(x) = e'(l +e
x
)"2 =
F(x)F( -x)
an assumption underlying the
information facets of most mi- I
• logit model
cro-economic models: If an
agent has knowledge of a phe-
nomenon, he/she also has per-
fect knowledge of all its impli-
cations.
.Ll
the set of Lebesgue-integrable
real-valued functions on [0,1].
.L2
a Hilbert space with inner prod-
uct (x,y) = integral of x(t)y(t)
a univariate binary model. i.e.,
I for dependent variable y, that
I can be only one or zero, and a
continuous indepdendent vari-
able x" that:
I Pr(Yj=l)=F(x
j
'b)
I Here, b is a parameter to be es-
timated, and F is the logistic
I cdf. The probit model is the
I same but with a different cdf for
E
II ========Economics
\\loanormal distributitm I LouPreAcC:; ==========1=11
• lognormal distribution
let X be a random variable
with a standard normal distri-
bution. Then, the variable
Y =e
x
has a lognormal distri-
bution. Example: Yearly in-
comes in the United States are
roughly log-normally distrib-
uted.
• Lome Convention
an agreement originally signed
in 1975 committing the EU to
programs of assistance and
preferential treatment for the
ACP Countries. The Lome
Convention was replaced by the
Cotonou Agreement in June
2000.
• London Interbank Of-
fered Rate (LIBOR)
~ run average cost curve plots the
; relationship between output and
: the lowest possible average total
~ cost when all inputs can be var-
; ied.
; • long run costs
~ production costs when the firm
: is using its economically most
~ efficient size of plant.
~ • longitudinal data
; a synonym for panel data.
; • long-term capital
~ in the capital account of the bal-
: ance of payments, long-term
I capital movements include FDI
~ and movements of financial
: capital with maturity of more
~ than one year (including equi-
; ties).
the interest rate which the larg- ; • Lorenz curve
est 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 ...........
the eufO, but it is the rate for I
oflnc.)1nt
dollar loans that is used as a
benchmark for other transac-
tions.
• long run average costs
total costs divided by the num-
ber of units of output. The long
~ • Louvre Accord
: an agreement reached in 1987
I
Beonom;cs======= II
112 .. lwe ofvariety I magnification ejfo&t II
among the central banks of ~ ply. Ml includes only chequable
France, Germany, Japan, US, I demand deposits.
and UK to stop the decline in I • M2 Money Supply
the value of the US dollar that
they had initiated at the Plaza I
a measure of total money sup-
ply. M2 includes everything in
I Ml and also savings and other
Accord.
• love of variety
preference for variety.
• lump sum
a tax or subsidy which does not
distort behaviour. By using a tax
(or subsidy) in an amount (the
lump sum) independent of any
time deposits.
• macroeconomics
the branch of economic theory
I concerned with the economy as
I a whole. It deals with large ag-
gregates such as total output,
I rather than with the behaviour
aspect of the payer's or I of individual consumers and
recipient's behaviour, it does firms.
not alter behaviour.
• made-to-measure tariff
Nondistorting lump sum taxes I a tariff set so as to raise the
and subsidies do not exist, but
are a convenieut fiction for theo- I price of an imported good to the
retical 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 effect
a tax of a fixed amount that has
to be paid by everyone regard- I the property of the Heckscher-
less of the level of his or her I Ohlin Model where changes in
income. Lump sum taxes are certain exogenous variables
considered efficient taxes be- I lead to magnified changes in
the corresponding endogenous
variables: goods prices as they
I affect factor prices in the
Stolper-Samuelson Theorem;
factor endowments as they af-
a measure of total money sup- I fect outputs in the Rybczynski
cause they do not influence a I
person's decision on how much
to work.
• Ml Money Supply
II ========Econumics
II managedflORt I marginal ========1",,1=3
Theorem. Due to Jones (1965). good.
- managed float - marginal principle
I to maximise the net benefits,
: the strategic or action variable
should be increased until MB =
an exchange rate regime in
which the rate is allowed to be
determined in the exchange
market without an announced
par value as the goal of inter-
vention, but the authorities do
nonetheless intervene at their I
discretion to influence the rate.
I Me, i.e. marginal benefits equal
marginal costs.
- marginal propensity to
import
I the increase in expenditure on
I imports per unit increase in
(disposable) income.
- Management Buy-Out /
Management by Objec-
tives (MBO)
- marginal propensity to
the purchase of a company by I save
its management. Sometimes
means Management By Objec-
tives, a goal-oriented personnel I
I the increase in saving per unit
increase in (disposable) income.
evaluation approach. - marginal rate of substitu-
tion
- Maquiladora
1. generally referring to the
; rate at which the consumer is
: willing to substitute one good
for another (without loss or gain
I of satisfaction).
this is a program for the tem-
porary importation of goods
into Mexico without duty, un-
der the condition that they con-
tribute - through further pro-
cessing, transformation, or re- I
pair - to exports. The program
was established in 1965 and
expanded in 1989.
2. the rate at which factor in-
puts can be exchanged in a pro-
duction process without a
; change in the production (out-
: put) leveL
- marginal benefit I
the increase in total benefit con- : - rate of transfor-
mation'
sequent upon a one unit in-
crease in the production of a I the increase in output of one
good made possible by a one-
Economics======== /I
I 11UJrketpower theory of advertising II
unit decrease in the output of • market for corporate
another, given the technology; control
and factor endowments of a when shares of public firms are
country. Thus, the absolute I traded and in large enough
value of the slope of the trans- I blocks, this means control over
formation curve. corporations is traded. That
puts some pressure on manag-
• marginal revenue
I ers to perform, otherwise their
corporation can be taken over.
the addition to total revenue
resulting from the sale of one I
additional unit of outpUt.
• marginal revenue product
the change in total revenue
which results from employing I
one more unit of a factor.
• market power
1. the power held by a firm over
price and the power to subdue
competitors.
2. a continuum from perfectly
competitive to monopsony and
• market clearing I there's an extensive practice/in-
equality of supply and demand. dustry/science of measuring the
A market-clearing condition is degree of market power.
an equation (or other represen- I Examples: For workers in an
tation) stating that supply I isolated company town, created
equals demand. by and dominated by one em-
• market equilibrium ployer, that employer is a
equality of supply and demand. I monopsonist for some kinds of
employment.
• market failure
• market power theory of
advertising
1. instances of a free market be- I
ing unable to achieve an opti-
mum allocation of resources.
2. any departure from the ideal
benchmark of perfect competi- I
tion, particularly the complete
absence of a market due to in-
complete or asymmetric infor- I
I the theory of advertising is that
I established firms use advertis-
ing as a barrier to entry through
product differentiation. Such a
I firm's use of advertising differ-
entiates its brand from other
mation.
II ========Eeonumics
II marketpriceofrisk I markup
brands to a degree that consum-
ers see that its brand is a
slightly different product, not
perfectly substituted by existing
or potential competitors. This
makes it hard for new competi-
tors to gain consumer accep-
tance.
- market price of risk
is a synonym for the Sharpe ra-
tio.
_ market structure
the way that suppliers and de-
manders in an industry interact
to determine price and quantity.
There are four main idealised
market structures that have
been used in trade theory: per-
fect competition, monopoly, oli-
gopoly, and monopolistic com-
petition.
- marketing board
a form of state trading enter-
prise. A marketing board typi-
cally buys up the domestic sup-
ply of a good and sells it on the
international market.
_ Markov Process
a stochastic process where all
the values are drawn from a dis-
crete set. In a first-order
Markov process, only the most
115
*================
~ recent draw affects the distribu-
; tion of the next one; all such
: processes can be represented by
~ a Markov transition density
; matrix. A Markov process can
: be periodic only if it is of higher
~ than first order.
I
: - Markov Property
~ a property that a set of stochas-
; tic processes may have. The sys-
: tern has the Markov property
~ if the present state predicts fu-
; ture states as well as the whole
: history of past and present
~ states - that is, the process is
I memoryless.
; _ Markov Strategy
~ in a game, a Markov strategy is
: one which does not depend at
I all on state variables that are
~ functions of the history of the
: game except those that affect
~ payoffs.
~ _ Markov's Inequality
; if Y is a nonnegative random
: variable, i.e., ifPr(Y <0) =0, and
~ k is any positive constant, then
~ E(Y) = kPr(Y = k).
~ - markup
; 1. the amount (percentage) by
: which price is in excess of mar-
~ ginal cost. A profit-maximising
&onomics======== II
116 I matrix multiplications II
seller facing a price elasticity of demands. Under certain as-
demand, h will set a markup ; sumptions, this is the condition
equal to (p-c)jp=ljh. One ef- for a depreciation to improve
fect of international trade that I the trade balance, for the ex-
increases competition is to re- I change market to be stable and
duce markups. for international barter ex-
2. in wro terminology, some- change to be stable.
• mass production
times used for the extent to I
which an applied tariff exceeds
I a production system
the bound rate.
3. the ratio of price to marginal
cost. Can be used as a measure
of market power across firms,
industries, or economies.
• Marshallian Demand
Fl1nction
characterised by mechanisation,
high wages, low prices, and
I large-volume output.
I • Matlab
I a matrix programming lan-
guage and programming envi-
ronment. Used more by cngi-
I neers but increasingly by econo-
denoted x(p,m), it is the
amount of a factor of produc-
tion which is demanded by a I
producer given that it costs p I
per unit and the budget limit
that can be spent on all factors
is m. p and x can be vectors.
mIsts.
• matrix multiplications
the multiplication of matrices or
I vectors is 'commutative', i.e. the
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 proceeds
ports 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. The
the demand elasticities for a I sum of the products of this
country's exports and imports I multiplication of corresponding
respectively, both defined to be numbers of the respective vec-
positive for downward sloping tors results in a number which
II ===================Economks
II maturity date I AIeR.COSUR
is placed in the position of the
resulting matrix (or vector)
where the two vectors would
intersect (overlap).
Thus,
horiwntal vector x vertical vec-
tor = a number
vertical vector x horiwntal vec-
tor = matrix
matrix x vertical vector = ver-
tical vector
horizontal vector x matrix =
horiwntal vector
matrix A x matrix B'l = matrix
C
matrix B x matrix A = matrix
D
- maturity date
the maturity date of a financial
asset is the date at which that
asset is converted into a speci-
fied amount of money or physi-
cal assets.
- maximum price system
similar to a minimum price sys-
tem, except that the price speci-
fied is the highest, rather than
the lowest, permitted for an
imported good.
_ maximum revenue tariff
a tariff set to collect the largest
possible revenue for the govern-
117
* = = ~ ~ = = = = = = = = = =
~ ment,
~ _ mediall voter theorem
; the proposition where political
: parties will tend to adopt mod-
~ - erate policies to appeal to vot-
I ers near the middle of the po-
~ litical spectrum.
: - mental models
I
: one of Senge's five learning dis-
~ ciplines for the learning
; organisation: 'reflecting upon,
: and continually clarifying, and
~ improving our internal pictures
I of the world, and seeing how
: they shape our actions and de-
I 0 0 ,
o ClSlons.
I °1°
o _ mercant11sm
I an economic doctrine of the
16th and 17th centuries that
international commerce should
~ primarily serve to increase a
; country's financial wealth, espe-
: cially of gold and foreign cur-
~ rency. To that end, exports are
; viewed as desirable and imports
: as undesirable unless they lead
I
: to even greater exports.
~ - merchandise trade
~ exports and imports of goods.
; Contrasts with trade in services.
; -MERCOSUR
a common market among Ar-
Eeonomics======= II
",1""1,,,,8===========* M-Estimators I millennium round II
I world price down by even more
I than the size of the tariff, as it
may do if the foreign demand
for the importing country's ex-
port good is inelastic.
gentina, Brazil, Paraguay and
Uruguay, known as the 'Com-
mon Market of the South'
('Mercado Comun del Sur'). It ~
was created by the Treaty of ;
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 of
1997. what goes on inside the black
I box' (i.e. the artefact of classi-
• M-Estimators
cal micro-economic theory of
the firm).
• milestones
estimators that maximise a
sample average. The em' means I
'maximum-likelihood-like' .
subprojects where a project is
I broken up (to be able to moni-
tor development progress and
adhere to deadlines.
• metatheorem
an informal term for a propo-
sition which can be proved in a
class of economic model envi - I
• milestone stabilisations:
ronments.
• method of moments
estimation
a way of generating estimators:
I while there may be some free-
dom to make changes to the
design of an evolving product,
I there is a need to adhere to in-
set the distribution moments I termittent milestone deadlines.
I • millennium round
equal to the sample moments,
and solve the resulting equations
for the parameters of the dis- I
the name suggested by the Eu-
ropean Union for the trade
tribution.
• Metzler paradox
I round which they and others
the possibility, identified by
Metzler (1949), that a tariff ~
may lower the domestic relative .
price of the imported good.
This will happen if it drives the I
hoped would be initiated at
the Seattle Ministerial in
1999. That ministerial ended
without agreement to start a
new round.
II ========Economies
II MiWs test I monetarism
- Mill's test
one of two conditions needed
for infant industry protection to
be welfare-improving. This re-
quires that the protected indus-
try become, over time, able to
compete internationally with-
out protection.
- minimum efficient scale
the smallest output of a firm
consistent with minimum aver-
age cost. In small countries, in
some industries the level of de-
mand in autarky is not sufficient
to support minimum efficient
scale.
119
*================
~ merce and Industry, MITI was
; renamed METI as of January
: 6,2000.
I
: - mixing regulation
~ 1. specification of the propor-
I tion of domestically produced
~ content in products sold on the
: domestic market.
~ 2. specification of an amOlillt of
; domestically produced product
: that must be bought by an im-
~ porter for given quantities of
I imports, under a linking
: scheme.
I
: - mobile and immobile
I
factors of production
- Ministry of Economy, ('factor mobility')
Trade and Industry the mobility between different
(METI) uses or occupations of factors
the Japanese government min- I of production (land, labour,
istry which deals with eco- I capital, etc.).
nomic issues, including the ; _ mode of supply
vitality of the private sector,
external economic relations, I the method by which suppliers
energy policy, and industrial of internationally traded ser-
I vices deliver their service to
development.
buyers. The four modes usually
- Ministry of International identified are: cross-border sup-
Trade and Industry ~ ply, consumer movement, pro-
(MITI) ; ducer presence and movement
the Japanese government min- : of natural persons.
istry which deals with trade and ~ _ monetarism
industrial policies. Established I
a view where market econo-
in 1949 as the Ministry of Com-
Beonomics======= II
120 mon;ristview I monopolisticcumpetition II
mies are inherently self- I to acquire during a period in the
stabilising and that variations in I exchange market, mostly for the
the quantity of money are the purpose of then using it to buy
main cause of fluctuations in the I something else.
level of aggregate demand.
• monetarist view
in extreme form, the monetar-
ist view is the view where only
the quantity of money matters
by way of aggregate demand
policy. Relevant only in an over-
heated economy.
• monetary base
the same as high-powered
mone)" It refers to the cash in
commercial banks, plus cash in
circulation and deposits of tl1e
commercial bank at the central
bank.
• money income
nominal income.
• money market
I • money overhang
I a money supply which is larger
than what people want to hold
at prevailing prices. This was
I said to be a major cause of in-
flation in Russia after the fall
of the Soviet Union, which left
I an excess of money in circula-
I tion.
I • money supply
there are several formal defIni-
tions, but all include the quan-
I tity of currency in circulation
plus the amount of demand de-
posits. The money supply, to-
I gether with the amount of real
I economic activity in a country,
is an important determinant of
I its price level and its exchange
I rate.
the money market, in macro-
economics and international fi-
• monopolistic competition
nance, refers to the equilibra- essentially the same as imper-
tion of demand for a country's I fect competition. A market
domestic money to its money I situation in which one or more
supply. 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 product
the quantity that people both in differentiation, often estab-
and out of the country choose I lished through advertising.
II ========:&onomit:s
I! monopolyar;gument I morbidity
121
*=================
• monopoly argument ~ a statistical model in which all
the monopoly argument for a ; parameters are numerically
tariff is the same as the optimal : specified.
tariff argument. It gets its name ~ One might use Monte Carlo
from the fact that a country us- I simulations to check how an
ing a tariff to improve the terms ~ estimation procedure would
of 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

• 0· fi : the estimation are not algebra-
monopsoms C lrm I . .
fi h' th I b f . lcally feaslble or when one
a lrm t at lS . e so e u y ~ r 0 ; wants to verify that one's ana-
a good or serViCe, most likely : lytic calculation for a confidence
k
Of
labour in a particular mar- ~ interval is correct.
et. .
• monopsony
a state where demand comes
from one source. If there is only
one customer for a certain
good, that customer has a
monopsony in the market for
that good. Analogous to mo-
nopoly, but on the demand side
not the supply side. A common
theoretical implication is that
the price of the good is pushed
down near the cOSt of produc-
tion. The price is not predicted
to go to zero because if it went
below where the suppliers are
willing to produce, they won't
produce.
• Monte Carlo Simulations
the data obtained by simulating
~ • moral hazard
I the tendency of individuals,
~ firms, and governments, once
: insured against some contin-
~ gency, to behave so as to make
; that particular contingency
: more likely. A pervasive prob-
~ lem in the insurance industry, it
; also arises internationally when
: international financial ins tim-
~ tions assist countries in finan-
; cial trouble.
; • morbidity
~ an incidence of ill health. It is
: measured in various ways, of-
~ ten by the probability that a ran-
; domly selected individual in a
: population at some date and
~ location would become seri-
Economics======= II
""12""2========""mD=t.,,,,hh=a:
g
I Multifiber Arrangement (MFA) /I
ously ill in some period of time.
Contrast to mortality.
• mothballing
I cone equilibrium, will arise if
I countries' factor endowments
are sufficiently dissinUlar com-
I pared to factor intensities of
I industries. Contrasts with one
cone equilibrium.
the preservation of a production
facility without using it to pro-
duce, but keeping the machin- I
ery in working order and sup- • multifactor model
plies available. This may be a model with more than two
preferable - if the facility'S
operating costs are high and the
aim is to have it available in
I factors. In the context of trade
theory, this is likely to mean a
Heckscher-Ohlin Model with
time of war - to having it pro- I more than two factors.
duce in peacetime under a sub-
sidy or import protection.
I • multi-factor
productivity(MFP)
• movement of natural
persons
same as total factor productiv-
ity, a certain type of Solow re-
sidual.
MFP = d(ln f)/dt = d(ln Y)/dt
- sLd(ln L)/dt - sKd(ln K)/dt
where f is the global production
one of four modes of supply I
under the GATS, this involves
the temporary movement
across national borders of nalli- I
ral persons employed by or as-
sociated with a firm in order to
I function; Y is output; t is time;
SL is the share of input costs at-
tributable to labour expenses;
participate in the firm's busi- I
ness. Also called temporary I
producer movement.
SK is the share of input costs at-
I tributable to capital expenses;
• multi-cone equilibrium
L is a dollar quantity of labour;
K is a dollar quantity of capital.
• Multifiber Arrangement
(MFA)
a free-trade equilibriun1 in the
Heckscher-Ohlin Model in I
which prices are such that all
goods cannot be produced
within a single country, and in-
stead there are multiple diver-
sification cones. This, or a two
I an agreement (OMA) amongst
developed country importers
and developing country export-
1\ ========&onomics
II multi functionality I multiplier effic
t
.. ==========1"",2=3
ers of textiles and apparel to • Multilateral Investment
regulate and restrict the quan- I Guarantee Agency
tities traded. It was negotiated (MIGA)
in 1973 under GATT auspices one of the five institutions that
as a temporary exception to the I form the World Bank Group,
rules that would otherwise ap- MI GA helps encourage foreign
ply, and was superceded in 1995 : investment in developing coun-
by the ATC. I tries .
• multifunctionality • multiplier
the purposes that an industry ; 1. a numerical coefficient which
may serve in addition to pro- : relates the change of a compo-
ducing its output. Most often nent of aggregate demand
applied to agriculture by coun- ; (such as the export demand for
tries that wish to subsidise it, : a region's products) to a conse-
who argue that subsidies are quent change in income (or
needed to serve these other pur- employment).
poses, such as rural viability, ; 2. in Keynesian macroeco-
land conservation, cultural heri- : nomic models, the ratio of the
tage, etc. change in an endogenous vari-
• Multilateral Agreement on ; able to the change in an exog-
Investment (MAl) : enous variable. Usually means
an agreement to liberalise rules the multiplier for government
on international direct invest- ; spending on income. In the sim-
ment that was negotiated in the plest Keynesian of a
OECD but could not be com- : closed economy, thIS IS l/s,
pIe ted or adopted because of s is the marginal propen-
adverse public reaction to it. ; Slty to save.
Preliminary text of the agree- • multiplier effect
leaked to the Internet : the tendency for a change in
m Apnl 1997,. where .m.any aggregate spending to cause a
; more than proportionate
were discontInued ill Novemer : change in the level of real na-
1998. tional income.
&onomies======= II
multistRgeproduction I "
========*
124
• multistage production
another term for fragmenta-
tion. Used by Dixit and
Grossman (1982).
• multivariate discrete
choice model
a discrete choice model in which
the choice is made from a set
with more than one dimension
is said to be a multivariate dis-
crete choice model.
• Mundell-Fleming Model
an open-economy version of the
IS-LM model that allows for
international trade and interna-
tional capital flows. Due to
Mundell (1962,63) and
Fleming (1962).
• Mundell-Tobin Effect
• mystery of the missing
; trade
: the empirical observation, by
Trefler (1995), for the amount
I of trade which is far less than
: predicted by the HOV version
of the Heckscher-Ohlin Model.
More precisely, the factor con-
. tent of trade is far less than the
I .
differences between countnes
I in their factor endowments.
'.Nash
used as an adjective applied to
a strategy in a game, this .means
that it is part of a Nash equilib-
I rium.
I • Nash equilibrium
an equilibrium in game theory
where each player's action is
I optimal, given the actions of the
other players. E.g., in a tariff-
and-retaliation game, with each
country able to improve its
terms of trade with a tariff, zero
says that nominal interest rates
would rise less than one-for-one
with inflation because in re- I
sponse to inflation, the public
would hold less in money bal-
ances and more in other assets, I
which would drive interest rates
tariffs are not Nash, since each
can do better by raising its tar-
iff. A Nash equilibrium, with
positive tariffs, is likely to be
inferior to free trade for both.
down.
• mutual recognition
the acceptance by one country
of another country's certifica-
tion that a satisfactory standard
has been met for ability, perfor-
mance, safety, etc.
• National defence argu-
ment for protection
the argument that imports
should be restricted in order to
II =======Bconomks
II national income I natural rate 125
sustain a domestic industry so eign producers and sellers the
that it will be available in case ; same treatment provided to
of trade disruption due to war. : domestic firms.
This is a second best argument, • natural increase
since there are a variety of ways growth of the population due to
of providing for defence at
I an excess of births over deaths.
lower economic cost, including
production subsidies,
mothballing, and stockpiling.
• national income
1. the general term used to re-
fer to the total value of a
country's output of goods and
services in some accounting pe-
riod, without specifying the for-
mal accounting concept such as
Gross Domestic Product.
2. the income generated by a
country's production, and there-
fore the total income of its fac-
tors of production. Except for
some adjustments that don't
usually enter theoretical mod-
els, NI is the same as GD P.
• national income (GDP)
deflator
a general way of referring to the
price index that measures the
average level of the prices of all
the goods and services compris-
ing the national income or GD P.
• national treatment
the principle of providing for-
• natural monopoly
; a market situation where econo-
: mies of scale are such that a
single firm of efficient size is
; able to supply the entire mar-
: ket demand.
I
: • natural person
this term appears in the GATS
I and it deals with the interna-
tional movement of employees
: of firms that are providing ser-
vices in another country. Per-
; sons are called 'natural' to dis-
: tinguish them from 'juridical
persons', such as partnerships
; or corporations, that are given
: certain rights of persons under
the law.
• natural rate of unemploy-
I ment
the rate of unemployment
: which would exist when the
economy is operating at full ca-
; pacity. It would be equal to the
: amount of frictional unemploy-
ment in the system.
Economics======= II
126
naturaltrade I Nemawashi (jp) II
=================*
- natural trade I commitment being to apply the
trade 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 a
a procedure to determine I general equilibrium model due
whether a trade restriction in- to Jones and Kierzkowski
tended to serve some purpose I (1986). With an arbitrary but
is necessary for that purpose. equal number of goods and fac-
tors, each factor produces two
I (different) goods, each good
uses two (different) factors, in
a way that yields more unam-
agent's actions on another. Con- I biguous results than one nor-
sidered a distortion because the I mally finds in high-dimension
first agent has inadequate in- trade models without specific
centive to curtail their action. I factors.
- negative externality
a harmful externality, i.e., a
harmful effect of one economic
Examples are pollution from I
factories (a production external- - neighbourhood
ity) and smoke from cigarettes I in mathematical Euclidean
(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 a
does not know something .than I particular allocation includes all
he/she, however, k n d ~ 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 to
a list of those items, entities, I the practice of broad consulta-
products, etc. to which the tion before taking action.
agreement will not apply, the
II ========Economics
II neoclassical \ neutral
127
*================
_ neoclassical ~ to scale and smoothly diminish-
a collection of assumptions cus- ; ing returns to individual factors.
tomarily made by mainstream ; _ neoliberalism
economists starting in the late : a view of the world which
19th century, including profit ~ favours social justice while also
maximisation by firms, utility I emphasising economic growth,
maximisation by consumers, ~ efficiency, and the benefits of
and market equilibrium, with : free markets.
corresponding implications for I •
determination of factor prices : - Net DomestIc Product
and the distribution of income. I (NDP)
Contrasts with classical,
Keynesian, and Marxist.
- neoclassical economics
most of modern, mainstream
economics based on neoclassi-
cal assumptions. Tends to as-
cribe inevitability, if not neces-
sarily desirability, to market
outcomes.
- neoclassical growth model
a model of economic growth
where income arises from neo-
classical production functions in
one or more sectors displaying
diminishing returns to saving
and capital accumulation. Due
to Solow (1956) and Swan
(1956).
- neoclassical production
function
a production function with the
properties of constant returns
; gross domestic product minus
: depreciation.
I
: - Net National Product
I (NNP)
I gross national product minus
~ depreciation.
~ - net present value
: same as present value, being
~ sure to include (negative) pay-
; ments as well as (positive) re-
: ceipts.
I
: - neutral
I
: 1. said of a technological
~ change or technological differ-
; ence if it is not disproportion-
: ately in favour of using more
~ or less of one factor than an-
; other. This can be defined in
: several different ways that are
~ not normally equivalent: Hicks-
; neutral, Harrod-neutral, and
E&onomus======= II
128
=================*
new hamar I nominal 1/
Solow-neutral. • new economy
2. said of economic growth if it I this term was used in the late
expands actual or potential out- 1990's to suggest that
put of all goods at the same rate, : globalisation and/or innova-
not being biased in favour of I tions in information technology
one over another. In the : had changed the way that the
Heckscher-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 business
tral technological progress at I cycle, and the valuation of en-
the same rate in all industries .. I terprises.
I • new trade theory
3. said of a trade regime if the
structure of protection favours
neither exportables nor I
models of trade that, particu-
larly in the 1980s, incorporated
importables.
• new bancor
I aspects of imperfect competi-
tion, increasing returns, and
product differentiation into
both general equilibrium and
partial equilibrium models of
a proposed new non-national
world currency to be used for I
payment and reserve purposes,
to be issued by the IMF and in-
tended to maintain a fixed pur-
chasing power in the dollar and
trade and trade policy. Many
I contributed to this literature,
I but the most prominent was
Krugman, starting with euro countries.
• new economic geography
I Krugman (1979) .
the study of the location of eco- I • Newly Industrialising
nomic activity across space, par- I Country (NIC)
ticularly a strand of literature a group of countries previously
begun by Krugman (1991a) regarded as LDCs which have
using agglomeration economies I recently achieved high rates and
to help explain why industries levels of economic growth.
cluster within particular coun- • nominal
tries and regions.
1. in the form most directly
/I ========Economies
II nominal exchange rate I noneconomic :jectil1es argument.for protection 129
observed or named, in contrast ~ These include non-specific sub-
to a form that has been adjusted ; sidies, subsidies for industrial
or modified in some fashion. : research, regional aids and
2. as measured in terms of ~ some environmental subsidies.
money, usually in contrast to
real.
• nominal exchange rate
the actual exchange rate where
currencies are exchanged on an
exchange market. Contrasts
with real exchange rate.
• nominal interest rate
the interest rate actually ob-
served in the market, in contrast
to the real interest rate.
~ • non-automatic licensing
I import licensing that is discre-
~ tionary, based on an import
: quota or performance related.
I •
: • nonconvextty
I the property of an economic
I model or system that states rep-
resenting technology, prefer-
ences, or constraints are not
I mathematically convex. Be-
cause convexity is needed for
proof that competitive equilib-
I rium is efficient and well-be-
• nominal rate of protection
the protection afforded an in-
dustry directly by the tariff and/ I
or NTB on its output, ignoring I
effects of other trade barriers
on the industry'S inputs. Con-
trasts with the ERP.
haved, nonconvexities may im-
ply market failures.
• nondistorted
~ without distortions. Many
; propositions in trade theory are
strictly valid, often only implic-
I itly, only in nondistorted econo-
• nominal tariff
the nominal protection pro-
vided by a tariff, i.e., the tariff
itself. Contrasts with effective
tariff.
• non-actionable subsidy
a subsidy which is permitted by
the rules of the wro, thus not
subject to countervailing duties.
I mles.
I • nondistorting lump sum
redundant appellation for a
lump sum tax or subsidy.
• noneconomic objectives
argument for protection
I the view where a restriction on
Imports may serve a purpose
Economics================== II
130
========*
nonhrmwthetic I norma/good II
outside of conventional eco- • Nontariff Measure (NTB)
nomic models. Unless that pur- ; any policy or official practice
pose is itself the restriction of : that alters the conditions of in-
trade, then this is a second-best ternational trade, including ones
argument, since changes in out- I that act to increase trade as well
put, consumption, etc. can be as those that restrict it. The
achieved at lower economic cost term is therefore broader than
in other ways. I nontariff barrier, although the
• nonhomothetic two are usually used inter-
any function which is not
changeably.
• nontraded good
a good which is not traded, ei-
ther because it cannot be or be-
homothetic, but usually applied
to consumer preferences that I
include goods whose shares of ;
expenditure rise (and others
that fall) with income.
cause trade barriers are too
high. Except when services are
I being distinguished from
goods, they are often men-
tioned as exam pIes of
I nontraded goods, or at least
• non-market economy
a COlIDtry in which most major I
economic decisions are imposed
by government and by central
planning rather than by free use I
of markets. Contrasts with a
market economy.
they were until it becan1e com-
mon to speak of trade in ser-
vices.
• non-specific subsidy
I • nonviolation
a subsidy which is available to
more than a single specific in- I
dustry and is therefore non-ac-
tionable under WTO rules.
I in WTO terminology, this is
shorthand for a complaint that
a country's action, though not a
I violation of WTO rules, has
nullified or impaired a
member's expected benefits
I from the agreement.
• nonsterilisation
the exchange market interven-
tion which is done without
sterilising its effects on the do-
mestic moneY'supply.
I • normal good
any good for which the demand
increases as incomes increase.
II
. 131
II normal value I official reserve trans7============
• normal value
price charged for a product on I
the domestic market of the pro-
ducer. Used to compare with
export pnce in determining I
dumping.
M
• normative
the value judgements as to
'what ought to be', in contrast
to positive which is about 'what I
· >
1S •.
)(
• normative theory
the theory which depends on
underlying values, not on facts.
It identifies 'what ought to be'
if such values are adhered to.
• numeraire
the unit in which prices are
measured. This may be a cur-
rency, but in real models, such
as most trade models, the
numeraire is usually one of the
goods whose price is then set
at one. The numeraire can also
be defmed implicitly by, for ex-
ample, the requirement that
prices sum to some constant.
• offer curve
a curve showing, for a two-
good model, the quantity of one
good which a country will ex-
port (or 'offer') for each quan
~ tity of the other that it imports.
; Also called the reciprocal de-
: mand curve, it is convenient for
~ representing both exports and
I imports in the same curve and
: can be used for analysing tar-
~ iffs and other changes.
~ • offer curve diagram
~ a diagram which combines ~ e
; offer curves of two countnes
: (or one country and the rest of
~ world) to determine equilib-
; rium relative prices.
; • official reserve transactions
: transactions by a central bartk
~ which cause changes in its offi-
I cial reserves. These are usually
~ purchases or sales of its own
: currency in the exchange mar-
~ ket, in exchange for foreign cur-
; rencies or other foreign-cur-
: reney-denominated assets. In
I
Economics======================
II
132 a.:;reqUirement I one cone equilibrium II
the balance of payments, a pur- I each with a different focus or
chase 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-
• offset requirement
I tion. L: Location Advantages
(Country Specific Advantages)
focus on the where question. I:
as a condition for importing into I
a Gountry; a requirement that
foreign exporters purchase do-
mestic products and/or invest in I
the importing country.
I Internalisation Advantages re-
fer to the how or organisational
question.
• oligopoly
• offsets
side payments or other commit-
ments made by countries or
I a market structure where there
I are a small number of sellers,
at least some of whose indi-
corporations to secure export I
orders. In the aerospace indus-
try, companies often have to
subcontract parts production I
and/or to transfer technology; in
order to receive a pllrchase or-
der. However, offsets can take I
many other forms, including
barter trade.
vidual decisions about price or
I quantity matter to the others.
Prl.ce
Prl.C'i
decreases
are matched
Pr1ce
lIRl
D2
1m2
Dl
• Ohlin definition
the price definition of factor I • oligopsony
abundance. In contrast to the I a market ~ t r u c t u r e in which
quantity definition, the price
definition incorporates differ-
ences in demands as well as sup-
plies. Due to Ohlin (1933).
• OLI Paradigm
represents a mix of three differ-
ent FDI theories = 0 + L + I,
there are a small number of
I buyers.
I • one cone equilibrium
I a free-trade equilibrium in the
Heckscher-Ohlin Model
where prices are such that all
I goods can be produced within
a single country; and there is
II ========Economics
II one-way arbitrage I opmregionalism * = = = = = = = = = = 1 " , , 3 ~ 3
<;>lily one diversification cone. ~ lation.
This will arise if countries' fac-
tor endowments are suffi-
ciently similar compared to
factor intensities of industries.
Contrasts with multi-cone
equilibrium.
- one-way arbitrage
~ • Open Market Operation
; (OMO)
: the sale or purchase of govern-
I
: ment bonds by a central bank,
I in exchange· for domestic cur-
~ rency or central-bank depos-
: its. This changes the mon-
~ etary base and therefore the
; domestic money supply, con-
: tracting it with a bond sale and
~ expanding it with a bond pur-
; chase.
the use, by a potential supplier
or demander in a market, of
a different market or markets
to accomplish the same pur-
pose, taking advantage of a
discrepancy among their
prices. With transaction costs,
this enforces smaller price dis- I
crepancies than would be per-
mitted by conventional arbi-
trage. Due to Deardorff I
; _ open position
an obligation to take or make
delivery of an asset or currency
I in the future without cover, that
is, without a matching obligation
in the other direction that pro-
~ tects them from effects of change
(1979).
- one-way option
the situation of a speculator on
an exchange market with a
pegged exchange rate. If there is
doubt about the viability of the
peg, the speculator can sell the
currency short, knowing that
there is only one direction (one
way) that the currency is likely
to move. Therefore, there is little
risk associated with such specu-
; in the price of the asset or cur-
: rency. Aside from simple owner-
~ ship and debt, an open position
; can be acquired or avoided using
: the forward market.
I
: - open regionalism
~ regional economic integration
I which is not discriminatory
: against outside countries,
~ typically, a group of countries
~ that agrees to reduce trade
. barriers on an MFN basis.
E&onomics======= II
134 ;""-CC""otUJtn==iJ""m""U""lh""p""l",,ier=1 ""itf""h""·ma=l""tll"""""iff,,,, 1/
Adopted as a fundamental I
principle, but not defined, by I
APEC in 1989. Bergsten
(1997) offers five definitions,
ranging from open member- I
ship to global liberalisation
and trade facilitation.
• open-economy multiplier
the simple Keynesian multiplier I
for a small open economy. I
Equals l/(s+m), where s is the
marginal propensity to save and I
m is the marginal propensity to I
import.
lk dW-I4f(: and cumd IhrOV$h me vr
:\u ,.ltw 1 ... In! notrIfNol ,l\(: \UW.k 04 M2. "The
,;'(ttI .,1' ho.Wdina; Ml i.. If. t"',-,,-qu;MiCt (of the
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!
opportunity cost to a country of
producing a unit more of a
good, such as for export or to
replace an import, is the quan-
• opportunism
tity of some other good that
I could have been produced in-
stead.
the suggestion (widely associ-
ated with transaction cost I
analysis) where a decision-
maker may unconditionally
seek his/her self-interests, and
that such behaviour cannot
necessarily be predicted. This
proposition extends the I
simple self-interest seeking I
assumption to include 'self-in-
terest seeking with guile',
thereby making allowance for I
strategic behaviour.
• opportunity cost
the cost of something in terms
of opportunity foregone. The
• optimal currency area
the optimal grouping of regions
I or countries within which ex-
I change rates should be held
fixed. First defined (as 'opti-
mum currency areas') by
Mundell (1961).
I • optimal tariff
the level of a tariff which
maximises a country's welfare.
I In a nondistorted small open
economy, the optimal tariff is
zero. In a large country, it is
I positive, due to its effect on the
I terms of trade.
II =======&onomics
II optimal tarijfargument ,outputa7ting 135
• optimal tariff argument countries to restrict the quan-
an argument in favour of levy- ; tities traded of a good or
ing a tariff in order to improve : group of goods. Since the im-
I
the terms of trade. The argu- . petus normally comes from
ment is valid only in a large ; the importers protecting their
country, only if other countries : domestic industry, an OMA is
do not retaliate by raising tar- effectively a multi-country
iffs themselves. Even then, this I VER.
is a beggar thy neighbour
policy, since it lowers welfare
abroad.
I • Organisation for Eco-
: nomic Cooperation and
Development (OECD)
• optimum an international organisation
the best. Usually refers to a ; of developed countries which
most 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 economic
choice by firms or industry sub- : and social policy.' As of July
ject to a technological con- 2002, it had 30 member coun-
straint, or in general equilib- tries.
rium, a complete of ; • Organisation for Euro-
factors and goods that m some: pean Economic Coopera-
sense maximises welfare. I tion (OEEC)
• optimum optimorum
the best of the best or the glo-
bal optimum. This term is
used, when there are several
allocations each of which is lo-
cally optimal, to refer to the
best among these.
• Orderly Marketing Ar-
rangement (OMA)
an agreement among a group
of exporting and importing
an internatioQ.al organisation
; established in 1 as the re-
: cipient institution of aid
through the Marshall Plan. In
; 1961, it was replaced by the
: OEeD.
I
: • output augmenting
I
: said of a technological change
or technological difference if
; one production function pro-
: duces a scalar multiple of the
I
Bconomics======= II
Ct/:rrency I partial equilibrium II
other. Also called Hicks neu- I • Pareto criterion
tral.
• over-valued currency
the situation of a currency
whose value on the exchange
market is higher than is be-
lieved to be sustainable. This
may be due to a pegged or man-
aged rate that is above the mar-
I the criterion that for change in
an economy to be viewed as
socially beneficial, it should be
I Pareto-improving.
I • Pareto optimality
the condition which exists when
it is impossible to make any in-
I dividual better off without mak-
ket-clearing rate, or, under a I ing any other individual worse
floating rate, it may be due to off.
• Pareto-improving
speculative capital inflows. Con- I
trasts with under-valued cur- I
making no one worse off and
I making at least one person bet-
rency.
• para tariff
ter off.
a charge on imports which is not .
included in a country's tariff I • Pareto-optimal
schedule, such as a statistical : a situation where no Pareto-
tax, stamp fee, etc. I improving change is possible.
• parallel import I • partial equilibrium
trade which is made possible I equality of supply and demand
when the owner of intellectual I in only a subset of an economy's
property causes the same markets, usually just one, tak-
product to be sold in different I ing variables from other mar
countries for different prices. I
If someone else imports the
low-price good into the high-
price country, that is a paral- I
lel import.
• para-tariff
a charge on an imported good
instead of, or in addition to, a I
tariff.
.....
II ========Econom;cs
II pass-through I pauperlabOUrargume;:. 137
kets as given. Partial equilib- I pool of (usually locally) learned
rium models are appropriate I behaviours and organisational
for 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-
ately) for analysis of trade poli-
cies in single industries. Con-
trasts with general equilibrium.
- pass-through
the extent to which an exchange
rate change is reflected in the
prices of imported goods. With
full pass-through, a currency
depreciation, which increases
the price of foreign currency,
would increase the prices of
imported goods by the same
amount, and vice versa. With no
pass-through, prices of imports
remain constant.
- path dependency
reference to effects of past com-
mitments or acquired knowl-
edge on subsequent actions and
decisions. Recognising that 'his-
tory matters' for a future course
of action or development, such
past commitments or learning
activities could entail previous
investments, e.g. in transac-
tion-specific assets, contracts,
research & development, or the
; - path dependent
~ the property where you get to
: depend on how you got there.
~ That is, if the equilibrium that
; will ultimately be reached by a
: system depends on the values
~ of variables taken on away from
; equilibrium, then the equilib-
: rium is path dependent.
I
: - patriotism argument . for
~ protection
I the view in which one is help-
~ ing one's country by buying do-
: mestically produced goods in-
~ stead of imports. In a
; nondistorted economy, this is
: not correct, since the country
~ can do better producing where
; it has a comparative advantage
: rather than using scarce re-
~ sources where it does not.
~ - pattern of specialisation
I what all goods a country pro-
~ duces and what it does not pro-
: duce.
I
: - Pauper labour argument
I the view that a country loses by
Economics======= II
"",13"",8==========* perfoct competition I perfoctly elastic II
I • perfect foresight importing from another coun-
try which has low wages, pre-
sumably by lowering wages at
home. This view ignores the I
fact that low wages are due to I
low productivity, and that the
high-wage home country, with
high productivity, will have com- I
parative advantage in some
products and will gain from
trade.
I exact knowledge of the future.
Under perfect foresight, for ex-
ample, the forward rate would
exactly equal the spot rate, that
later prevails when the forward
contract matures.
• perfect substitute
I <l good which is regarded by its
I demanders as identical to an-
other good, so that the elastic-
• perfect competition ity of substitution between
an idealised market structure I them is infinite.
where there are large num-
bers of both buyers and sell- I • perfectly competitive
ers, all of them small, so that I refers to an economic agent
they act as price takers . Per- (firm or consumer), group of
fect competition also assumes I agents (industry), model or
homogeneous products, free I analysis that is characterised by
entry and exit, and complete perfect competition. Contrasts
information. Most interna- I with imperfectly competitive.
tional trade theory prior to I • perfectly elastic
the New Trade Theory as- I refers to a supply or demand
sumed perfect competition. curve with a price elasticity of
Price
AC
infinity, implying that the sup-
I ply or demand curve as usu-
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
II peifo'mul-ncerequirement I place Utili; 139
Perfectly Elastic & I the learning organisation:
Inelastic Demand I 'learning to expand our personal
p"" p,,« capacity to create the results we
C
~
D 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 purposes
they choose.'
a requirement where an im- I
porter or exporter achieves
some level of performance, in
terms of exporting, domestic
content, etc., in order to obtain
an import or export license.
• pessimum distance
reference to the (possibly) dis-
I advantageous location of a
I smaller city relative to a larger
one.
• permatemps • phytosanitary
workers arbitrarily classified as ~ pertaining to the health of
'temporary' by employers while I plants.
they perform regular jobs and
work over extended periods of I • Pittsburgh Plus
time with other workers who I a form of spatial price discrimi-
are given regular employee sta- nation based on oligopolistic
tus. Permatemps tend to receive I collusion. The mill price at one
lower wages and less benefits. I location determines the deliv-
• personal distribution
the distribution of income on
the basis of income groups. For
example, by dividing all income
recipients into ten groups
( deciles) and showing the share
each of these groups had of the
total income.
• personal mastery
one of Senge's 5 principles for
ered price at all locations, re-
I gardless of the location of the
I plant from which delivery is ac-
tually made.
I
: • place utility
I
the utility (benefits, satisfac-
I tion) associated with or derived
from the attributes of a place
or location.
&onomics======== II
140 Planned Unit Development :UD) I political econmny of protection II
• Planned Unit Develop- I more than two, that would be
ment (PUD) I bilateral, but not a great many,
which would be multilateral.
• plurilateral agreement
the plurilateral agreements of
the WTO contrast with the
larger multilateral agreements,
in which the former are signed
a land development project
comprehensively planned as an
entity via a unitary site plan I
which permits flexibility in I
building sitting, mixtures of :
housing types and land uses, I
usable open spaces a,nd the
preservation of significant natu-
ral features.
I onto by only those member
countries that choose to do so,
while all members are party to
I the multilateral agreements.
• planning curve
the long nm average cost curve.
• plasticity
resources and investments are
called 'plastic', to indicate that
there is a wide range of discre-
tionary, legitimate decisions
within which the user may
choose.
I • political economy
I 1. early name for the discipline
of economics.
2. a field within economics en-
I compassing several alternatives
to neoclassical economics, in-
cluding Marxist economics.
I Also called radical political
• Plaza Accord I economy.
3. a field within economics that
an agreement reached in 1985 I
concerns the interactions be-
among the central banks of :
France, Germany, Japan, US ~ tween political processes and
and UK to bring down the value I economic variables, especially
of the U.S. dollar, which had economic policies.
appreciated substantially since • political economy of
1980. By the time of the Lou- I protection
vre Accord, two years later, the I the study of reasons, especially
dollar had fallen 30%. political ones, in which the coun-
• plurilateral tries choose to use protection.
among several countries
II ========Economics
II portfolio approach I positive list
Includes models of voting, lob-
bying, and campaign contribu-
tions, as these lead policy male-
ers to erect tariffs.
• portfolio approach
an approach to explaining ex-
change rates which stress their
role in changing the propor-
tions of different currency-de-
nominated assets in portfolios.
The exchange rate adjusts to
equate these proportions to de-
sired levels.
• portfolio flow
the sale or purchase of fil!ancial
assets across countries.
141
*================
~ • positional goods
I goods which are at least in part
: demanded because their posses-
~ sion or consumption implies
I social or other status of those
~ acquiring them.
; • positive
refers to 'what is', in contrast
to normative which involves
value judgements as to 'what
ought to be' . The word is not,
in this use, the opposite of ei-
ther 'negative' or 'harmful'.
• positive externality
a beneficial externality, I.e., a
beneficial effect of one eco-
• portfolio investment I nomic agent's actions on an-
other. Considered a distortion
the acquisition of portfolio capi- I
because the first agent has in-
I adequate incentive to act. Ex-
I amples are the attractiveness of
tal. Usually refers to such trans-
actions across national borders
and/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 of
vestor can maximise the ex- disease due to vaccines (a con-
pected return from a 'portfolio' sumption externality).
of various kinds of financial as- ~ • positive list
sets, having given degrees of I
. in an international agreement,
risk and uncertainty associated
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 no
expected return).
Economics======= II
""14,,,,2==========:Ostmodernism I preference forl1ariety II
I GMOs, for example.
I • predation
commitment to apply the agree-
ment to anything else. Con-
trasts with negative list.
I the use of aggressive (low) pric-
• postmodernism ing to put a competitor out of
a still tenuous attempt to lend business, with the intent,. once
identity to a new era beginning I they are gone, of raising prices
in the early 1970s which is as- to gain monopoly profits.
socia ted with changes from and • predatory dumping
reaction to certain attributes of I
modernity 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 agree
prices of primary products I is undesirable, like predatory
would decline over the long pricing (predation) in other
term, and therefore that de- contexts.
• predatory pricing
veloping countries that were I
led by comparative advantage
to specialise in them would
find their prospects for devel- I
opment diminished. Due to
Prebisch (1950) and Singer
I a company engages in preda-
tory pricing when it sets the
price of its goods very low, in
I order to eliminate its competi-
I tors and prevent new companies
(1950).
• precautionary principle
from entering into the market-
place.
I • preference for variety
the view that when science has
not yet determined whether a
new product or process is safe
or unsafe, policy should pro- I
hibit or restrict its use until it is
known to be safe. Applied to
trade, this has been used as the ~
basis for prohibiting imports of ;
I the increased utility which
people experience when they
have access to a larger number
I of differentiated product vari-
eties. In reality, this may reflect
their ability to find products
more closely suited to their own
~ f l ====================Bconomics
143
II J!refoY.ences I price definition
*=======
particular .as (1996).
elled in the Doot-StIglitz utIlity • present value
function, they are better off con- ; the value today of a stream of
suming small quantities of each : payments and/or receipts over
of a larger number of products. time in the future and/or the
• preferences ; past, converted to the
1. in trade policy, this refers to : using an interest rate. If Xt IS
h '., the amount in period t and r the special advantages, as
lower-than-MFN tanffs, ac- , interest rate, then present value
corded to another country's ex- at time t=O is V = St (Xt)/
ports, usually in order to pro- : (1 +r)t. .
mote that country's deve1op- • preshipment inspection
ment. certification of the value, qual-
. 2. in trade theory, this refers to ; ity, and/or identity of
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
P
references. : now beino- used also as a secu-
, b
• preferential trading ar- : rity measure.
rangement • price definition
a group of countries which '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 Panaganya
E&onomics======= 1/
discrimination I price undertaki1ltf /I
• price discrimination I • price line
the sale by a firm to buyers at I a straight line representing the
two different prices. When this combinations of variables, usu-
occurs internationally and the ally two goods, that cost the
lower price is charged for ex- I same at some given prices. The
port, it is regarded as dumping. slope of a price line measures
• price elasticity
the elasticity of supply or de-
mand with respect to price.
• price elasticity of demand
change in the quantity de

P,
P,
P.,iod
8. a n ti c Ownand .
"',

Price. .
P' ,
manded of a good or service in
response to a change in price
• price inelastic
having a price elasticity of less
than one (in absolute value).
• price level
relative prices, and changes in
I prices can therefore be repre-
sented by changing the slope of,
or rotating, a price line. A
I steeper line means a higher
I relative price of the good mea-
sured on the horiwntal axis .
• price support
. .
government action to Increase
I the price of a product, usually
by buying it. May be associated
with a price floor.
• price taker
I an economic entity which is too
I small relative to a market to
affect its price, and that there-
fore must take that price as
I given in making its own deci-
sions. Applies to all buyers and
sellers in markets that are per-
I fectly competitive. Applies also
to a country if it is a small open
the overall level of prices in a I
country, generally measured economy.
empirically by a price index, but • price undertaking
often captured in theoretical I a commitment by an exporting
models by a single variable. I firm to raise its price in an im-
porting-country market, as a
II ========Economics
II pricing to 11UJrket I private cost
means of settling an anti-dump-
ing suit and preventing an anti-
dumping duty.
• pricing to market
the practice of an exporting
firm holding fixed (or not
fully adjusting) the price it
charges in the export market
when its costs or exchange
rates change.
• primary budget surplus
the primary budget surplus
(or deficit) of a government
is the surplus excluding inter-
est payments on its outstand-
ing debt.
• primary factor
145
*================
~ ing an additional unit of a good
; or service declines as additional
: units are acquired.
I
: _ principle of diminishing ,
~ returns
I the proposition which states that
~ the marginal product of the last
: unit of labour employed de-
I clines as additional units of
; labour are employed.
; - Prisoners' dilemma
a strategic interaction where
two players both gain individu-
ally by not cooperating, leading
to a Nash equilibrium in which
both are worse off than if they
cooperated. Important espe-
cially for explaining why coun-
tries may choose protection
even though all lose as a result.
~ - private benefit
an input which exists as a stock I
providing service that contrib-
utes to production. The stock is
not used up in production, al-
though it may deteriorate with
use, providing a smaller flow of
services later. The major pri-
mary factors are labour, capital,
human capital (or skilled
labour), land, and sometimes
natural resources.
; the benefit to an individual eco-
: nomic agent, such as a con-
~ sumer or firm, from an event,
; action, or policy change. Con-
: trasts with social benefit.
I
: - private cost
I
: the cost to an individual eco-
• principle of diminishing
marginal utility
the proposition that the satis-
faction derived from consum-
~ nomic agent, such as a con-
; sumer or firm, from an event,
: action, or policy change. Con-
I trasts with sqtial cost.
Economics======== II
146
privategoods I product cyck II
=========*
• private goods
I same level of output as existing
I policies.
a good that cannot be consumed
without paying for it and the
supply of which is reduced when
it is consumed by a particular I
I • Producer Support Esti-
mate (PSE)
introduced by the OEeD to
user 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 of
over 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
random variable.
• product cycle
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 becomes
service in which the producer I standardised and more familiar,
establishes a presence in the I can be produced in other coun-
buyer's country by FDI and/or tries and exported back to
permanent relocation of work- where it started. Due to Vernon
ers. I (1966) .
• producer subsidy equiva- I. product cycle
lent
I associated with observed regu-
1. producer support estimate. larities in the way in which the
2. this ought logically to mea- production and marketing of
sure the extent to which exist- I products change during the life
ing policies serve to subsidise of a product and thereby
producers, defined as the ad change their interaction with
valorem subsidy that, if paid I and demands on their environ-
directly to producers per unit of ~ ment.
production, would lead to the
II ========&onomies
II protluatliffiren#lltWn I protectionirm. =========14=7
_ product differentiation
causing buyers to believe that a
particular version of a product
is superior to that being offered
by competitors.
_ product localisation
modifying and adapting for-
eign-made products/services, to
render them suitable for a new
market.
- production externality
an externality arising from pro-
duction.
- production function
a function that specifies the out-
put in an industry for all com-
binations of inputs.
- production possibilities
levels of output that are within
the range of possibilities for a
particular economy.
- production worker
a worker directly engaged in
production. In empirical stud-
ies of skilled and unskilled
~ profit of a firm.
~ - profit shifting
; the use of government policies
: to alter the outcome of interna-
~ tional oligopolistic competition
I so as to increase the profits of
~ domestic firms at the expense
: of foreign firms. This is a key
~ element of strategic trade
; policy.
; - prohibited subsidy
: a subsidy which is prohibited
~ under the rules of the wro.
; These include subsidies that are
: specifically designed to distort
~ international trade, such as ex-
I port subsidies or subsidies that
~ require use of domestic rather
: than imported inputs.
I
: - prohibition
~ denial of the right to import or
; export, applying to particular
: products and/or particular
~ countries. Includes embargo.
~ - prohibitive tariff
~ a tariff that reduces imports to
labour, data on production ; zero.
workers are often taken to rep-
resent unskilled labour.
- profit maximising
the level of a variable or
behaviour that maximises the
~ - protectionism
: advocacy of protection. The
~ word has a negative connota-
; tion, and few advocates of
protection in particular situa-
Eeonomics======= II
o/accession I quantity definition II
tions will acknowledge being I ity, in either its absolute or its
protectionists. relative form.
• protocol of accession
I • push-pull factors
push factors act to drive people
or goods and services away
I from a place whereas pull fac-
tors draw them to a new loca-
legal document specifying the
procedures for a country to
join an international agree-
ment or organisation, includ-
ing the rights and responsibili-
ties that accompany such ac- I
tion.
• quad
cessIOn.
• public goods
I refers both to the Quadrilateral
I Meetings and to the partici-
pants in those meetings, the
U.S., Canada, EU and Japan.
• quadrilateral meetings
a good that can only be supplied
to all if it is supplied to one and
the availability of which is not I
diminished by anyone
consumer's use of it.
I meetings which occur occasion-
ally, involving the trade minis-
• purchasing power parity ters of the U.S., Canada, EU
exchange rate I and Japan to discuss trade
an exchange rate, computed to policy issues.
yield absolute purchasing power • quality multiplier
parity. Useful for making com- I
parisons of real values (wages, I secondary effects resulting
GDP) across countries with dif- from learning, innovative activi-
ferent currencies. Since the pur- I ties and quality improvements
chasing 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 ========Economics
IllJUantity theory ofnumey I relICtion C:ient 149
XB/YB, where II is the quan- ~ imported good, net of any tar-
tity of factor I with which ; iff, minus the world price times
country J is endowed, 1=X,Y, : the quantity of imports.
J=A,B. ~ •
• quantity theory of money
the idea that there is a direct link
between the quantity of money
in the economy and the price
level.
• quasi-linear utility
. range
~ usually used in the context of
I the 'outer range' of a good. This
~ range refers to the maximum
: distance over which a product
~ can be sold at a givenEo.B.
; price. /
~ • ration foreign/exchange
: to ration access to scarce for-
~ eign currency under a pegged
I exchange rate with an over-val-
: ued currency. Usually done by
~ means of import licensing.
I • ffi .
. • reactlon coe Clent
a utility function of the form
U(xO,x1, ... ,xn) = xO + Siui(xi),
where ui( x) are strictly concave
functions. This is useful for gen-
erating demand functions for
goods xi that depend only on
their own prices in terms of the
numeraire xO.
~ terms used as a relatively gen-
• quid pro quo FDI ; eral reference to the manner in
FD1 in response to the threat : which a dependent subsystem
of protection. Done by a firm ~ is (structurally) linked to an-
which exports into the domes- ; other subsystem within a larger
tic market, the motive is to cre- : systems model. The coefficient
ate jobs there and lessen the . ~ specifies the impact of a change
threat that its exports will be I in one variable (representing
restricted. Due to Bhagwati : the independent subsystem) on
(1985). ~ another variable (representing
• quota rent
the economic rent received by
the holder of the right (or li-
cense) to import under a quota.
Equals the domestic price of the
I the dependent subsystem). 1n-
~ put-output coefficients, 'pro-
: pensities to consume locally'
~ (pel) and probabilities in tran-
; sition matrices represent ex-
: amples.
I
E&onomics======== II
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
0 .0 :
:!20
..
1, 0
' .0
o 10
Coeff, cient of horu:onUI t ubcr adt
koH(N/c.' ]
• reaction curve
I relative price level, which may
have decreased, so that the
prices of its goods relative to
I foreign goods have increased.
• real balance effect
I the influence that a change in
the quantity of real money has
on the quantity of real national
I income demanded.
the graph of a reaction function. I
I • Real Estate Investment
Trust (REIT)
a trust (corporation) which
pools the capital of different
I investors to acquire (or provide
• reaction function
the function that specifies the
choice of a strategic variable by
one economic agent as a func-
tion of the choice of another
agent. Most familiar specifying
output choices of firms In a
Cournot duopoly.
• real
1. adjusted for inflation.
2. referring only to real eco-
nomic variables as opposed to
or monetary ones, as
ill real models.
financing for) all forms o(real
estate. A REIT functions like a
I mutual fund for real estate.
I • real exchange rate
1. the nominal exchange rate
adjusted for inflation. Unlike
I most other real variables this ,
I adjustment requires accounting
for price levels in two curren-
cies. The real exchange rate is:
I R = EP* jP where E is the
nominal domestic-currency
price of foreign currency, P is
3. used with 'appreciation' or
'depreciation', refers to the real
exchange rate. Thus, a real ap- I
preciation means that the nomi-
nal of a country's currency
has Increased by more than its
I the domestic price level, and P*
is the foreign price level.
2. the real price of foreign
goods; i.e., the quantity of do-
I mestic goods needed to pur-
chase a unit of foreign goods.
1/ =======Economics
1\ reIIl interestmte I reflexivity
Equals the reciprocal of the
terms of trade. Equivalent to
definition l.
3. the relative price of traded
goods in terms of nontraded
goods.
• real interest rate
the nominal interest rate which
is adjusted for inflation, to get
the percentage yield an asset
holder gets in terms of real re-
sources. Equals the nominal in-
terest rate minus the rate of in-
flation.
• real model
an economlC model without
money. Most general equilib-
rium models of trade are real
models. This includes the
Ricardian Model, the
Heckscher-Ohlin Model, and
the models of the New Trade
Theory.
• real national income
national income adjusted for
inflation.
• real terms
same as real. A 'wage expressed
in real terms' is just the real
wage.
151
* = = = = = = = = = = = = = = ~
~ • red box
I a category of subsidies which are
: forbidden under WTO rules.
~ This terminology is used in the
I Agriculture Agreement, where
~ however there is no red box.
: Presumably equivalent to pro-
I hibited subsidies.
I • redistributed tariff revenue
; a common assumption that tar-
: iff revenue is given to consum-
~ ers as transfer payments (not in
I proportion to what they paid by
: importing) to be spent like any
~ other income. Since in general
I equilibrium the effects of a tar-
~ iff depend on how the revenue
: is spent, this is a useful neutral
~ assumption.
~ • redistribution policy
; measures taken by government
: to transfer income from some
~ individuals to others.
~ • redundant tariff
~ a tariff which, if changed, will
; not change the quantity of im-
: ports, either because the tariff
~ is prohibitive, or because some
; other policy such as a quota or
: an embargo is limiting quantity.
I
: • reflexivity
I a post-structuralist concept in-
Economics======= II
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-
one's own knowledge and un- cusing on structure and change
derstanding of one's local envi- I of the capitalist economr Re-
ronment and context. jecting market forces as
allocative mechanisms, these
I theories suggest the dominance
of the 'mode of regulation' (so-
cial norms, government rules
I and private practices) which
I motivate(s) individuals to
achieve economic stability.
• region
contiguous areas with common
or complementary characteris-
tics or linked by intensive inter-
action or flows.
• regional policy
in a trade context, this usually
refers to a regional aid.
• regionalism
• Reilly's law of retail gravi-
tation
the formation or proliferation I
of preferential trading arrange-
I a statement related to the dis-
tribution of market share in hin-
terlands of competing cities or
I shopping centres.
'ments:
• regression analysis
the statistical technique of fmd-
ing a straight line which ap-
proximates the information in
I • relative demand
I the ratio of the demand for one
good to the demand for an-
I other, most useful in represent-
I ing general equilibrium in a two-
good economy, where relative
price adjusts to equate relative
I supply and relative demand.
a group of data points . Used
throughout empirical econom- I
ics, including in both interna-
tional trade and finance.
• regressive tax
I • relative location
I a pOSItIOn in space (location)
defined on the basis of distances
and relationships to other loca-
a tax on income in which the
proportion of tax paid relative I
to income decreases as income
II ========&onomics
II relative price I rent seeking
153
*================
or other forum, the measure
; recommended by the dispute
- relative price
: settlement panel to resolve the
tions.
1. the price of one thing (usu- dispute, usually a measure
ally a in of an- ; which will bring the offending
other; I.e., the ratio of two : country into compliance with
prices. relatiive price wro (or other) rules.
good X ill terms of good Y IS ;
pX/ pY</SUB< i>. . - rent
2. 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 above
terms of the amount of one its opportunity cost.
good which can be had for a I 2. the payment to the owner of
certain expenditure compared : land or other property in return
to the amount of another good for its use.
which can be had for the same
I d.
: - rent gra lent
expenditure.
a representation of the decline
- relative supply ; in rent with distance from a
the ratio of the supply of one : market or centre.
good to the supply of another, I s
most useful in representing I Rent
general equilibrium in a two- per
I lJeight of
good economy, where relative Buildinss
price adjusts to equate relative I
supply and relative demand. ___ _
- rdiability
the ability of a statistical instru-
ment to come up with similar/
consistent measurements/re-
sults over time.
- remedy
in a trade dispute in the wro
caD
Di.bncc
- rent seeking
; the using up of real resources
: in an effort to secure the rights
to economic rents that arise
; from government policies. In
: international economics, the
I
1/
154
= = = = = = = = = = = = = = = = ~ *
rental price I revealed preforence II
term usually refers to efforts to I
obtain quota rents.
• restrictive business prac-
tice
• rental price
action by a firm or group of
firms to restrict entry by other
I firms, that is, to prevent other
firms from selling their prod-
uct in their market. This is a
the payment per unit time for
the services of a unit of a factor
of production, such as land or I
capital.
I restraint of competition and
would normally be illegal under
competition policy.
• rentier
a person whose income comes
mainly from rent on land or, I
more broadly, from assets I
• results-based trade policy
the use of trade policies tar-
I geted to specific indicators of
rather than labour.
• rent-seeking
the activities of individuals or
firms to obtain special privi-
leges, such as monopoly power,
which will enable them to in-
economic performance. For ex-
ample, in the early 1990s, the
I U.S. insisted on achieving speci-
fied market shares in trade with
Japan.
• return to capital
crease their incomes. Using up I
resources to win such privileges
from governments or their
I same as the rental price of capi-
I tal. Since capital can only be
agencles.
• reserve asset
any asset which is used as inter-
national reserves, including a
national currency, precious
metal such as gold or SDRs.
• reserve currency
a currency that is used as inter-
national reserves, often because
it is an intervention currency.
measured in monetary units,
I the rental price is, say, dollars
I per dollar's worth of capital per
unit time, and it therefore has
the form of a rate of return like
I an interest rate.
I • returns to scale
I same as increasing returns to
scale.
• revealed preference
the use of the value of expendi-
II ========E&onomies
II revenueargumentfora tariff I risk
ture to 'reveal' the preference of advantage. It assumes perfect
a consumer or group of con- ; competition and a single factor
sumers for the bundle of goods : of production, labour, with con-
they purchase compared to stant requirements of labour
other bundles of equal or ; per unit of output that differ
smaller value. : across countries.
• revenue argument for a
tariff
the use of a tariff to raise rev-
enue for the government. Many
other kinds of tax cause smaller
distortions and are hence pref-
erable to tariffs for this pur-
pose. However, a tariff is one
of the easier taxes to collect, and
it is therefore common in the
early stages of a country's de-
velopment.
• revenue seeking
the use of real resources in an
effort to secure a share of the
disposition of tariff revenues.
• reverse engineering
the process of learning how a
product is made by taking it
apart and examining it.
• Ricardian Model
the classic model of interna-
tional trade introduced by
David Ricardo to explain the
pattern and the gains from
trade in terms of comparative
!
: • risk
I
: 1. uncertainty that associates
I with a transaction or an asset.
; 2. the probability of loss. Dif-
: fers from definition 1, because
'uncertainty' includes probabil-
I ity of gain as well.
I • risk aversion
desire to avoid uncertainty. Risk
: aversion is usually quantified by
the mathematical expected
; value that one is willing to
: forego in order to get greater
certainty.
• risk premium
I 1. the higher expected return
(in the sense of
: expected value) which an uncer-
tain asset must pay in order for
; risk averse investors to be will-
: ing to hold it.
2. the difference between the
; interest rate on a risky asset and
: that on a safe one.
I
3. in exchange markets, the dif-
I ference between the forward
&onomics======== II
156
=================*
rollback I satisficer, satisficing 1/
rate and the expected future
spot rate.
- rollback
1. the phasing out of measures
which are not consistent with an
I creases the output of the indus-
I try that uses that factor inten-
sively and reduces the output of
I the other (or some other) in-
I dustry. Due to Rybczynski
(1955).
agreement.
2. in the Uruguay Round, the - sanction
agreement to remove all 1. to approve or give permis-
GATT-inconsistent trade-re- I sion for an action, as when an
stricting 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:ions
rules included in a FTA speci- I against another as a penalty for
fying when a good will be re- I violating international law or
garded as produced within the international norms. Usually
FTA, so as to cross between I plural: sanctions.
members without tariff. Typi-
cal ROOs are based on percent- - Sanitary and phytosanitary
age of value added or on I regu1ations(SPR)
changes in tariff heading. I government standards to pro-
- ru1es-based trade policy
tect health of humans, plants
and animals. SPS measures are
I subject to rules in the WTO to
institutional arrangements in
which national trade policies are
governed by internationally I
agreed-upon rules, as in the
GATT and WTo.
prevent them from acting as
NTBs.
-SAP
_ Rybczynski Theorem I Structural adjustment program.
the property of the Heckscher- I - satisficer, satisficing
Ohlin Model that, at constant I 1. a references to behaviours
prices, an increase in the en- that are constrained by limited
dowment of one factor in- information and 'bounded ra-
II ========Economics
II saPingfunction I second-best RI,;gUmen:=J1t1=rJte&=tuJn",,· ".."",======""1",,5,,,,7
tionality'. Satisficers' ~ - Schengen Agreement
behavioural 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 and
solutions) to problems which, I permit free movement of per-
in turn, are conditioned by the ; sons between the participating
individual's 'aspiration levels'. : countries. In 1999, it was incor-
2. seeking or achieving '1 satis- ~ porated into the European
factory outcome, rather than ; Union. Currently (2001), the
the best possible. Contrasts with : participants include all EU
the optimising behaviour usu- ~ countries except Ireland and the
ally assumed in economics and ; U.K., plus Iceland and Norway.
trade theory. Alternative mod- ; _ scientific tariff
els based on satisficing are
spreading within economics,
but not yet much in interna-
tional.
- saving function
the relationship between saving
and national income.
- scale economies
increasing returns to scale.
- scarce factor
the factor in a country's endow-
ment with which it is least well
endowed, relative to other fac-
tors, compared to other coun-
tries. May be defmed by quan-
tity or by price.
- scarcity rent
an economic rent that is due to
something being scarce.
: a made-to-measure tariff.
I
:-SDR
I
: Special Drawing Right.
I
: - secondary tariffs
~ any charges imposed on im-
; ports in addition to the statu-
: tory tariff, such as an import
I
: surcharge.
I
: - second-best argument for
. protection
; 1. any argument for protection
: which can be countered by
~ pointing to a different and less
; distortionary policy that would
: achieve the same desired result
~ at lower economic cost.
I 2. an argument for protection
; to partially correct an existing
distortion in the economy when
Eeonomics======= II
158 secular change 1;lf-SUjJi&iency argument for protection "
the first-best policy for that pur- I other, the first country derives
pose is not available. For ex- I these seigniorage benefits. This
ample, if domestic production is the case of a reserve currency.
generates a positive externality I • selective
and a production subsidy to I
internalise it is not available, applied to a trade policy. This
then a tariff may be second-best I means one which affects only
some countries, not all, in con-
optimal.
trast to MFN policy. Selectivity
• secular change is an important concern in the
change over a long period of ; use of safeguards, which coun-
time, such as a decade or more. tries often would prefer to
Distinguished from cyclical I make selective but are required
change which occurs in shorter I by GATT Article XIX to be
time periods such as a year. nondiscriminatory.
• segmentation • selective closure
a form of plant closure where
I the decision-maker has options
between different plants and
where the ultimate decision is
based on relative (internal and/
a segmented pattern of business
organisations where every seg-
ment is 'conceived as a number
of organisations) with similar
characteristics which are both I
the cause and the effect of their
membership of particular eco-
nomic niches.'
or external) locational merits.
This type of closure is 'the most
I spatially specific type of closure.'
• seigniorage I • self-sufficiency
the difference between what I provision by one's self to all of
money can buy and its cost of : one's own needs. In interna-
seignior- tional trade, this means either
age is the benefit that a govern- I not trading at all (autarky), or
ment or other monetary au- importing only non-necessities.
thority derives from the ability • self-sufficiency argument
to create money. In interna- I for protection
tional exchange, if one country's I the view which states that a
money is willingly held by an-
1/ ========E&onomks
II sensitin I Shimbel Index
country is better off providing
for its own needs than depend-
ing on imports. It may be based
on fear that war or foreign gov-
ernments will interrupt imports.
This is a second-best argument,
since many policies could pro-
vide for that contingency with-
out sacrificing all the gains from
trade.
- sensitive
in trade negotiations and agree-
ments, countries often identify
lists of particular sensitive prod-
ucts or sensitive sectors that
they regard as especially vulner-
able to import competition and
that they wish to exempt from
trade liberalisation.
- serious injury
the injury requirement of the
escape clause, understood to be
more stringent than material
injury but otherwise apparently
not rigorously defmed.
- service
a product which is not embod-
ied in a physical good and that
typically effects some change in
another product, person or in-
stitution. Contrasts with good.
Trade in services is the subject
of the GATS.
159
*================
~ - shadow price
; the implicit value or cost asso-
: ciated with a constraint. That is,
~ the increased value that will be
I achieved by relaxing the con-
: straint by one unit. When for-
~ eign exchange is rationed, the
~ shadow price of foreign ex-
; change becomes for relevant ex-
: change rate decisions.
I
: - shallow integration
~ reduction or elimination of tar-
; iffs, quotas and other barriers
: to trade in goods at the border,
~ such as trade-limiting customs
I procedures. Contrasts with
~ deep integration.
: - shared vision
I
: one of Senge's five learning dis-
~ ciplines for the learning
; organisation: 'building a sense
: of commitment in a group, by
~ developiiIg shared images of
; the future we seek to create, and
: the principles and guiding prac-
~ tices by which we hope to get
I there.'
I _ Shimbel Index
; measure of the minimum num-
: ber of links necessary to con-
~ nect one node with all nodes in
; the network.
Beonomics======= II
II
• Shitauke gaisha I is approximately determined by
a Japanese term that refers to a I their two prices in terms of sil-
subcontract( ed) company ver.
_ short - simple money multiplier
1. used with 'sell' or 'sale,' this the amOlll1t by which a change in
means that the seller does not I the monetary base is multiplied
currently have the thing being to bring about the eventual
sold, but intends to acquire it change in the total money sup-
on .the market prior to making I ply. It is called the simple money
dehvery. multiplier because it does not
2. used by itself as a verb, it take into aCCOlll1t possible offsets
means to sell short, as 'to short I to the process, such as a rise in
a currency,' meaning to sell it I the amOlll1t of money that indi-
forward in anticipation that its viduals or households may
value on the spot market will choose to hold as cash when the
fall. I money supply increases .
• shuttle trade I • single undertaking
the 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 of
and bringing them home, often I multiple negotiations in a single
in their luggage, to resell. An package, rather than selecting
important source of imports for I among them.
Russia in 1990s, some people I • situation
travelling 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 locations
value of a currency is defmed in ('relative location').
terms of silver. If two currencies
are both on a silver standard, then I
the exchange rate between them
- size distribution of income
the distribution of income among
I groups of income recipients, de-
II ====0 ===Economics
1\ SMAC function I SOE
161
*================
fined on the basis of the size of I
their incomes.
• SMAC function
an acronym for the CES fimction
based on the names of the four
authors who introduced it in Ar- I
row et al. (1961).
• small country assumption
the assumption in an economic
model that a country is too
small to affect world prices, in-
comes or interest rates.
• small open economy
an economy which is small
enough compared to the
world markets in which it par-
ticipates that (as a good ap-
proximation) its policies do
not alter world prices or in-
comes. The country is thus a
price taker in world markets.
The term is normally applied
to a country as a whole, al-
though it is sometimes used
in the context of only a single
product.
• social cost
the real cost to society of hav-
ing a good or service produced,
that may be greater than the
I private costs incorporated by
the producer in its market price.
: - Social Darwinists
I
: a disparate group of turn-of-
the-century commentators on
; social issues who sought to
: utilise the Darwinian law of
natural selection ('survival of
; the fittest') as a basis for social
: policy. The best-known of the
social Darwinists was Herbert
I Spencer.
; • social indifference curve
a curve showing the combina-
: tions of goods that, when avail-
able to a yield the same
; level of social welfare.
; - social welfare function
: a function mapping levels of
utility of the individuals in an
I economy to a level of welfare
for the economy as a whole.
:.SOE
I
Small open economy.
II
""16,,,,2==========s=ole :Porling agency I Spatial entrapment II
- sole importing agency I spatial revenue curve in order
an 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 curve
right to import certain goods. I refers to the aggregate demand
- Solow model I curve containing the individual
the neoclassical growth model. I demand of consumers located
Also called the Solow-Swan at different distances from the
Model. I focal point of supply. In other
words, demand is aggregated
across space, as seen from the
a particular specification of I perspective of the supplier (and
technological 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 neutral
_ Solow residual I distance by the corresponding
a measure of technological I
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 ~
income shares as weights. Due I
to Solow ( 1957). Also called the
growth of total factor produc-
tivity. Used to compare sources I
of growth across countries.
transport cost.
I - - - - \ - - ~ - - I o / C
D.
- Spatial entrapment
- space-cost curve
a concept used to describe the
I situation of women restricted to
distinctly female labour mar-
kets close to children and home
I in the urban periphery.
expresses the spatial variability
of total production costs of a I
firm with a given output level.
Smith (1966) superimposed
this spatial cost curve on the
1\ ========&unomi&s
II Spatial iso-outlay line I specialisation .. = = = = = = = = = = = 1 " " , 6 3 ~
• Spatial iso-outlay line
this is a theoretical construct
used to introduce space into
micro-economic production
theory. The curve represents
the results of an optimisation
process. Every point on the
curve represents different loca-
tions but equal total production
costs (outlays) based on vary-
ing (optimal) input combina-
tions (and resulting varying
transport costs for these in-
puts).
• Spatial margin
a line or boundary signifying the
end of profitability or viability,
thus separating profitable from
loss-making spaces.
• Spatial margin of agricul-
tural production
the boundary of a region of
profitability or positive rent.
Beyond this boundary, trans-
port costs outweigh net-returns
leading to net losses.
• special and differential
treatment
the GATT principle where de-
veloping countries be accorded
special privileges, exempting
them from some requirements
of developed countries. It also
~ permits tariff preferences
I among developing countries
and by developed countries, in
I favour of developing countries,
I as under the GSp.
; - special drawing right
: originally intended within the
IMF as a sort of international
I money for use among central
banks pegging their exchange
rates, the SD R is a transferable
I right to acquire another
; country's currency. Defined in
terms of a basket of currencies,
I today it plays the role in that
I form of a unit of international
account.
I
: - specialisation
I
1. producing more than is
~ needed by you with regard to
; some things, and less of others,
: hence 'specialising' in the first.
~ In international trade, this is
; just the opposite of self-suffi-
: ciency.
~ 2. doing less than everything, as
I when a country produces fewer
~ different goods than it con-
: sumes. In a 2x2 trade model,
~ this means each country pro-
; duces just one good. With many
goods and countries, it means
I each country has some goods
164
========*
specie I specificity ru.le "
dustries and - more loosely -
factors that could be used else-
that it does not (and cannot I
competitively) produce. Also I
may be called complete where but do not, in the short
I run, have the time or resources
I needed to move.
specialisation.
• specie
coins, normally including only I
those made of precious metal.
• specific factors model
a model where some or all fac-
tors are specific factors. Must
I commonly, the specific factors
model has one specific factor
(often capital or land) in each
I industry plus another factor (of-
I ten labor) that is mobile be-
tween them. But an extreme
• specie flow mechanism
under the gold standard, the
mechanism where international I
payments would adjust. A coun-
try with high inflation would
export less, import more and
thus lose specie, i.e., gold. With I
the money supply fixed to the
quantity of gold, the resulting
monetary contraction would
reduce prices. Due to David
Hume.
• specific commitment
under the GATS, the identifI-
cation of a category of services
in which a country will apply
national treatment and assure
form of the model can have all
I factors specific.
I • specific tariff
a tariff specified as an amount
of currency per unit of the good.
• specificity
I the property where a policy
I measure applies to one or a
group of enterprises or indus-
I tries, as opposed to all indus-
market access for foreign ser- I tries.
vice providers.
I • specificity rule
• specific factor
a factor of production which is
unable to move into or out of ~
an industry. The term is used to .
describe both factors that would
not be of any use in other in- I
the principle where the optimal
policy for correcting a distortion
is one that deals most directly,
or specifically, with that distor-
tion.
11----========&onDmi&1
II attack I stable
• speculative attack
in any asset market, the surge
in sales of the asset that occurs
when investors expect its price
to fall. A common phenomenon
in the exchange market, espe-
cially under an adjustable
pegged exchange rate.
substance of the site.
• splashing ('industrial
splashing')
a term used to refer to the es-
tablishment of multiple branch
plants across the landscape (of
Nigeria) by expatriate firms.
165
*================
• spot rate
I the exchange rate on the spot
market. Also called the spot
: exchange rate.
I
: • spread
the difference between the price
; one must pay to buy something,
: such as a currency, and the price
one receives for selling it.
• stabilising speculation
I speculation which decreases the
movements of the price in
: market where the speculation
occurs. Freedman (1953) pro-
; vided a classic argument that
• splintering : speculation on a floating ex-
another term for fragmenta- change rate would be
tion. Used by Bhagwati (1984). ; stabilising.
• spot market ; • stabilisation policy
1. a market for exchange (of : the use of monetary and fiscal
currencies, 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 • stable
tures market in which the ex-
; 1. of an equilibrium, where the
change takes place in the fu- : dynamic adjustment away from
ture). equilibrium converges to the
2. market where goods, ser- ; equilibrium.
vices, or financial assets are
: 2. of an economic variable, not
traded for immediate delivery. subject to large or erratic fluc-
This differs from a futures mar-
I tuations.
ket, where the delivery will be
made at a future date.
Beonomics======= II
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 from
one which incorporates non- I trade.
pecuniary components, thereby I • static model
approaching the economist's an economic model which has
concept of utility as expressed I no explicit time dimension. A
in a utility function. Dissatisfac- static model abstracts from the
tion with using the simple mea- process by which an equilib-
sure of real per-capita GDP has I rium or an optimum might be
lead to use of indicators which I reached only over time, as well
include length of life, level of : as from the dependence of the
. b I
education and access to JO S, . variables in the model itself on
infrastructure and amenities. ; a changing past or future. Con-
• standstill trasts with dynamic model.
1. a commitment to refrain
from introducing new measures
that are not consistent with an
agreement.
2. in the Uruguay Round, the
agreement not to introduce new
GATT-inconsistent trade-re-
stricting and trade-distorting
measures during the negotia-
tions.
• static gains from trade
I • stationary state
the economic condition envi-
I sioned by the classical writers
I once the growth of population
had reached the point where
output per capita was reduced
to the subsistence level and the
accumulation of capital had re-
duced the return to investment
I to zero. The economy would
remain in equilibrium with no
possibility of future incre.ases. in
population or per capIta lll-
the economic benefits from I
trade which arise in static mod-
els, including the efficiency I comes.
gains from exploiting compara- I • steady state
tive advantage, the reduced a type of equilibrium, especially
costs from scale economies, re- in a neoclassical growth model,
II =======Economies
·11 sterilise I strlltegic decision-mRking •
in which those variables that are tions) that protection lowers
not constant grow over time at ; the real wage of a country's
a constant and common rate. : scarce factor and raises the
_
terill
. real wage of its abundant fac-
s .
. 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 straight line
versa. ; with, therefore, a constant mar-
_ sticky place
a concept used in industrial ge-
ography to refer to the geo-
graphic consequences of inertial
forces which prevent hyper-
mobility (in an increasingly
'slippery production space')
from completely obliterating
production assembles in space.
- Stolper-Samuelson Theo-
rem
1. the proposition of the
Heckscher-Ohlin Model where
a rise in the relative price of a
good raises the real wage of the
factor used intensively in that
industry and lowers the real
wage of the other factor.
2. the further proposition (re-
quiring addition assump-
: ginal rate of transformation.
I
: - strategic alliance
I
: an agreement among compa-
I nies for the purpose of achiev-
ing a common goal, usually in
: the form of sharing comple-
mentary strengths, achieving
; cost efficiencies or adjusting to
: rapid technological or market
changes.
- strategic decision-making
; as different from programmed,
: routine decisions, strategic de-
cisions tend to be relatively in-
I frequent, not repetitive, involve
the commitment of consider-
: able resources (capital) and
have long-time horiwns with
; significant levels of uncertainty.
Eeonomics======== II
""16,,,,8==========S;teo
ic
"aU policy I substitution effect II
• strategic trade policy I • structural adjustment
the use of trade policies, includ- I program
ing tariffs, subsidies and even : the list of budgetary and policy
export subsidies, in a context of ~ changes that are required by the
imperfect competition and/or I IMF and World Bank in order
increasing returns to scale to for a developing country to
alter the outcome of interna- qualify for a loan. This 'condi-
tional competition in a country's I tionality' typically includes re-
favour, usually by allowing its ducing barriers to trade and
firms to capture a larger share capital flows, tax increases and
of industry profits. I cuts in government spending.
• strategic variable I • stumbling block
an economic variable that is cho- I the term which Bhagwati
sen with regard to, and some- (1991) used, together with
times with a view to influenc- building block, to address
ing, economic behaviour by I whether PTAs help move the
someone else. Most frequently world toward or away from
refers to the choice of firms in multilateral free trade.
an oligopoly. • substitution effect
• strategy I 1. the change in the quantity of
determination of the basic long- I a good demanded resulting
term goals and objectives of an
enterprise, and the adoption of ~
courses of action and the allo- I
cation of resources necessary
for carrying out these goals.
• structural adjustment
the reallocation of resources I
(labour and capital) among sec-
tors of the economy, in response
to changing economic circum-
stances, including trading con- I
ditions or changes in policy.
I from a change in its relative
price, leaving aside any change
in quantity demanded that can
II ========Economics
II sunk costs I SlNp
169
*================
be attributable to the associated upward sloping, straight or
change in the consumer's 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
tradeoff between the good and
other alternatives. Contrasts
with income effect.
- sunk costs
costs that are irrevocable and
should not be used to influence
current decisions.
- superior good
a good the demand for which is
elastic.
- supply curve
the graph of quantity supplied
as a function of price, normally
I 10 I'i,,,, ",
.
:" .. ... , ... , .... -..... .............. .. .. ..... .. .
" '" :/:
. - - -!..!:::.:
ILL
- supply elasticity
: the elasticity of a supply func-
tion, usually with respect to
I pnce.
; - surplus
: in the balance of payments, or
in any category of international
I transactions within it, the sur-
plus is the sum of credits mi-
: nus the sum of debits. Also
called simply the 'balance' for
; that category. Thus, the balance
: of trade is the same as the sur-
plus on trade, or the trade sur-
; plus, and similarly for merchan-
: dise trade, current account and
capital account.
- sustainable development
I a system of resource us<; that
protects non-renewable re-
: sources and the environment.
I
: - swap
I 1. in the exchange markets, this
&onumics======= II
"",17"",0==========* swap rate I tariff jumping II
is a simultaneous sale of a cur- , specified level, called the bow1d
rency on the spot market to- , rate.
gether with a purchase of the • tariff equivalent
same amount on the forward '
the level of tariff which would
market . By combining these ,
be the same, in terms of its ef-
, fect, usually on the quantity of
imports, as a given NTB.
two transactions into a single
one, transactions costs may be
reduced.
2. an arrangement between
central banks whereby they
each agrees to lend their cur-
rency to the other.
• swap rate
the difference between the spot
and forward exchange rates.
Thus, the price of a swap.
• systems thinking
• tariff escalation
in a country's tariff schedule,
, the tendency for tariffs to be
, higher on processed goods than
on the raw materials from
, which they are produced. This
, causes the effective rate of pro-
tection on these goods to be
higher than the nominal rate
, and puts LDC producers of pri-
mary products at a disadvan-
tage.
• tariff factory
a production facility established
, by a foreign firm through FD I
the last of Senge' s five learning
disciplines of his learning
organisation: 'A way of think - ,
ing about, and a language for ,
describing and understanding,
the forces and interrelationships
that shape the behaviour of sys-
tems, helps us to see how to
change systems more effec-
tively, and to act more in tune ,
with the larger processes of the
natural and economic world.'
in a country, in spite of its
I higher production costs, in or-
, der to serve its market without
paying a tariff.
• tariff heading
the descriptive name attached to
, a tariffline, indicating the prod-
uct to which it applies.
• tariff binding
a commitment, under the '
GATT, by a country not to raise , • tariff jumping
the tariff on an item above a the establishment of a produc-
II ========Economics
II tariffline I tariffic4tion
tion facility within a foreign
country, through FDI or licens-
ing, in order to avoid a tariff.
171
*================
~ iffs, organised by product.
~ _ Tariff Schedule of the
; United States (TSUS)
_ tariff line
: the official product nomenc1a-
a single item in a country's tar- ~ ture for specifying tariffs in the
iff schedule. I United States, used until 1988,
_ tariff peak
~ when it was replaced with the
: harmonised system.
in a tariff schedule, a single tar- I
iff or a small group of tariffs : - tariff wall
which 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 highlight
nal tariff. ~ the difficulty foreign sellers
ff
c. I have in getting their products
- tari prel.erence
past the tariff, often in the con-
a lower (or zero) tariff on a ~ text of the incentive therefore
product from one country than ~ provided for FDI.
is applied to imports from most
countries. This violation of the ~ - tariff-and-retaliation game
MFN principle is permitted in
special cases, including some
preferential trade arrange-
ments and the GSp.
- Tariff Rate Quota (TRQ)
a combination of an import tar-
iff and an import quota in which
imports below a specified quan-
tity enter at a low (or zero) tar-
iff and imports above that quan-
tity enter at a higher tariff. Also
called a tariff quota.
Ii tariff schedule
the list of all of a country's tar-
; the game of countries setting
: tariffs knowing that by doing so
~ they alter the terms of trade to
; their own advantage. This is one
: very specific form of trade war.
I
: - tariffication
~ conversion of NTBs to ad valo-
I rem tariffs, at the level of their
~ tariff equivalents. In the Uru-
: guay Round, developed country
~ agricultural NTBs were
; tariffied and bound, the purpose
: being to replace unwieldy NTBs
~ with tariffs that can then be-
Ee_ies======= II
",1"",7"",2=========t."",a"",""",iffi=a; retaliation I technological trajecttwy II
come the subject of negotiation. I • Technical Barrier to Trade
• tariffs and retaliation
(TBT)
a technical regulation or other
requirement (for testing, label-
I ling, packaging, marketing, cer-
tification, etc.) applied to im-
ports in a way that restricts
I trade.
the process of one country rais- I
ing its tariff to secure some ad-
vantage, to which another coun-
try responds by raising its tar- I
iff, the first raises its tariff still
further, etc.
• task environment
I • technical coefficient
in input-output analysis, iden-
tifies the percentage or portion
of the total inputs of a sector
those elements or inputs in an I
orgmsation's environment that I
bear potentially on goal setting
and on goal attainment within
I required to be purchased from
another sector irrespective of
the geographic origin of this
I purchase. Technical (input) co-
efficients represent direct back-
ward linkages of an industry to
I other industries and constitute
an organisation .
• tax increment financing
is used to facilitate the financ-
ing of larger development
projects by capturing the prop-
erty tax revenue stream pro- I the 'recipe' for production of
jected for the development and that industry.
investing it into improvements
associated with the project.
• technical regulation
a requirement of characteristics
• team learning I (such as dimensions, quality,
performance or safety) that a
product must meet in order to
be sold on a country's market.
one of Senge's five learning dis-
ciplines for his 'learning
organisation': transforming I
conversational and collective
thinking skills, so that groups
of people can reliably develop I
intelligence and ability greater
than the sum of individual
members' talents.
I • technique of analysis
a method for displaying or ma-
nipulating economic models.
• technological trajectory
the movement of multi- dimen-
II ========Ecrmomi&s
~ I temporary admission I tertiary sector .. 173
sional trade-off's amopg techno- ~ trade of a region or country
logical variables that the para- ; improve when the prices for
digm defines as relevant. : exports increase or those for
Progress can be defmed as an ~ imports decrease. Yes, the con-
improvement of these trade- ; cepts of terms of trade can be
off's. One could imagine the tra- : meaningfully applied to many
jectory as a 'cylinder' in a mul- ~ exchange type interactions.
tidimensional space (Dosi); or: 1 f
: - terms 0 trade argument
a 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
1 to improve the terms of trade.
- temporary admission
permission to import a good
duty free for use as input in pro-
ducing for export.
~ - terms of trade effect
1 the effect of a tariff on the terms
: of trade. By reducing the de-
- temporary producer ~ mand for imports, a tariff' lev-
movement 1 ied by a large country causes the
a mode of supplying a traded ~ prices of those imported goods
service by the temporary move- : to fall on the world market
ment of persons employed by ~ relative to the country's exports,
the supplier into the buyer's ; improving its terms of trade.
country. ; _ tertiary sector
- terminal costs : economic activities which are
transshipment and loading ~ concerned with the
costs that must be paid regard- 1 organisation and coordination
less 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 of
Economics======= II
""17""4=========t""he""C,,,,Dm=;S I Total Factor Productivity (TFP) "
• the commons
shared resources. Air and w,a-
ter are frequently used ex-
amples.
• the loss function
I would be true in the world if the
I world conformed to the model's
assumptions, and perhaps also
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
also known as the 'criterion func- I
conferencing forums and called
'threading' .
• time-space convergence
refers to the diminishing time
I needed to connect two places by
transportation due to improv-
ing transport technologies.
tion' . A function that is
minimised to achieve a desired
outcome. Often econometricians
minimise the sum of squared er-
rors in makir.g an estimate of a
fi..mction or a slope. In this case, ~
the loss function is the sum of ;
squared errors. One might also
think of agents in a model as
minimising some loss fi..mction in
their actions that are predicated
on estimates of things such as fu-
ture prices.
• tort
in law, a private or civil wrong.
I • total factor productivity
I the growth of real output be-
yond what can be attributed to
increases in the quantities of
I labour and capital employed.
• theoretical proposition I • Total Factor Productivity
a property of an economic (TFP)
model which is derived (de- a measure of the output of an
duced) from its assumptions. It I industry or economy relative to
usually 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
II trade creati011 I Trade Policy Review :echanism (TPRM) 175
acronym TFP, often refers to ~ country's participation in world
the growth of this measure, as ; markets through trade, accom-
measured by the Solow re- : plished by trade liberalisation.
sidual. I
• trade creation
trade which occurs between
members of a preferential trad-
ing arrangement that replaces
what would have been produc-
tion in the importing country
were it not for the PTA. It is
: • trade intensity index
I
for a group or bloc of countries,
I usually in a PTA, the ratio of
the bloc's share of intra-bloc
trade to the bloc's share in world
~ trade. If greater than one, this
; is said to suggest that the bloc
: displays trade diversion. Index
associated with welfare im- ~ seems to be due to Frankel
provement for the importing I (1997).
country since it reduces the cost
of the imported good. Concept I
due to Viner (1950).
• trade flow
the quantity or value of a
country's bilateral trade with
another country.
• trade indifference curve
in a diagram measuring quan-
tities of exports and imports, a
curve representing amounts of
q ~ a d e among which a freely
trading country is indifferent,
based on its community indif-
ference curves and its transfor-
mation curve. Due to Meade
(1952).
• trade integration
the process of increasing a
I
: • trade liberalisation
I
: reduction of tariffs and removal
I or relaxation of NTBs.
I • Trade Policy Review
~ Mechanism (TPRM)
: the periodic review of the trade
~ policies and practices of the
; member countries of the WTO,
conducted and published by the
WTo.
Economics======= II
176
=========*
trade theqry I transfor payment II
• trade theory I ported or sometimes a good
the body of economic thought I that could be exported or im-
which seeks to explain why and ported if it weren't for those
how countries engage in inter- I pesky tariffs.
national trade and the welfare I • trade-related investment
implication of that trade, en-
compassing especially the
measure
Ricardian Model, the I
any policy applied to foreign
direct investment which has an
Heckscher-Ohlin Model, and
the New Trade Theory.
• trade triangle
in the trade-and-transforma-
I impact on international trade,
such as an export requirement.
• trade-weighted average
tariff
tion-curve diagram, the right I
triangle formed by the world
price line and the production
and consumption points, the I
sides of which represent the
quantities exported and im-
the average of a country's tar-
I iffs, weighted by the value of
imports. This is easily calculated
as the ratio of total tariff rev-
I enue to total value of imports.
I • trade-weighted exchange
ported.
• trade-and- transforma-
tion- curve diagram
one of the most frequently used
diagrams of trade theory, using
rate
the weighted average of a
I country's bilateral exchange
I rates using bilateral trade, ex-
ports plus imports, as weights.
a transformation curve together I
with one or more price lines and
sometimes community indiffer-
ence curves to illustrate produc-
tion, consumption, and trade
and the effects on them of tar-
iffs and other exogenous I
changes.
• transaction value
the actual price of a product,
I paid or payable, used for cus-
toms valuation purposes.
• transfer payment
payment made by the govern-
I ment or private sector of one
I country to another as a gift or
• traded good
a good that is exported or im- aid, not as payment for any
" ========Economics
II trtInsftrJl4ymmts I '[nits!!!!!! , ===",!!====1!!!!!!7!!!!!!7
good or service nor as an obli- • treasury bills
gation. Also called a unilateral i short-term bonds issued by the
transfer. : government, used to pay to
I din
• transfer payments
social benefits paid to individu-
als or households by govern-
ment.
• transfer pricing
the practice of pricing goods and
services flowing within a corpo-
ration between corporate units
located in different tax jurisdic-
tions, so as to shift profits into
the jurisdiction with the lowest
corporate income tax rates.
• transformation curve
same as production possibility
frontier. The name comes from
the idea that, by devoting re-
sources to producing one good
instead of another, it is as
though one good is being trans-
formed into another.
: cover government spen g.
I
.• tree
a fully connected network with-
i out circuits.
; • triad
: Europe, North America and
I
: Japan.
• two cone equilibrium
I a free-trade equilibrium in the
Heckscher-Ohlin Model where
: prices are such that all goods
cannot be produced within a
i single country, and instead there
: are two diversification cones.
This, or a multi-cone equilib-
; rium, will arise if countries' fac-
: tor endowments are sufficiently
dissimilar com pared to factor
; intensities of industries. Con-
: trasts with one cone equilib-
I .
• transition matrix : num.
a matrix of transition probabili- • ubiquitous materials or
ties (p) of inputs
come a on any gIven expen- ; materials or production (or
mentj during a specific period: consumption) inputs that are
of time, given that outcome a available more or less every-
occurred on the preceding ex- ; where in a similar quality and
periment j during the previous : at approximately the same
period of time). price. Still, ubiquitous inputs
II
178
utIeO'Peretl intertst jlllrity ~ n i t e d Nations Con.formee on nwIe ... II
may have an effect on location: ~ where prices charged at differ-
Inasmuch as such ubiquities ; ent locations are uniform and
affect the weight or bulk of: independent of transport costs.
the final product, the location ~ 'Romote buyers are subsidised
of production (ceteris pari- ; by buyers near the production
bus) will tend to be relatively location.'
close to the market (in order • unilateral transfer
to save transport costs).
• uncovered interest parity
transfer payment.
• unit isocost line
equality of expected returns on
otherwise comparable finan- I an isocost line along which the
cial assets denominated in two I cost is equal to one unit of the
currencies, without any cover I
against exchange risk. U ncov-
ered interest parity requires I
approximately that i = i * + a I
where i is the domestic inter-
numeraire, such as one dollar.
• unit isoquant
the isoquant for a quantity equal
to one unit of a good. The unit
isoquant is useful for relating
est rate, i * the foreign inter-
est rate and a the expected ap-
preciation of foreign currency
at an annualised percentage
rate.
the price of a good to the prices
I of factors employed in its pro-
duction.
• unequal exchange
1.B
1.6
1.4
Land in 1.2
Food 1
Pr.ducti •• O.B
0.6
0.4
0.2
o
- U n ~ laoquant
for Food
1 2
lebor In Foo" Production
trade where the labour used to I
produce a country's exports is
more than the labour used to I
produce its imports, as in the I
exchange between low -wage
developing countries and high-
wage developed countries.
I • United Nations Confer-
• uniform delivered pricing
ence on Trade and Devel-
opment (UNCTAD)
3
a common pricing scheme for
consumer and other goods I an intergovernmental body es-
II ========Economi&s
tablished in 1964 within the
United Nations, responsible for
trade and development. His-
torically, it has often been the
international voice of develop-
ing countries.
- upstream subsidisation
export of a good, one of whose
inputs has been subsidised.
- urban-growth boundary
a politically specifted line around
cities, beyond which develop-
ment is discouraged or prohib-
ited. Sometimes also called ur-
ban-limit lines or rural-limit
lines, urban growth boundaries
exist in many cities, counties and
regions across the U.S., particu-
larly in California.
- utility function
a function which speciftes the
utility (well being) of a con
~ times other considerations).
; Represents both their welfare
: and their preferences.
I
: - value added
~ the value of output minus the
I value of all intermediate inputs,
~ representing therefore the con-
: tribution of, and payments to,
~ primary factors of production.
~ - Value Added Tax (VAT)
; a tax which is levied only on the
: value added by a ftrm. A VAT
~ is usually subject to border tax
I adjustment.
; - value marginal product
~ marginal value product.
~ - value network
: the communications network of
~ relations between all individu-
; als and organisations who add
: value to a product.
I
: - value quota
I
: a quota specifying value - price
°1 ~
f ~ : _ '. j /1 \\ I _ variable cost
; the portion of a firm or
: industry's cost which changes
., ., ~ with output, in contrast to ftxed
~ times quantity - of a good.
- .. ---- I cost.
sumer for all combinations of :
goods consumed (and some- I
Beonomics======= II
I VoluntRry Export Restmint (VER) II
2!lOO
1.800
1.000
I."'"
I.ZOO
I A merger accomplishing an
I internalisation of such linkages
increases control of input or
I output markets and thereby
lover prices and other market
facets.
• variable levy
""' ..
-
• vertical intraindustry trade
intraindustry trade in which the
I exports and imports are at the
different stages of processing.
Contrasts with horiwntal lIT.
a tax on imports that varies over I
time, so as to stabilise the do- I
mestic price of the imported
good. Essentially, the tax is set I
equal to the difference between I
the target domestic price and
the world price.
• vertical mixing
ensures a variety of different
ages, experience sets and skills
on design teams.
• 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
importer or the exporter.
I in referring to international
• vertical integration I
production of different stages of :
processing of a product within
the same firm.
trade, used as a synonym for
'good' . 'Visibles trade' is trade
in goods. Contrasts with invis-
ible.
• Voluntary Export Re-
straint (VER)
I a restriction on a country's im-
• vertical integration
corporate mergers involving
firms that are involved in for-
wardly or backwardly related I
production stages, i.e. they buy I
each other's inputs or outputs.
ports that is achieved by nego-
tiating with the foreign export-
ing country, for it to restrict its
exports.
II ========&OtJOmiu
II Voluntary Import Exptmsion (VIE) I: degree homogeneous
181
• Voluntary Import Expan-
sion (VIE)
the use of policies to encourage
imports, in response to pressure
from trading partners. Due to
Bhagwati (1987).
• Walrasian auctioneer
a hypothetical entity that facili-
tates market adjustment in dis-
equilibrium by announcing
prices and collecting informa-
tion about supply and demand
at those prices without any dis-
equilibrium transactions actu-
ally taking place.
• WARP
Weak Axiom of Revealed Pref-
erence.
• water in the tariff
the extent to which a tariff that
is higher than necessary to be
prohibitive.
~ • welfare proposition
; in trade theory, this usually re-
: fers to any of several gains from
I
: trade theorems.
~ • welfare triangle
~ in a partial equilibrium market
; diagram, a triangle represent-
: ing the net welfare benefit or
~ loss from a policy or other
; change. In trade theory, it often
: means the triangle or triangles
~ representing the deadweight
I loss due to a tariff.
I • Western Hemisphere Free
: Trade Area (WHFTA)
I
: name sometimes proposed for
~ a preferential trading arrange-
; ment including most or all of
: th(.· countries of the western
~ hemisphere. Now called FTAA.
~ • :1£ro degree homogeneous
I homogeneous of degree zero.
E&onom;cs======== II
Notes

(OMPREHENJIVE

_axL_

~~~~(Jf~~~~

[)ICTI()~Al2'"

ECONOMICS
Chief Editor & Compiler:
Nelson Brian

~
ABHISHEK

All rights reserved. No part of this book may be reproduced in any form, electronically or otherwise, in print, photoprint, micro film or by any other means without written permission from the publisher.

ISBN
ISBN
Copyright First Edition

: 978-81-8247-031-6
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Publisher 2009 2004

Published by ABHISHEK PUBLICATIONS, S.C.O. 57-59, Sector 17-C, CHANDIGARH-1600 17 (India) Ph.-2707562,Fax-OI72-2704668 Email: abhpub@yahoo.com
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but also studies the same at a bigger and more complex level or the macro level. as the human wants are endless. The economists belonging to these two schools have contributed a lot in the field of economics through a number of theories.Preface Economics is the science that deals with the production. taxation. The subject not only deals with the present and future growth of a country's economy at the micro level. economists are continuously working towards finding solutions for these new problems. like the national income or the production of an industry. There are two schools of thoughts in economics. etc. so are the economic problems unending and therefore. like the consumption of a household or an individual [trm. distribution and consumption of wealth. the Classical and the Modern. The job of the economists is to identify the economic problems of a country's economy and find solutions for the same. It studies the various problems oflabour. and tries to find a solution or the best possible way to tackle these problems. The dictionary is made with the intent of providing the readers with a handy referral for the terminology used in . viz. But. thereby promoting a healthy and smooth economic growth. finance.

many examples and pictures have been used along with the definitions of the terms.the subject. The dictionary covers almost all the terms that form a part and parcel of economics in simple and easily comprehensible language. . In order to enhance the readers knowledge and bring about more relevance.

the norm. : noting that it is equal to the l b ' : earnings less a sorptIon. : _ absorption approach ~ a way of understanding the fac. the ability of a country to pr?. . the sum-total of demands for : method of depreCIatIOn.: _ abundant factor ing such goods and services that ~ the factor which is available in it is able to produce more ~ffi. .: the future consumption. tors of the balance of trade. cost is in term of only . tion of the consumer . depreCIatlOn d h new asset ano o.I dents (consumers.abilene principle ~ _ abstinence a description of a group's inabil. producers Economics======= II .a fair trader / fair traders contrasted with free trader. a country specialises in produc. follow this I . I e I firms operatIng m e eve op. ..~ abundant supply in a country ciently (more output per urut of .II a foir trader / foir traders I accelera~ t:lepreciation . than : . tional trade theory.. . It is ticular destination (Abilene).absorption : ing areas usually. duce a good at lower cost.. ~ often characterised by directing for fear of offending or contra. tion terms of real resources. m i l d d .~ the giving up of the current conity to solve their disagreement. the future producgoods will 1. the available resources towards dicting each other. a fair trader is a holder of the point of view that one's country's government must prevent ~oreign companies from havmg artificial advantages over domestic ones. : the production of capital goods. relative to other countries.~ quantity and price.. shorter than . as per which ~ increase.acce ~ra~e eprecla I of a ' ther cuntry In a Ricardian . th d Ia bour. in contrast to the total demand ~ for that country's output. . ' .absolute advantage ~ Due to this. . 5 ~ and government) of a country. h model. a term used in the interna. goods and services by all resi. over a peno t at ISalmTuch . sumption in order to increase Nobody wants to reach a par.. Can input) than any other country : be defmed both with respect to 2.

The size of the accelerator depends on the marginal capital/ output (C/O) ratio (i. accelerator indicative of a relationship be. I • I I I I I accelerator co-efficient states that any increase in the output is always accompanied by a corresponding increase in the capital. I I I • I I I I acceptance credit a way of payment in international trade. accelerator principle states that the aggregate net investment level is dependent on the expected change in output ...".6===========~tinginJlatUm I accepting house II • accelerating inflation a sudden inflation rate increase. it may open an acceptance credit for him in say New York. • • acceleration principle.tween income and output and the investment effects associated with the changing output. In case the accepting house finds the credit of a foreign import merchant satisfactory. Such establishments may also be involved ·in several other services and functions. accepting house the establishments whose business is to accept or guarantee bills of exchange. that is used to produce it. how much new investment is needed in response to the changing demand for output) and on a variety of other factors influencing investment decisions.e. I • I I II ========E&onomics . The incremented capital output ratio depicts the amount of capital that should be increased in order to raise an additional unit of output. like machinery etc. • accelerator the process in which demand change for the consumer goods leads to an even larger demand change for the capital equip~ ment used to produce them. It is the result of the government's efforts to hold the employment level below its natural rate.

.: ~ Il" ""' . ---_ .IIIICUSS / accessibility I accounts receiV:============7 ~ cepted or endorsed to make • access / accessibility term expressing the ease with .. _. I ment i..___ • accounts payable I the amount that a business : owes to its suppliers and other ~ parties. • accessions tax the tax on the receiver of gifts and inherited property. __ " ... .. generally a period of ..... ..I: dard to receive payments for E&onomics======= \I ... the total number of employ. future business conditions.: entitled to receive from its cusance of payment deficits. .. I • accommodating movements the transferring of gold and con... the amount that a business is country in order to meet its bal... ~ ~ _1Aow. without receiving any and interacted with from other ~ goods in return. ~ : ... which is drawn.e. vidual to another in order to an important indicator of the : grant him the right to obtain a I loan. . it is levied by the government.. 10 to 90 days is taken as stan• accommodation bill that bill... some cash available for a short which a location can be reached : term. c. ac... generally a period of 10 I to 90 days is taken as standard .I • accounts receivable vertible currency aboard by a ..... The sole pur~ pose of this is of discounting locations. ... to pay for the goods already transported ...: the endorsing of a note or any ees added to the payroll in a ~ other bill of credit by one indigiven period of time. It acts as . • accommodation endorse• acc~sion rate also known as the hiring rate.. ~ tomers.

• active circulation at any given time. actionable subsidy a subsidy which is not prohibited by the World Trade Organisation (WTO). when the revenue earned from exports is higher than the expenditure incurred on tl1e import of goods and serVICes. I • I I I • I action lag the delay between the formulation of a policy decision and its execution. which are already made or incurred and are outstandmg.eiVIJble (finance) I active circulation " I I the goods already transported. across-the-board tariff changes a change of all tariffs in a country. • accrual basis a method of accounting in which the income and expenses are not charged until the time they are actually earned or incurred. • ACP countries a group of Mrican.. • accumulation the acquisition of an increasing quantity of something. They are raised or lowered by an equal percentage.8 accounts . but that member countries are permitted to levy compensating duties agamst. expenses or other items of income or expenditure. • accounts receivable (finance) the entitlement of a firm to receive application of money from its debtors for obtaining funds to fincnce the current operating expenses or some other expense. I I I II ========Eetmomies . Caribbean I and Pacific less developed countries that were included in the Lome Convention and now the Cotonou Agreement. I • I I I I • active balance a term to indicate a balance of payments that is favourable for a country. • accrued the earnings. • accrued expenses an accounting entry .herein a liability is recorded when the cost of a service used but not paid for is observed. the part of the RBI's issue which is in circulation.. sales.

. price or .~ . I the derivative of a function with . deliberately optimal as a percentage of their value. A I rationalisation of classical ecoterm used to refer to the taxes nomic theory. where the the ad valorem tariff which function constitutes the linear would be equivalent. V.ad valorem tariff _ activity rate : tariff defined as the percentage I of the value of an imported the percentage of people in a given population age group that ~ good..000000Y-._'""""" .ot : environment or would fail.e. I 2. the items that are bought with the intention of immediate de.A. . in terms I sum of two or more different Eeonomics======== II . per unit of value i. dichotomy livery in a stock exchange.~ 'adopted' by the competitive . Alchian's ..adaption & adoption .actual protection rate I tion. . of price at the selling or produc_ actuals tion stage. The argument is and duties levied on goods..ad valorem equivalent respect to a variable. some other measure. I quently and regularly. I (adaptive) behaviours are not A. I needed for the viability of • LN<f"""" : optimising theories. .1\ actiPe tnllritet I addition rule 9 *================ ~ of its effects on trade.. . etc.ad valorem tax defence forces of the country.: tariff barrier. It is taken as a percentage implicit tariff. eLtOt . a t<LX or duty calculated on the I basis of the value of a transac..active market market for a specific set of stock . divided : . to a non or shares traded quite fre.addition rule I a rule for the determination of by the price. Tiebout's 1. but not in the ~ ...- 0 80 'l"MTc:.Per Capita Ass. : . . since economic actors would be either 0""""""" . that active..W5lPAUIIIItACH 0 .. in proportion to the value. a constituent of A.ad valorem and Charles M .a--. are employed.

_ tlar f.IO' I I I either because of competition from imports (trade adjustment assistance) or from other causes. which include. The duration of this time depends upon how efficient the authorities are in implementing the policies formulated. usually as determined by an administrative agency.. "oo~. but for which it is lIDderstood that the par value will be changed occasionally. f'~0¥. advance deposit requirement a requirement where a percentage of the value of imports or I • II = = = = = = = E & o n o m i & s . Such programs usually have two (conflicting) goals. It refers to the elapsed time between the recognition by the authorities that action is necessary and the actual implementation of the action. I I • administrative lag a delay between the time of implementation and the effect of a monetary policy. l·r""~ ""'" . to lessen hardship for those affected and to help them change their behaviour. Such system can be subject to extreme speculative attack and financial crisis. administered protection protection resulting from the application of anyone of several provisions that respond to specified market circwnstances or events. like ccpital stock to adjust to tje changes in its determinants.""l=O=========ad=rjust. • adjustment assistance a government program to assist those workers and/or firms whose industry has declined. I I • adjustment mechanism the theoretical process through which a market changes in disequilibria. • adjustable peg an exchange rate which is pegged. I • I I T'JlMAnm"JoY<2 (HR.1'Yw. moving toward equilibrium if the process is stable.mw¥ I • I I adjustment lags the time taken by a variable. as speculators may easily anticipate these changes.le peg I ad71ancedepositrequirement 1/ functions of the variable.

advance refunding : the benefits of a union without to exchange those bonds whose ~ paying for them. tion economies refers to savings the mandatory requirement for : or benefits derived from the a prospective employee joining ~ clustering of activities external a firm to pay the union dues . reducing its benefits. geographical concentration need it.agglomeration sons who are most likely to I 1. savings or drop in avanother. . union. ~ ally.agenda 21 terms.~ of the view that the employees posited prior to the payment.agglomeration economies I (of Scale or Scope) . the tendency for insurance to be I purchased only by those per. thus raising its cost and I of people and/or activities.I : .: erage cost resulting from the ~ clustering of activities. T~is kind of arrange. a phenomenon of economic _ adverse terms of trade activity congregating in or close a term of trade which is consid.advice note sent by one merchant to I benefits. the concept of agglomera. to the 'firm' and are therefore a without being a part of the trade : part of 'external economjes'. 2.agglomeration economy ment is generally found in the US between the ones who are I any benefit which accrues to Eeonomics======= II . ~ a plan of action adopted at the.I over space. . rather than ered unfavourable relative to I being spread out uniformly some benchmark or to past ex.II tulT1l1ncerefunding I Rtl!flomerlltWn ec:. expiry date is approaching for I new bonds on advantageous : .: . .agency shop . Generliver the ordered goods.I to a single location. should be free to decide about without competitive interest : joining a union or not and those ~ who state that the employees being paid. Rio Summit for promoting sus_ adverse selection : tainable development. : . requesting him to de. penence.m~:Y~~~~~~~~~~l~l of import duties should be de. should not be allowed to enjoy .

RGDp) o VOR vf • aggregate demand curve in macroeconomic theory.concentration I"'IJ8"t94tetxpmditun II economic agents as a result of ~ aggregate demand curve relates having large numbers of other . private investors and foreign buyers (net of spending on imports) at each level of real national income (GDP). The main groups who spend are consumers (consumption). ADzPyR =C+ 1+ G + NX I . the o Yo Y1 RGDP tal of the amount of desired spending by consumers.. II ========B&onomks . governments.=12=========='Wf'Y'iJ==a. thus tending to lead to I agglomeration. • aggregate demand the total demand In the economy.---+: AD I Reallncome ('(II. Price level (P) I I I the level of real national income (GDP) demanded (the total quantity of goods and services demanded) to the price level (as measured by the GDP deflator). It takes into account the total of all the desired expenditure at any time by all groups in the economy. firms (who spend on investment). aggregate expenditure in macroeconomic theory. aggregate expenditure is sum-to Aggregate Expenditure (AE) E' I • I I A' t' A. government (government expenditure) and overseas (exports). agents geographically close to them. • aggregate concentration the state in which the goods produced in one sector of the economy or the whole is concentrated around a few large corpora tions.

~ another. ~ . . 2. c~rve relates the total quan.. the amalgatlon of two or more ki~ds of an economic entity into a sm~le category.II tI9!J1VJRte meRS'Un ofsupport I RllocRted cost • aggregate measure of support t h e measure of subsidy to agriculture used by the WTO as the basis for commitments to reduce the subsidisation of agricultural products . the ag~egate demand is an aggregate. th piled and the price level (as. e. i. the to Price Lovel (P) 13 *==============~ ~ ing the same. For example. AS O • aggregative model .. exchange. ~ 1 : ~ ~ . • aggregate supply it is the total quantity supplied at every price level. For macroecono~c purposes.1 tor) and with all else remainE&onomics======= II . • allocated cost my of goods and services sup. or for a foreign bill of duced m an economy in a given . RGDp) tal of ~ goods and services pro. ~ . all goods and ~ervI~es are usually aggregated mto Just one. . as well as payments which are not product specific. measure d by the GDP defla. • agistment • aggregcte supply curve : to feed or take care of the cattle in macroeconomic theory. : 1 ~ aggregation . time period. It ineludes the value of price supports and direct subsidies to specific products. the puttmg together of the primary data. 1. the ~ with the intention of getting a short run aggregate supply 1 reward. m ~on~~t with the demand of an mdiVldual. done by using groups of indi1 VIdual variables. 1 • . a model used in econometrics : where the creation of variables ~ is.allocation of expenditures to : vanous accounts.e. • agio : it refers to the fee that is paid 1 • Real Income : for exchangmg one currency for (YR.

. of shares by the shareholder. They are like other venture capitalists~ in the sense that 'angels' are 'looking for higq. In general equilibrium. • all-or-none order (US) a limited price order for buying or selling of shares and stocks. resources. together with the assignment of resulting final goods and services to consumers. • amber box the category of subsidies in the WTO Agriculture Agreement.growth potential with II = = = = = = = . the total value of which is to be reduced. : . over a specified time period. : ~ ~ I : distort production and trade. with the condition of being executed entirely or none at all. . .14 alloctJrion I angel inPUtor II =================* • allocation an assignment of economic resources to uses. I I I • angel investor a venture capitalist with a social conscience. It includes most domestic support measures that this term is U5ed in relation to the payment of a loan in adI vance. : . . an assignment of factors to industries producing goods and services. so as to accumulate an amount equivalent to the I amount of debt including inter: I est. I • amortisation • allonge a sheet of paper to provide an additional space for endorsements. usually attached to a bill of exchange. within a country or throughout the world economy. : I • AMS Aggregate Measure of Support. : . Such fund can also be created when equated instalments I are deposited at regular interI vals of time. E & o n o m i c s . I • American Depository Receipt (ADR) I a document given to a shareholder and issued by the US • allocative efficiency . . Bank in response to the deposit the best possible allocation of . . : : .

. S..:::?..the chance to help other entrepreneurs./ . Q II . petition amongst all the players ..antitrust legislation ~ a law that targets healthy com. : ... -~. future time. . .S. Angel investors often look for' 'psychic income' beyond just balance sheet and income statement. ··· ··1 . . • ... Economic Relations Trade : Agreement. for example.. " ·· fi~~F~ ~~~~1~. than what is current. .. . ..antedate earlier dating of a document. ""-:~~r"'·. . ······:'1 . . .. sical location theory.. economic theory in Britain. : -ANZCERTA . followed by a private b~iness. ...- . ill 'I. . ~ . --ca.. to : record the earnings or profit ~ before they are actually realised.· !(···· l -~!.~-=..l.. I_" ' " . . • ..~: WTO which reviews decisions &tmomit:s======= II . .appellate body ~ the standing committee of the ~~m~ . .annuity is a type of life insurance con. .15 *================ a five-to-ten-year cash-out.. li : po cy. such as a life insurance policy.anti-trust policy in the development of the clas.anglo-saxon bias : in a particular industry and thus Walter Isard's characterisation ~ restricts monopolistic practices of the 19th century in a spatial . in accounting parlance is...: the U. ~ ..T_ .anticipation . . in contrast to the 'Germanic Bias' . .~ Australia-New Zealand Closer tract that gives periodic pay .. . ft : _APM ~ Average Propensity to Import. _II . so that it matures or takes effect sooner. assist with inner city problems . usually retirement. I A . • ments to the insured at some . term for competition . ~ :::.

is a way of settling a dispute vations through confidentiality. etc. by a third patents. • applied tariff rate the effective actual tariff rate at a country's border. acceptable levels of benefits. I • appropriation in accounting. in a manner that is less straining but I • ar bO Itrage richer at the formal level. I associated with the exploitation • arbitration of its own technological inno. II = = = = = = = = E c o n o m i c s . I the simultaneous buying of currency. relative to a particular other currency or to a weighted average of other currencies. The currency is said to appreciate. securities or goods from • appropriability problem one market for the purpose of problems associated with the I selling in another market at a ability of the firm to capture higher price. • applied economics a branch of economics that studies practical problems and uses the principles and tools of economic analysis.16 applied economics I arbitrat'ion II =================* of dispute settlement panels.? • appreciation a rise in the value of a country's currency on the exchange market. I • appreciative theory (Nelson) attempts to structure qualitative I notions about the nature of a I firm and its activities. I person who has interest in that matter. I Can You Keep It? I Is It a Buslaes. I between two parties. money or tnaterials set aside or spent for a specific purpose or allocating the resources between the numerous uses.

• articles of association I • .tion========"". B. for instance Mr. • assignment . the failure of two parties to a the right of transference of : transaction to have the same benefit of loan that a person I relevant information. in its day to day functioning. is entitled to receive from an. rates.'"". : erate pollutants. specifically.1"". with only monetary and fiscal policies available under fixed exchange .\1 argumentforprotection I asymmetric. ~ • asymmetric information this is aimed at using macroeconomic policies to achieve both internal balance and external balance.~ • assimilative capacity nationally traded products are I the ambit to which the environdifferentiated by the country of : ment carl accommodate or tolI ongm. • ar~baito part-time work."'"".7 A has given a loan to Mr. • associated company : the connection or relation of an • asset stripping the selling of those assets by a ~ independent company with ancompany that are not required I other independent company.fo"".I other person. . then he can authorise another : person to recover loan from ~ Mr..~ those relatively backward areas quired to be filed with the reg. ~ government as being eligible to . I • armington assumption the assumption in which inter. • asslsted areas an official document legally re. receive special assistance. ~ • assignment problem I ~ • argument for protection the reason given for restricting imports by tariffs.""."tI. which are recognised by the conistrar by the promoters of a cerned administration or the public limited company. Economus======= II . . B.

• at best in relation to the stock market.:mPtotic distribution I autarkyprice " • asymptotic distribution the probability distribution towards which a statistic moves or inclines at the point when the sample size reaches infinity. but placing a limit on the highest price that may be paid or the lowest price for making a sale. who compete independently. I I I I • atomistic competition market structure characterised by a large number of firms. i. and permitting the broker to buy or sell at a price that is around the market price prevailing at the time. • at discretion an instruction given by a client to his stockbroker for buying or selling stocks or shares and granting the broker to exercise his own judgement for the price at which to buy. I • I I I I I II ========Eeonomics ..=1". an abbreviation used to indicate the lowest possible price in respect of a buying order. • at limit an instru'c tion given by a client to his stockbroker for buying or selling stocks or shares. I • I at sight the payment of a bill of eX-I change or promissory note as and when demanded. self-sufficiency and independence of a nation in economic terms.8=========== . • ATe Agreement on Textiles and Clothing. Generally used in econometrics in assessing the large sample properties of its estimators. selfsufficiency. and 'the highest possible price' in respect of a selling order. • autarky price price in autarky. I I I I I • at the market an instruction given by a client to his stockbroker for buying or selling stocks or shares. the price of something within a country when it is not traded by that country. autarky 1.e. 2. the situation of disengagement in international trade.

office hours of governments and organisations.. • authority constraints as and when individual or joint activities occur and who can participate in such activities is constrained by authority constraints. • automatic stabiliser 1. ==-' _ .II"uthorised cllpitlllillutoregnssion * ==========1=9 I lined or can be avoided without • authorised capital the maximum amount of capi. land owners' property rights.. . . etc. For example.. which is filed along with the I articles of association with the registrar.. lic limited company through the : • autonomous expenditures public issue of shares. mvestment expenditure.7 --. in the income expenditure model.. government expenditure.I any specific effon of the governtal that can be raised by a pub. autoregression a set of data wherein the value of each observation is partially I • I I fit I " 'ull &onomics======= II . . lie til . 01_ " . 2. This ~ those expenditures which reamount is also stated in the I main unaffected by the level of memorandum of association. ~(7 . government spending programs that respond to changes in the level of national income in such a way as to offset those changes. public transportation schedules and routes. are the ways through which the fluctuations in the different economic variables are stream- I c:JJ-~B t ~- ~I~I) t:-"\I I I '-8. curfew. ....I ~J I I income. which are related to who controls the particular piece of time-space: working hours. . etc...I ment. zoning.

average revenue product is the total revenue divided by the number of units of the factor employed. The average flxed cost is in. • Average Fixed Cost (AFC) I 1. Aver. • average revenue product as per the theory of factor pric/ I I I II = = = = = = = = & _ I & S . that is. It is obtained by dividing the average variable cost by the number of units of output produced. I lBB I ing.I versely proportional to the out. This is because as output increases the fixed costs are I spread further and further.I age flxed costs are total flxed costs divided by the number of ~ units of output. • Average Variable Cost (AVC) the variable cost per unit of output. in the theory of the flrm. It can be calculated in several ways. ately precedes it.I put. • Average Total Cost (ATC) the amount spent for producing each unit of output. • backbone firms Japanese concept to describe medium-sized flrms which ex- -- 0 5aa8 I I • average propensity to import is the ratio of the aggregate value of goods and services that a country impons in a year to the national income. whatever the level of output.20 A11er.. 2. none of which are ideal for representing how protective the country's tariffs are. • average tariff an average of a country's tariff rates.e Fixed Cost (APC) Ibackbonefirms " dependendent on the value of ~ the observation that immedi. flxed I cost per unit of output. The average cost is calculated by dividing the total cost by the number of units produced. the average flxed cost and the average variable cost . I flxed costs are the costs of production that are constant. The average total cost comprises of two elements.

. Since the primary transport function may have paid for the partial or full cost of return transportation. the price of backhaul utilisation may be relatively low. the supply curve for foreign exchange. or an offer curve. as may happen in a labour supply curve. it then turns back towards it. marketing and attention I economies.-----. . daHII.----_ I '1190 1911' 19112 19113 '9114 '_'_'997 1_ Economics======= II .~ direction of flows in complex tion. .-----. usually if. The term is used most frequently to describe supply curves for which the quantity supplied declines as price rises above some point.--._. • backward bending a curve which reverses direction. 50 I I 'OO~---- ____________ ~ I o . A iry.._-======_ -----. In such firms. • backhaul transportation utilisation of otherwise empty cargo space on the return trip. of u. -~. after a primary transport activity has taken place.--. __ _ given to skilled and participatory workforces ...='IJ=nd=ue=·=trtule========2=1 hibit the effects of strong entre.~_..s. after moving out away from an origin or axis.~~-~-~--.I linkages to suppliers of inputs.~h.-------. 81Bion. I I I I I • balance of merchandise trade I I the value of a country's merchandise exports minus the value of its merchandise imports. strategies are : useful concept to differentiate shaped by technological innova.II backhaul transportation I balance of. __ .I • backward linkages preneurial leadership and vital.

-a on o.n-ft'It Account.mec=h="n=ism==.. kl. especially (any automatic one. usually equal to the balance on current account plus the balance on capital account.... • bal~nce on capital account a country's receipts minus pay *. • balance of payments surplus a number summansmg the state of a colmtry's international transactions... ..""22=====b""I1a=1IU=ofJ""paymen==""tS=tuijustmen==t".xation as it is spending. • balance of payments argument for protection a common reason for restricting imports. Classical Balanced Budget Plan COMPOSrroNOfFMNCI&. economists argued that this should always be the aim of government policy.. I • I II balance on current account a country's receipts minus payments for current account transactions. Keynesians on the other hand said that in times of low economic activity.- I I ments for capital account transactions.LASSETS I I ~ 1_ 2000 lIOCI2 200l 201M 3JCII 2010 CAPITAl. <Itlliorw or DoU . by which a country with a payments imbalance moves towards balance of payments equilibrium. It is equal to the balance of trade plus net inflows of transfer payments. when a country is losing international reserves due to a trade deficit. the government should run a deficit (spending more than its II ========Economics ... ACCOUNT BAlANCE (lJ " .=bl=11=nced==budo==et= • balance of payments adjustment mechanism any proceSs. 0 _ C-1IIodYe) I I . -. particularly under fixed exchange rates. :r) I I • I I I balanced budget such budget rises where the government receives the same amoum of money from ta...

2=3 revenue) to boost the economy ~ which acts as a bank for centrcil and when the economy is I banks. balance is equal to the current 2. hours of work per time period I • basic balance stays constant. regardan international organisation less of the location from which actual shipment IS I made. Economi. In I agenCies. ==========".. fostering cooperation booming. lone of the more frequently used measures of the balance of pay• balanced trade 1. they can balance the l b ' • arrters to entry budget in the long-run. the assumption that the bal.s====================== II . I • I I Bayesian analysis developed to provide a subjectively. they can run a surplus among them and with other (spending less than revenue). such as gova macroeconomics model that ernment rules or patents exhibits balanced growth if con.rational framework for decision-making under uncertainty. as would be the case with a floating exchange rate and I • basing-point pricing no capital flows. the basic zero.II balancedgrowth I Bayesiananalysis . . I a pricing method in which prices arc quoted to include • Bank for International transportation from one (or Settlements I more) given point(s). a balance of trade equal to ments surplus or deficit under I pegged exchange rates. investment and capit·al grow at a constant rate while I monetary base. this wa). equilibrium.I account balance plus the balance ance of trade must be zero in I of long-term capital flows. I factors that prevent firms from • balanced growth entering a market.I • base money sumption.

II) " J 8. achieve fur.II) P(xI9. past liberalisation will be I reversed)..A mwglnllliza10n P( ~ x.I) = P(xI9.A. A. The difference covers the cost of and provides profit for the broker or other intermediary.A. will collapse I where. among which the individual (or firm) is indifferent..A.. "II = = = = = = = = E & o n o m i c s .. It describes prices which the household (firm) would be willing to pay at varying locations and for varying amounts of land. in order to achieve a given level of satisfaction (utility/ profits) . hoping that it will not be serious or will be solved by others.A.I)P(9... (i. such as a bank on the foreign exchange market.ix. in a recession.e.I x.l) A 1 is the prior Infennalon I • beggar thy neighbour for a country to use a policy for its own benefit which harms other countries. I I I I I I • bicycle theory I • bill of exchange with regard to the process of : a contract entitling an exporter multilateral trade liberalisation. • benign neglect doing nothing about a problem.. • bid/ask spread the difference between the price which a buyer must pay on a market and the price that a seller will receive for the same thing.l) =JP( 9.. Examples are optimal tariffs and.w I • I ar thy neighbqur I bill ofe:x:change II Bayesian Analysis poster1or IkeIhood pIIor P(9. A. • bequest savings motive people save so that they can leave an inheritance to their children. I to receive immediate payment the theory which if ceases to I in the local currency for goods move forward (i.24=========== .e.that would be shipped elsether liberalisation).I)P(9. tariffs and/or devaluation to create employment. I I bid price (or rent) function a set of combinations of land prices and distances.

such as a sales tax or VAT) on exported goods and levying of them on imported goods.. • BIS Bank for International Settle. where it is the : excess of tax revenue over ex~ penditure (including transfer . • 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 performance.. ~ .. : ments.I eludes payments which are linked to production but with I provisions to limit production through production quotas or requirements to set aside land from production.II Bts Iinuleet surplus 25 *================ ~ such as a bank in a foreign-ex. but usually ~ refers specifically to the govern. -- _ _ _ c. • budget surplus : in general.. .. E&tmomics===================== II . ment budget.. • broker's fee the fee for a transaction charged by an intermediary in a market... an excess of income I dO : over expen lture. . payments). • budget deficit the negative of the budget surplus... ro.~-.. thus the excess of expenditure over income. Japan was said to ~ be a bubble economy in the .­ .... . late 1980s . change transaction. . • border tax adjustment rebate on indirect taxes ' (taxes on other than direct income. It in.. I : • blue box I a special category of subsidies permitted under the WTO I Agriculture Agreement.nc .

\ Dov\'nswing I • business services services that are forwardly linked to other business activities. • CACM Central American Common Market. Part of Hagerstrand's time-geo- -40 -80 a4 88 sa liM) 82 8. etc. which are more efficiently 'externalised' by the dient firms. Such services tend to perform functions...C eEl 88 00 02 . lfiSurance. • cable transfer in the context of foreign trade. • business cycle the pattern followed by macroeconomic variables. For example banking. where the function consists of another function.0 I I cable or telegraph rather than through mail. cannot be efficiently performed in-house.". • call in the stock exchange terminology. imposed by nature or available tools. preceded by Organisation of Centra! American States. an option to purchase a specific amount of some stock at a quoted price. i. known as the striking price.. The payee is then notified about the arrival of the payment by the correspondent bank.26============*businesscycle I capability constraints II I BillionNOK 120 80 120 80 .VP u~swing / ''. Boom I I I I C\.. relative to trend.. within a specified period of time. Founded in 1960. a bank draft which is sent by I I I I I I I I II = = = = = = = = E c o n o m i c s .. • call loan a loan that can be concluded or 'called' at any point of time by the creditor or the debtor. MII.0 -40 -80 .. • capability constraints constraints on human activities in time and space.e. such as GDP and unemployment that rise and fall irregularly over time. • cain rule a rule used to determine the derivative of a function in relation to a variable.

.II capital I capital structure I 27 *================ graphic conceptualisation. ... I &onomics======= II . •• I I • I I I I capital market the market in which savings are made available to investors... _.. of a faster-growing magnitude of capital in production than in labour.. .. . . . 14 • Banks' core capital ratio Dc __ rcW . It is the same as replacement lllvestment.S. I ~ I . capital consumption is the amount by which gross investment exceeds the net investment.. • capital 1.. • capital intensity the amount of capital per unit of labour input. normally in a macro context.. but this use is rare. real or invested capital: the capital goods needed for the production of goods and servlCes. regulatory agencies. . • capital ratio a measure of a bank's capital strength used by the U. . " I I ... . . it could mean the amount of capital available for a worker to use. . . • capital account a part of the balance of payments where flows of savings.. 2. . A •• ' . l_~"_eo.. ~ . monetary capital: the money used for investment purposes... A.. • capital consumption in national accounts. .._. . . . ..-.. .. 1M1.. where it is measured by something analogous to the capital stock available per labour hour spent. . • capital deepening an addition in capital intensity. Capital deepening is a macroeconomic concept. " " I I I I :I " " 85 " . . . In a micro context.7 •• H H '1. .. investment and currency are recorded...kII"""-""" .. .. . ... . I • I capital structure of a firm is broadly made up of its amounts of equity and debt. . . _ .. . ..

but actually causes the change in another one.g .I founding patriarch's family by tion of NYSE. which meant that volume/volatility tests were rarely done. ceteris paribus all other things remaining the same. • causation relationship which results when a change in one variable is not only correlated with.---------~ ~ . and a central holding company. It has daily informa.. I I I • • chaebol • Center for Research in one of a small number of very Security Prices (CRSP) I large. rather than by the service performed. the certainty equivalent is less than the expected value of the gamble because the agent prefers to reduce uncertainty. highly diversified and a standard database of finance I centralised Korean firms.CD Certificate of Deposit I I -----. AMEX. NASDAQ stocks.28 capi-tatUm I chaebol I II =================* • capitation a system of payment for each customer served. The data there was so much more convenient than alternatives that it drove the study of security prices for decades afterward. to be indifferent between that payoff and a given gamble is called that gamble's 'certainty equivalent'.. • CBI Confederation of British industry... money or utility) which an agent would have to receive. I I I I I early 1970s by Eugene Fama among others. For a risk averse agent (as most are assumed to be)... I I . Started in II ========E&tmomics .. information at the University of : owned and controlled by the Chicago. • certainty equivalent the amount of payoff (e. It did not have volume data.

....: charges to a particular landing . I . the shipping etary theory. Mean is r.. is a synonym for eigenvalues. : not intrinsic content of valuable ~ metal.II chained I eIF Still go rging \ ". . ~ tions or customs can or should . alternative uses of scarce re• characteristic equations : sources. ample is an inflation index made up of prices weighted by the frequency with which they I are paid and the frequent recomputation of weights makes it a chained index. . . variance is tem which is very sensitive to ~ 2r. • ' . evolve in wildly different ways.. ~ 29 *================ " . l. with • chained : natural number parameter r. maintain the value of money.: ~ . --- . ~ the rock bottom price where the • characteristic roots ~ quantity demanded is zero. :" . It an index number which is fre.I quently reweighted . A also known as 'state theory of : price quotation which covers the money' . a continuous distribution. . An ex. I E&unomu:s=~=~=~~ II . is the distribution of sums of • chaotic ~ squares of r standard normal a description of a dynamic sys.elF • chartalism ~ Cost. ~ • chi-square distribution .I variables.~ merchandise cost. and moment-generating initial conditions and may : function (mgt) is (1-2 t) -r/2 . a polynomial whose roots are I : • choke price eigenvalues. t· ". from slightly different initial : • chOIce ~ economic choices involving the conditions.19th century mon. . formulated more .'. insurance and the freight on the idea that legal restric. Insurance and Freight.

A market clears if the vector of prices for goods is such that the excess demand at those prices is zero.. labour and product markets between households. creating alternative paths between nodes and thus creating network redundancy... ... a classical theory would have no explicit reference to preferences.... a 'cluster' is a geographically proximate group or geographic con- · • ·...S.. I I • circular flow the manner in which funds move through the capital.... the government and the foreign sector. • cliometrics the study of economic history...30 circuit I cluster I • II =================* place.. That is. [Kpend i1ur~$" • classical according to Lucas (1998)... I I • clears in this context it is a verb. .... law on the subject of antitrust and price discrimination.. I I Clayton Act a 1914 U .. the quantity demanded of every good at those prices is met. I I I I II = = = = = = = = & o n o m i c s ....... In(:omes The Circular Flow Houu·· holds ·.. • closed I/O model an input-output model is either open or closed with respect to certain sectors or activities...... • cluster a concept associated with Michael Porter's work. - ... firms.... • circuit description of a network with one or more loops.

I competitive markets and the absence of transactions costs. centration of interconnected companies. firms in related industries and associated institutions linked by commonalities and complementarities . an efficient set of inputs to produc- I I • coefficient of specialisation this coefficient is calculated just like the coefficient of localisation. specialised suppliers and service providers.II coase theorem Icoefficient ofspecialisa.- .. The geographic scope of a cluster can range from a single city or state to a country or even a group of neighbouring countnes .. I 31 I I I I tion and outputs from production will be chosen by agents.. The implicit citation is to Cochrane-Orcutt (1949) . Econornics====================== II . regardless of how property rights over the inputs were assigned to the agents. the theorem says that in the presence of complete I I I • Cochrane-Orcutt Estimation an algorithm aimed at estimating a time series linear regression in the presence of auto correlated errors. - _ ~ --- • coase theorem informally. except that regions become industries and industries become regions. • Cobb-Douglas Production Function relate s the productivity of labour to the capital intensity (capital-labour ratio) under the condition of a constant profit wage ratio. I I I ti.

Cohort I analysis traces those persons I born during the same time period.... concavity of distribution functions a property of a distribution fimction-utility function pair. I It is the percentage of total market sales accounted for by II = = = = = = = = = E & o n o m i & s .oeffic= .. • com~act sets a closed and bounded set. I • I Coefficient of Variation %CV Definition = Sl. complement a good for which demand decreases when the price of a closely related good increases. The assumption is to hold in some principal-agent models so as to make certain conclusions possible. • cohort a group of persons experiencing the Sartle event during the I I • I I I • same period of time.""3""2==========""C. competitive equilibrium price the price at which the quantity supplied and the quantity demanded are equal to each other. ( /\CV=l O \ I : LM~N J" "Crucial in establishing: • Ahgmnent • AUldic st.ient ojllamtWn I concentratWn ratio II • coefficient of variation an attribute of a clistribution.~ I' I • • SlalOmJ!' of cell.'1 bility \ CV=.Dc\' x 100 I MEAN collusion an agreement between parties to refrain in participating in an activity which they normally would in order to reduce competition and gain higher profits. its standard deviation divided by its mean.l. i.e. The most important experiences of ~ • concentration ratio an aging cohort are the cohort I a way of measuring the concenbirth rates and cohort death tration of market share held by particular suppliers in a market. as they age and live through common time-specific I experiences and life stages. rates.O !.

Often The condition number is cal.u • . and so they are only functions matrix. Values larger than 20. .. Often means 'con. conditionally normally distrib1_. . facts.~ incorporated into the functions tic roots or eigenvalues of the .' L===========~I evant in estimation if the ma. that • conceptual framework for I is. I : uted.II conceptual framework for economicge:.: of the output. ~ one might read 'returns are . Rel .r '1ul.: each of the several inputs as a verse (b) a linear regression will ~ function of the output expected have large standard errors. I teristic root is denoted Land a given number of leading firms.. are observed if ~ and only if the matrix is 'nearly to each other. principles. I singular' . ~ modifiers.-------. the matrix being diagnosed economic geography I is presumed to be positive the structure that serves to hold definite). . according Geography exist and are related : to Greene (93). insights and circumstances of Economic .•. ditional on time and previous : asset returns'. S Ize f.1. • condition number a measure of how close a ma. the data are nearly col. If the largest charac. it has a special use in finance. I HUla 110000 10000 1000 100 10 Economiel========= II .: • conditional factor deI mands trix of regressors is nearly singular.: the prices are taken as given and culated from the characteris..I • conditional trix is to being singular. : when used without other Condition It. then the condition the conceptual parts (concepts) I number is: together and within which the I gamma = (L/S)·s ideas. give the optimal demands for make an accurate or precise in. In that context.aphy I conditional foetor demands 33 I the smallest characteristic root is S (both being presumed to be positive here.I a collection of functions which linear and (a) it will be hard to . and the prices of inputs.v •--------.

: . we can say that they are not conformable for addition.1 . tan Statistical Area Capital meets the re. __ . Take matrix addition . " X . _~ __ :_ : _.@!!!!!!. If they don't.. -~-~400 'Metropolitan Statistical Area' 200 _~.e. I - I • Constant Relative Risk I Aversion (CRRA) : a property of some utility func~ tions. '. The most common application of this term comes in the context of multiplication. 'A :. teria specified in the standards. -~ .. an estimator for a parameter is I • constant returns to scale consistent if the estimator conwhen all inputs are increased verges in probability to the true I value of the parameter.... CRRA is a synonym for ICES.: . 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. I I I _N -• • . the same dimensions to be summed.the matrices are supposed to have . area by meeting statistical cri. A matrix may not have the right dimension or shape to fit into some particular operation with another matrix..I portion. .I 100 . : B. :t ~r~: : ~::H II ========Economics .". ( : ' : X-l . by a certain proportion..: quirements for recognition as a 300 _.i. also said to have isoelastic form.* .. I an(:~:~hiCh ".JOO MSA) and also has a popula. outI put increases by the same pro• Consolidated Metropoli..34===========* • conformable generally used in conjunction with matrices ... • consistent estimators conformable I consumer strPereignty II I and local opinion indicates that I there is support for the component areas.. . in a perfectly free market.

.. it shifts the LM curve 1... Q CI ~~"':. ' : ' -:... tive organisation. ..... resources..... work task and I some ftrst courses in macroecoother factors.nd describe .. AD. Real NatloNl OUtput (GOP) • contingency theory US!. a good. .~_ 0. r. • consumption function Visual Contractlonary Fiscal Polley the relationship between disposable income and consumpLRAS SRAS tion..... . to estimate the willand what he actually ha.. taxes. : central bank... .II consumer surplus I contractionary7=ry""P""OI""ic""'=======.s to pay ~ ingness of respondents to pay for buying a certain amount of I for public projects. ._ .clion"he government could take in order Co decrease aggregate denW'ld regards the design of an effec _ I from AD..I a government policy of reducing the spending and raising actIon.."'.3=5 ~ • contingent valuations • consumer surplus the difference between what a ....Iv. I • contract curve • consumption the same as the Pareto set... I nornics.. vices. technology.. ~- : : : ...0 II . : : : .'. In economics.. with the implication that it is drawn the individuals and corporations which buy products and ser... as necessarily • contractionary monetary having to be adapted to cope policy with the 'contingencies' that ~ a government policy of raising derive from the circumstances I interest rates charged by the of environment... consump. ..I in an Edgeworth box. AD.'!"'~ <--- ""'~--- - AD.~=--- --..I • contractionary fiscal policy tion refers only to consuming that involves a monetary trans.. ...... ::. In the texts of scale...... .~:'!.. the use of questionnaires about person would be willing to pay : valuation.

• convolution the convolution of two functions U(x) and V(x) is the function: U*V(x) = (integral from 0 to X of) U(t)V(x-t) dt. (liquidity/money curve) to the left. I controlvariabJes I corporatewelfon II I -::::"l'-.Jk~ ~ A I I . how far it is from the means of the independent variables and the dependent ·variable. Governments give money to businesses which are very profitable to keep them from moving to other provinces or countries." :~~ . • control variables a variable in a model controlled by an agent in order to optimise something. it converges in probability but it does not necessarily converge. After a regression is run. one can consider.~· _ ~. in advance of choosing their actions. If Xc converges in quadratic mean. ~---. • convergence in quadratic mean a kind of convergence of random variables.. it may be very influential and one can consider whether the regression results are similar without it. I for each data point. I. • corporate welfare when a government gives money or a monetary break (like tax cuts or subsidies) to a business. I 12 3 458789101112 I I • cCHJperative game a structure where the players have the option of planning as a group. . &M. - I I I I I II = = = = = = = &__us . If it is far from the means of the independent variables..~3~6===========." I'. ~ _ -.. • ~CHJk's I>istance a metric for determining whether a particular point alone affects regression estimates much.

Its value is the I cost of making that output.cost-push inflation given those input prices. ~ .e... . comes changed as much as the ~ index did... . tion as a function of total quan. ______ :I!"_~~ ------- . Usually. : . ~ Toral Cost Curves . it is a positive number.. --- . inflation whose initial cause is : a rise in production costs.countable additivity ~ property . that rises over time to indicate that there was inflation. Y... _ Cost And Freight (CAF) ~ a price quotation that includes I both the merchandise cost and ~ the freight charges. Y Eeonomics======= II .11 Co'stAndFmght(CAF) Icountenrad:~~~~=~~~~~3~7 _ costate variables a Lagrangian multiplier or Hamiltonian multiplier. Two in... C = "\)X I 0. l'> y...cost function a function of input prices and I output quantity.: tity produced. ___ __ . : I : . The index is a scalar measure for each time period.cost-of-living index measures the changing cost of a constant standard of living. oMlCMc. measure. ~ . comes can be compared across I time by seeing whether the in. _ .. : . . y..for its ship: ment to a given destination. ~ the third of the properties of a .cost curve ~ a graph of total COStS of produc.countertrading : the bilateral international trad~ ing relationships between comI parnes..

modelled as in the Cournot Game.-rJly 011 I..'.. ""'~ Kkm. 2 • .I. the ootput Ulf rriaxidtizes its profits • The price lhat emerges clears the market (demand =supply) • • In the Coumolmodd each of the two finnspick functions are assumed to be the same for all firms. this had an impact on the field .: I people. • Cournot Duopoly a pair of firms which split a market.~ . were set aside or given lower priority elsewhere too because of the pres- II-==========&onomics ... Often the cost IlIlulfllarthcSo. f . I ~::. Each of the N firms will choose a quantity of output.. organisations ' or capital ..*================ • countervailing power I J..rJ ."" row . Coumot Duopoly Ihe quantities 'i and Q2 to ~ pro.:)us I.tion ho. the other linn' s oUlpul as giva! and choo . · . (11. I problem of simultaneous equations. I • Cowles Commission a: 1950s panel on econometrics. .It.1oIY ""'.: . We mume the oulocorrel. All firms know N and take the output of the others as given..\k l .e" . for describing the industry structure. .~.I dency of market (monopoly) I power to be reduced by the emergence of countervailing I groups and forces.'eRuIJdinllh:• .:. .: investments (as 'bundles') to I accomplish an objective.ur] ...... t ..• ·"}J·F.other problems such as errors-in-variables (measurement errors in the independent variables). the cost functions are treated as common knowledge.(X.. . : ~ . .38 countrrvailing power I Cowles CommissUm II =================..Galbraith' thesis of the ten. K". IQ4" rtlprvw: J .oIls.I.·"....•. • coupling constraints I the need to join with other . that focused attention on the • Cournot Models a generalisation of the Cournot Game... 1. I. _. Covariance Stationary Class of processes X(t}.nbColKft.""'" f<""'..:"-'fft."jkl · ElIX.. • covariance stationary a stochastic process is covariance stationary. Price is a commonlyknown decreasing function of total output. Each firm has a cost function cj(q} Usually...11 ..tJced • Each finn laIC . if neither its mean nor its autocovariances depend on the index t.K.'!:~ud • o.~:::::~::.". In some tellings of the history. the form l!ti.. that have:: ""~"". I'~~: ..

• Cronbach's Alpha a test for a model or survey's internal consistency. where payments for the purI chase and sale of goods and serI vices are recorded. summarising a group of test or survey answers. t. it measures the portion of a country's saving invested abroad and if it is negative.. I overnment net lending and real dispooable income g . It is sometimes called . from a set of possible window widths..~nc=e==========3~9 tige and influence of the Cowles Commission. which measure some underlying factor (e.a 'scale reliability coefficient'. 14 _ c. If the current account balance is positive..II Cronbach'sAJpha I currmtaccount. firms or governments. to select. one that minimises the sum of errors made in predicting each I data point. I I : .• CTT I ~ Capital Transfer Tax.1gl"'GOP t.g. 2000 &onomit:s======= II . ElJ ". I • current account I a part of balance of payments. by using a kernel : regression on the others. pefttnl. it measures the portion of the domestic investment financed by foreigners' savings. • cross-validation a way of choosing the window width for a kernel estimation.. ~..*MC!Of . A score is computed from each test item and the overall rating called a 'scale' is defined by the sum of these scores over all the test items. Cronbach's alpha assesses the reliability of a rating. Then reliability is defined to be the square of the correlation between the measured scale and the underlying factor that the scale was supposed to measure. The method is. . I t . • cross-section data is the parallel data on many units such as individuals. I • I I I I I I current account balance the difference between a country's savings and its investment... households. I Developmenta in the CUITODt IIOOOOII1t belance. ~~ d GCP t..ntf'lllk"COl.. some attribute of the test-taker).CSO ~ Central Statistical Office.

40

current balance I deductive
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II

=================*
• current ba1anc~ difference between total exports and total imports.
I

• CWO Cash With Order.
• de minimis a legal term for an amount which is small enough to be ignored, too small to be taken seriously. Used to restrict legal provisions, including laws regarding international trade, to amounts of activity or trade that " are not tflVlally sm all . • deadweight loss the net loss in economic welfare which is caused by a tariff or other source of distortion, defmed as the total losses to those who lose, minus the total gains to those who gain. Usually identified in a supply-and-demand diagram in terms of change in consumer and producer surplus, together with government revenue. The net of these appears as one or two welfare triangles. • decision rules 1. a function which maps from the current state to the agent's

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I

decision or choice. 2. a mapping from the expressed preferences of each of a group of agents to a group decision. The first is more relevant to decision theory and dynamic optimisation, while the second is relevant to game theory. • decouple provision of support to an enterprise, usually a farm, in a manner that does not provide an incentive to increase production . Farm subsidies that are decoupled are included in the green box and are therefore permitted by the WTo. • deduction also known as deductive reasoning. A process of inference, which leads from general principles or universal premises via logical reasoning to expectations or conclusions about particular cases. • deductive characterises a reasoning process of logical reasoning from the stated propositions.

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I I I
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I I

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II ========&onomics

II deep itltror4tUm I de-itulustrialisatUm.. ==========",,4=1
- deep integration economic integration which goes well beyond the removal of formal barriers to trade and includes various ways of reducing the international burden of differing national regulations, such as mutual recognition and harmonisation. Contrasts with shallow integration.
~ - deficit ,

in the balance of payments or : in any category of international ~ transactions within it, the defiI cit is the sum of debits minus ~ the sum of credits or the negative of the surplus.
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2DO

- deep markets 11111_ _ 400 -4r--'-r--r--,- 1_ _11 _ _1 1 7 1 _ -i--" 'l-;---r-r' a capital market may be said to I I::::. Ci . . . . . be deep if it has great depth. I May less formally be used to : - degressive describe a market with a large ~ going down with income or lover time. A degressive income total market capitalisation. ~ tax takes a smaller fraction of - default : higher incomes. Degressivity in failure to repay a loan. Interna- ~ trade policy might be a tariff, tional loans by governments ; the ad valorem size of which is and private agents lack mecha- : scheduled to decline over time, nisms to deal with default, com- ~ or a quota that is scheduled to parable to the legal mecha- ; expand faster than demand for nisms that exist within coun- : lmports. tries. I : - de-industrialisation - deficiency payment : a decrease, over time, .in the payment to a producer of an I share of the manufacturing in amount equal to the difference : an economy, usually accompaI . between a guaranteed price and : nied by growth in the share of the market price, with the lat- ~ services. Typically, accompanied ter often determined on the ; by an increase in manufactured world market. A form of sub- : imports. sidy to production. I
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i \

:f==~~!:~~~~~=~====!~ =

r--------------------IL--I _ ..- -. . . . . . . " . .. . . . . . . .

E&tmOmics======= II

""4,,,,2=========== :i17eredprice I demographic transition

II

• delivered price the price which includes freight charges to the location of the buyer. • delta is used with respect to options. The rate of change of a financial derivative's price with respect to changes in the price of the underlying asset. Formally, this is a partial derivative. A derivative is perfectly deltahedged if it is in a portfolio with a delta of zero. Financial firms make some effort to construct delta-hedged portfolios. • demand curve the graph of quantity demanded, as a function of price, normally downward sloping, straight or curved and drawn with the quantity on the horiwntal axis and price on the vertical axis. • demand deposit a bank deposit which can be withdrawn 'on demand'. The term usually refers only to checking accounts, even though depositors in many other kinds of accounts may be able to write cheques and regard their deposits as readily available.

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demand elasticity normally, the price elasticity of demand.

• demand price the price at which a given quanI tity is demanded. The demand I curve viewed from the perspective of price as a function of ~ quanuty. ; • demand schedule I a list of prices and corresponding quantities demanded or the graph of that information. I Thus, a demand curve. I • demand set I in a model, the set of the mostpreferred bundles of goods that an agent can afford. This set is I a function of the preference relation for this agent, the prices of goods and the agent's enI dowment.
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demographic transition

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model of population change based on European experiences. The model describes the effects of changes in fertility and mortality, associated with industrialisation, urbanisation and health care lmprovements.

II = = = = = = = E e o n o m i c s

• Glullal cconomv la~ors rIch COUlilfles commodities..... expressed as: a dependent vari: able is a function of one or more ~ 'independent' variable(s). Core· SeIDl pentl/wry·· Periphery I • derived demand the demand that arises or ActIvIty IS • dependent variable the variable to be 'explained' with the help of 'independent variables'. change prices by a given : amount.. Blami"« Ille sYSlem .. . . the extent to which this relationship or 'explanation' actually implies 'causality' varies.. DnthRak an attribute of a market.II dependency theory I deriveddematul The Demographic Transition . These independent variables serve as the 'explanatory' variables.. depth is measured by the size of an order • dependency theory ~ flow innovation.. .. . ~ that other quantity is the price •" DependenclI Theorv I of some other asset such as bonds. required to the theory that states that the less developed countries are .I rived from the some other ment....... ~... "" • G10hal economu cKPloils 11001 natIOns I an index or the temperature..er 1101 I\. In securities markets. . poor because they allow them... however. . 113110ns llOor . Thus. ~ =========4~3 . ~ ~ • RIch nahons mlclillonalfy keep lIoor SOote SOote ~ ~MFt. It may merely refer to a statistical relationship.I selves to be exploited by the : • derivatives developed countries through ~ securities whose value is deinternational trade and invest. It could also be .. .. the relationship is often .. ~ • depth I " .... I I I I I defined indirectly from some other demand or underlying Economics======= II . RIch lIallOlIS eKlllolfS natural resources and labor to tloor coUnltteS . ~ ~ ~ . : time-varying quantity. currencies or '-.. Rata_ . ~ SOote 2 SOot·.110. stocks. Usually.

This is called it ages. Fischer. Contrasts with homogemovements of the price in the I neous product. if buyers dis• deterioration I tinguish products based on the the process or occurrence of an asset's declining productivity as ~ country of origin.". especially in the case of the less developed economies. resulting from mainly two corporate strate. in the context of other variables available. depreciation. sometimes applied to prodoccurs. the Armington assumption. I identical to the products of • destabilising speculation other firms in the same indusspeculation which increases the try. a firm's product which is not within the region..lone of the continuum-of-goods gies: (1) mechanisation and models of Dornbusch. • digital nervous system I I. and office activities (2) trunca. frequency I though there are many firms or some other measure. Movement may be de. 1980). • deterministic functions and variables not random. within the country whose products are the same.I • differentiated product tion of corporate acti vi ties I 1. market where the speculation 2. even fined by amplitude. computerisation of production and Samuelson (1977. ics specialising in the processes of long term growth and change. I • de-skilling a decrease in the level and scope I of skills within a local/regional DFS Model labour market. A deterministic function or variable often means one that is not random.44===========* de-skilling I digital nervous system II behaviour.ucts produced by a country. • development economics a sub-discipline within econom- the digital processes which en I I II ========&cmomics . This is a component of . .

I CIIIII Ua _ _ _. Usually. Their decision is modelled &onomi&s=====~= II . I:. For simplic: ity. • direct factor content a measure of factor content which includes only the factors used in the last stage of production._ _PllJlltk 1<14 11llC. ~. I .JV=_)ri&:._ I. dis.149 3. holder of the bond receives at : I . and to organise timely responses. in these mod: els they value future experi~ ences. than present ones. be a constant between zero and : one and if so. it includes all the primary factors that contributed. ignoring factors used in producing intermediate inputs.. the factor by which they dis~ count next period's utility may . The face value is the ~ amount of money that the . an econometric model in which the actors are presumed to have made a choice from a discrete set.u~at .. in a multi-period • discoUnt bonds ~ model. ~ models Pr(Yj=!) = F(Xj'b) = ~'b. . to the production of a 45 ~ the expiry date of the bond. present-oriented agent disor at a price less than its face : counts the future heavily and so Bents Issued at a [lscomt ~ has a 'High' discount rate. when the bond expires. Often denoted as 'r'. however indirectly. agents may have different utility functions for consumption (or other ~ experiences) in different time . t'"l:.~to!'bRi. N .JW! ~. In : difference to coupon bonds.t ".~~hd.ooo o! . COWlt bonds only pay the bearer ~ once. . . That is. I good. but to a lesser degree .151 111. . ~ • discount factor in a multi-period model. to sense competitive challenges and customer needs. ~ • discrete choice linear $1".lAg fR.t. A a bond perchased at a discount .II directfoetor content I discrete choice l~r mmlels able a company to perceive and react to its environment. periods. . it is called a dis~ count factor. • direct-plus-indirect factor content a measure of factor content Which includes factors . ~... U . : value. agent discounts future events in : preferences.• di scount rate I the interest rate at which an .c:a .used in producing the intermediate inputs and so forth.

i-"'" I I I --r. so larger scale would increase the cost per unit. Often the choice is denoted Yi. which because it is so often used in reference totradeoffs.m.whon output gO" beyond the minimum I-. It consists of all WTO members meeting together to consider reports of panels and the Appellate Body. quarters or years . • discrete regression models econometrics models in which the dependent variables assume discrete values. • diseconomies of scale similar to economies of scale. ATC 11 1 tion or economic activities. disembodied technological change alters the production function without requiring gross investment to carry it into place. such as days. In the WTO this is done by the dispute settlement mechanism. • dispute settlement body the entity within the WTO which formally deals with disputes between members.point of tho long run t-.. scope or agglomeration cost increases or other disadvantages associated with ¢. these units represent periods.""46=~=======d""isC""rete.Olseconomin occur f--. I Output • diseconomies of scale. - V /' • dispute settlement in the GAIT.average cost curve Imr. • discrete time the division of time into indivisible units. is widely thought to be depressing to study.e scale or scope of operation or with the agglomeration of popula - I I I I " ========Economics . dismal science refers to economics. In economic models....I t-. I • I I • I I I • I I I I I t-. but with the implication that they are negative. disintermediation the prevention of banks from flowing money from savers to borrowers as an effect of regulations..es. the adjudication of disputes among parties.rion mmiels Idispute settlement body '= as endogenous.r.

ou~er than the United States of I the U. the relative response of effec. in conwith increasing distance. The idea comes up • distortion in the context of national acany departure from the ideal of perfect competition which in. dollar as its local cur• distance elasticity of demand I rency.II dissaving I dumestic • dissaving when individuals or households spend more than their current income. incomplete information and imperfect competition. • dissipate rent to use up. primary reserve asset. within one's own country.I counts and national statistics.domestic producer is one that &onomics====================== II . externalities. terferes with economic agents. dollar is the diminishing level of inter. the full value of the economic rents that are being sought by rent seeking. tariffs and NTBs.• Domar Aggregation tive demand to a change in the the principle where the growth distance (or transport costs) I rate of an aggregate is the which a consumer (or consumI weighted average of the growth ers) has (have) to overcome. I the share of the aggregate it makes up. largely . In.S. I • domestic maximising social welfare when . ous forms of distance-sensitive I • dollarisation transaction costs on demand or official adoption by a country cost patterns or functions.I which gold played this role. Dixit-Stiglitz utility the Dixit-Stiglitz function used as a utility function. in rates of its components. trast to the gold standard m resulting from the effect ofvari. where order to purchase a good or ser. A they maximise their own.S. I • I • dollar standard an international financial sys• distance decay I tem in which the U.I each component is weighted by vice at a given price. in real resources.I used by most' countries as the action or value of a variable. 47 *================ I I I eludes taxes and subsidies.

but it also makes some short-term loans to banks to use as their reserves..--. the largest component by far is the Fed's holdings of U... _ .""4""8=========. In the development literature. numerous theories use this proposed dualism to isolate relationships between the two parts... • domestic credit credit extended by a country's central bank to domestic borrowers.....S. --.. - . Opposite of 'foreign' or 'world'.---... 3D I I I I I ture of a product or process which becomes the accepted market standard. In the United States. including the government and commercial banks... a basic architec- I I 1/ ========&anomics .. They have the benchmark features to which subsequent designs are compared. • dual economy an economy that is supposed to consist of two relatively distinct parts. I .. • drawback rebate of import duties when the imported good is re-exported or used as input to the production of an exported good. -20 10 --_ ..dome. which are suggested to reinforce the dualism.. - 10/01 NIt~tD~ eom..... . • double coincidence of wants a problem that is generally related to the Barter System.. government bonds...... ·lD I 1/01 4/01 7/01 .. Dominant designs may not be better than the alternatives nor can it be promised that they will be innovative.=:: content requirement I dual economy II produces inside the home country. . --. in terms of specific distinguishing attributes.. • domestic content requirement a requirement where goods sold in a country contain a certain minimum of domestic value added.. I I I I I I I '" ·1. A domestic price is the price inside the home country..ucO"MlIt ___ • Non·~credtt I • dominant designs after a technological innovation and a subsequent era of ferment in an industry. Refers to a situation where the supplier of good X wants good Y and the supplier of good Y wants good X..

a temporary or unstable nature. : ~ ~ . 1 for pass and 0 for fail .1'0' ~ • dual labour market a segmented labour market in ~vhich one part is.-q. • dummy variables In an econometric model a variable which marks or ~ncodes a particular attribute. • dynamic gains from trade the hoped-for benefits from trade which accrue over time in addition to the conventional static gains from trade of trade EconomiCS=======1I . usually and I~ broa~ terms. : ~ . that extend beyond the static gains from trade. if ~ the hypothesis is that there is I no autocorrelation. no or inferior benefits."1 .I: RuralAgrladturalSeclor 49 *=============== Q. .product implicit citation is to Durbin (1 ~70). Durbin-Watson statistic a test for first-order serial correlation. This result is biased towards the finding that there is no serial correlation if lagged values of the regressors are in regression.. in the residuals of a time series regression.0 for the Durbin-Watson statistic indicates that there is no serial correlation. • Durbin's h test an algorit~m ~or detecting autocorrelanon ill the errors of a time series regression. A value of 2. Such dynamic effects are thought to make the gains from trade substantially larger than in the static model.. utyora. I ~ I • 1 1. including both multilateral and preferential trade agreements. The : ~ . characterised by high skills and wages. WhIle the other part has low wages. . ~ : ~ .. : ~ I : ~ I .g. • dynamic effects certain effects of trade and trade I i beralisation that are poorly un d erstood. : ~ . job security and desirable working and car~er development conditions. A dummy variable has the value zero or one for each observation.. The h statistic is asymp: toncally distributed normally.II duallabourmarket I dynamicgainsfromtrade DualF. e.ronomy \fOO. no or little chance of advancement and otherwise poorer working conditions.

• econometrics the application of statistical I 1\ I I I I methods to the empirical estimati on of economic relationships. This phrase is normally used. Members of the EMU share the common currency. • Economic Overhead Capital (EOC) economic infrastructure. such as roads. power facilities. in trade negotiations."". • dynamic programming the study of dynamic optimisation problems through the analysis of functional equations like value equations. to estimate the causes and effects of international trade. although there exist a variety of possible theoretical reasons for them and some empirical evidence that countries have benefited more than the static gains alone would suggest. before the rest of the negotiations are completed.ul=tiP"".ic"". Econometric analysis is used extensively in international economics.I=ier~ Economic Overhead Capital (EOC) theory. including rule of law. the Euro.50======dyna="". port facilities. but with the support of the government institutions necessary for that freedom. to describe the study of discrete problems. for agreeing to accept the results of a portion of the negotiations. • dynamic multipliers the impulse responses in a distributed lag model. exchange rates and international capital movements . Sources of these gains are not well understood or documented. I I I I I • I I I I I I I I " __====================Economics . • Economic and Monetary Union (EMU) a currency area formed in 1999.m"". railways. sound money and open markets. • early harvest a term. without government interference. as a result of the Maastricht Treaty. economic freedom freedom to engage in economic transactions. analogously to linear programming. • dynamic optimisations the maximisation problems to which the solution is a function.m"".

============5=1 • economic rent I diseconomies of scale. wel. I • economy. o1qlfot. the economies of regions (as "'::.. q.. dUfldltota""bI......II economic rent I e.used in agglomeration econofare.I: occur when an increase in all the duction receives..... cost reductions. %. economIes : two meanings of 'economies' ~ need to be distinguished: I 1. There may also be I • ... scale economies.andbed · . O'scoa..t with the I 2. economies of scale are being realised. by more amount than the increase in the inputs. Since in trade models trade itself is endogenous .. : ~ . : ~· ~ I effect of trade the effect of a change in some policy or other exogenous variable which will increase the quantity of trade. Measured by · the effective rate of protecII Economics======= . the effects associated with a change in trade depend on what caused it. ~ localisation economies. fiscal. are also harmonised across : mies. in the sense of economising.. etc. as policies: monetary... • economies of flexibility the advantages accruing to a producer with many plants of different sizes. added feature that additional I savings. a common marke.::'v aggregates of interrelated eco• economic union nomic activities). I put. depends on the tariffs and other : trade barriers on both its inputs ~ and its outputs.ffictive protection . in allocating increases or decreases in operations to that plant whose size is such as to handle the total output change of the producer most efficiently. iDUI . tdIKCftClmfCrWpne. the member countries. in excess of its : inputs brings about a less than ~ proportionate increase in outopporrunity cost. ~ • effective protection : the concept in which the protec~ tion provided to an industry . • economies of scale if all the inputs in a production process are increased and the output increases proportionately.tot. since a tariff on I inputs raises cost. which any rerum which a factor 0 f pro..

_."lIIi"'lbyp.lone.-__ ...... [. in the sense of producing more of one good without producing less of another.n.. .: ~{J_~... this means that expentariffs on inputs... VIII_..Rate ofProteetion (ERP) tion. at a minimum... I . t. ~:". = ~.-.M . .etlll. when used without a modifier (such as 'cross' or 'income'). that is the percentage. "'" I I ERP ~ !'2!!::"'-C.. divided by the percentage change in its (own) price.._ _..n<lpneu) vllluc-addcd: (world pncel) I efficient. ._ ····....effective tariff effective rate of protection.. I I eltuticity II . as well as on diture rises as price falls. price reflects all (publicly) available information. come.... "") ~~~ ~~ P4' p"" . Pw·C.:2d ~ M~+.elastic offer curve an offer curve along which import demand is always elastic.52=========Effec=ti. current price changes are independent of past price changes or.... which in turn implies that future exchange rates cannot profitably be predicted.... It is therefore not backward bending... <Ii:!.....nffr1k oarput Mid.elasticity 1...( mtermcdaatc II!pl..._ _ -_ .. more strongly.". • EN' jh:!'!L:[}!. t....ERP expenditure share rises with in....(1+~}-( 1'.....:!!!.-dullc luputr II """nclt. elasticity usually refers to price elasticity. l'~a.Effective Rate of Protection (ERP) a measure of the protection . .h"lltpUlClldficwnti " .vaI.elastic provided to an industry by the having an elasticity greater than entire structure of tariffs. I income elasticity. c".lntcm. .ddf*IIaomd.~dcd.... change in the quantity demanded of a good or service. "...to:"'!... .pedavdl· o. ~..cctn'dy.efficient allocation an allocation where it is impossible unambiguously to improve upon.. ..... For outputs. 4Dmctflc _ _ldpm:coJGUtpul. Some believe the foreign exchange markets to be I I I I I I I I I II = = = = = = = = E c o n o m i c s ...lls .efficient market a market in which. 2... tak. . it means that EtTectIVera!eofprotectJon..wcd(__ pn"'"). For price elasticity of deing into account the effects of ~ mand....: oDd -td pnM' .w. the responsiveness of quantity to price along a supply or demand curve comparing percentage changes (%D) or changes in logarithms (d In). a supenor good . a measure of responsiveness of one economic variable to another.... Usually. _abe UIlIf colt ofmt..

The latter plays a critical role in determining how . same effect at lower economic (or utilities). either for a single industry or for the aggregate of all imports. from real-world observation or 1 data. in contrast to something .1 53 • elasticity of demand for exports the price elasticity of demand for exports of a country. such K as a fiscal stimulus or a producity) function. demands. could achieve the ratio of their marginal products . With competitive cost. ticity with respect to their price ratio.embeddedness imports 1 the idea that economic this is normally the price elas1 behaviour is influenced by the ticity of demand for imports of dominant norms. with respect to the ~ tion subsidy.empirical finding the country's balance of trade ~ something which is observed responds to the exchange rate. 1 • elasticity of demand for : . Equals the rest of world's elasticity of demand for imports. either for a single in.II elasticity ofdemandfor exports I emPl~t argumentfor protection ~ . in dustry or for the aggregate of 1 turn are culturally embedded. all imports. since other policies.elasticity of substitution that is deduced from theory. . . this is also the elas- Economics======== II . either in the economy at large or in a particular indus1 try. the elasticity of the ratio of two 1 inputs to a production (or util 1 • employment argument for protection L the use of a tariff or other trade 1 restriction to promote employment. institutions a country.1 and social practices which. . This is a second best argument.elasticity of supply : the (price) elasticity of supply ~ is the percentage change in the 1 quantity supplied of a good or ~ service divided by the percent: age change in its (own) price .

It is therefore not subject to direct manipulation by the modeller. • endowment the amount of something which a person or country simply has. endowments refer to primary factors of production. In trade models. which is lower than that of their increases in income. rather than their having somehow to acquire it. the quantity of trade itself is almost always endogenous. • engine of growth I • I I I I I I I I I I I I I I I sometimes used to describe the role that exports may have played in economic development. • endogenous variable an economic variable which is determined within a model. since that would override the model. In the H-O Model of trade theory. Poorer families will spend a larger share of their total expenditures on food than the wealthier families.54 enabling clause I mmplltmule 1/ I =================* • enabling clause the decision of the GAIT in 1979 to give developii!lg countries special and differential treatment. • endogenous protection protection which can be explained as the outcome of economic and/or political forces. Engel's Curve a general reference to the line that shows the relationship between various quantities of a good that a consumer is willing to purchase at varying income levels (ceteris paribus). • entrepot trade the import and then export of a good without further process- I II = = = = = = = & o n o m i c s . The resulting shift in expenditures affects demand patterns and employment structures. the share of expenditures for food products declines. With rising incomes. It suggests that consumers increase their expenditures for food products at a percentage rate. are deliberately accumulated. ignoring the fact that some of them. both of some of the regions of recent settlement in the nineteenth century and of today's NICs. especially capital and skill. • endogenous growth economic growth whose longnm rate depends on behaviour and/or policy.

I condition is satisfied. in the Keynesian expentributed. ing. the equilibrium . a number of other curves. condition is that planned spend• envelope : ing just equals the current level the outermost points traced out ~ of national income.I tendency for change. L i I l ' I ~ • equilibrium quantity • equilibrium condition . manded or supplied. equilibrium being defmed as &onomit. For excility from which goods are dis. ~ and consequently. supplied equals the quantity try with weak.II en:'Pelope I etJ. there is no : tendency for the level of na• envelope eurve a curve enclosing. there environmental regulations. Named after the Kuznets Curve dealing with inequality. nor is exporter's cost of production is : there any deficiency of either below the true cost to society. the quantity of a good dea condition that must be satis: manded and supplied at the fied for the equilibrium to ex~ equilibrium price. ~ • equilibrium price I a price at which the quantity • environmental dumping export of a good from a coun.~ is no excess of quantity deflecting the idea that the .uilibriutnlJuantity 55 *================ ing..: ample. in international trade. ist. re. the price will providing an unfair advantage I remain at this level. At this price. Once that by a moving curve. usually passing through an ~ a situation in which there is no entrep6t. or poorly enforced : demanded. ~ diture model. I • Environmental Kuznets Curve an inverse V-shaped relationship hypothesised between per capita income and environmental degradation.s======= II .~ tional income to change. which is a storage fa. Also called eeo-dumping. by just touch.

I . comprising of countries in Europe that did not join the European Economic Community. the portion of a legal text ~ which permits departure from . _ Europe Agreement an agreement between the EU and each of the ten Eastern European countries (starting with Hungary and Poland in 1994).I stances.Euro Interbank Offered Rate (EURIBOR) a euro-denominated interest rate charged by large banks. Provides I a monetary measure of the welfare effect of that change. for. denominated in a eurocurrency. _ European Free Trade Association (EFTA) a free trade area. Free TradeAssociation (EFTA) II ~==============*=============== . among themselves. would make them as well off as a specified I change in the economy. I . if they have caused injury to US firms or I workers. the US statute (section 201. it includes Iceland. its provisions in the event of: specified adverse circum. Liechtenstein. group or whole economy. ' Sweden. Switzerland and the United Kingdom. Luxembourg. _ European Economic Community (EEC) a customs union formed 111 1958 by the Treaty of Rome. among six countries of Europe: Belgium. France.equivalent variation I the amount of money which.escape clause 1. a I limited time and on a nondlscriminatory basis. which I is similar to. I paid to a person.56 equivalent variation I Europeal1. I 2. Germany. 1974 trade act) that permits imports to be restricted. Portugal. and . Italy. Denmark Norway. Norway. EFTA was established in 1960 among Austria. on eurodenominated loans. but not in general I the same as the compensating variation. I country. As of 2000. creating free trade areas and establishing additional forms of political and economic cooperation in the preparation for these countries' eventual membership in the EU. _ eurobond a bond which is issued outside of the jurisdiction of any single I I I I I Il=======E&onomics . and Netherlands.

exchange control its functions were taken over by I rationing of foreign exchange. . a facilitated settlement of balance of I country's supply of exports of a payments accounts among its homogeneous good is its excess member states from 1958 to supply of that good. or as an asset market equilibrium between currencies. excess demand for that good. &onomics======= II . Thus. .e"".5~7 I I Switzerland. with a normal return to capital.exchange market . I usually used when the exchange . the actual exchange market.1~ in relation to its deposit liabilities and the amount it actually holds.excess demand rate is fixed and the central demand minus supply.ket======"".IIn_~03~~ IS reqwrea to nolO.a"". I 1~ 1500 \----+ I I 100(1 wlsnes or ·""""A_ _ _ Seo01 $11Obr. the market on which national the profit of a firm over and I currencies are exchanged for above what provides its owners one another.ma=~"". who wish to exchange currencies. It replaced the EPU and I . the theoretical representation of the exchange market as. 1972. Othamount of cash which a bank I ers. _ excess reserves ~ which exists primarily among the difference between the I large international banks.II EftropeanMonetaryAgreement ~ ~I~=ch"".excess supply an intergovernmental organisation. the IMF in 1972. Thus. either the interaction of supply and demand arising from exchange-market transactions. a bank is unable or unwilling to country's demand for imports I enforce the rate by the exof a homogeneous good is its change-market intervention. .-----------~r_--.European Monetary Agreement (EMA) I : . 2. do it through these 111 _ _ _ I banks . administered by the OEeD which ~ 'supply minus demand.excess profit 1.no"". I 3.

These transactions. managed float. • exchange rate regime the rules under which a country's exchange rate is determined. liability or commit.I cal growth models converge to selves in the forward market. then reqUlres in the future. I • I I I I I • I I I • exchange risk I • exogenous growth uncertainty about the value of : economic growth that occurs an asset. eign currency. Growth. especially the way the monetary or other government authorities do or do not intervene in the exchange market. exchange stabilisation fund a government institution sometimes used to handle exchange market intervention.58 exchangerateuvershooting l&XOgenousgt'l1Wth I II "'---------~==* • exchange rate overshooting the response of an excha~ge rate to a shock. pegged exchange b 1 . I a steady state. its money supply.I II =======Eeonomics . charged with the explicit function of smoothing exchange rate fluctuations. by first movlllg beyond the point where it will ultimately settle.I without being the result of dement. this is the purchase and sale of the country's currency on the exchange market. Thought to help explain exchange rate volatility. risk. due to uncertainty about liberate policy or behaviour. rate. and exchange controls. T~e the future value of an exchange term arises because neoclasslrate. Regimes include floating exchano-e rates. Unless they cover them. So do holders of assets and liabilities denominated in for. exchange-market intervention usually done by a country's central bank. change the monetary base of the country and thus. in order to influence or fully determine its price. currency board. this was first modelled by Dornbusch (1976). craw mg peg. bear exchange I exogenous technical progress. with commitments to capita income is constant ~ver payor receive foreign currency I time. in which per traders. unless they are sterilised.

It suggests that the option with the largest expected value should be chosen. this w~uld be legally conSIdered dumpmg. to mduce buyers to try the pr~uct. ~ 59 *================ . In most models. policy variables such as tariffs and par values of pegged exchange rates are exogenous. The EV principle actually consists of a family of principles. the EV is the s. Producers of expe. probability of any specific action taken by the co~petitor out of all possible actlons).·nc.II exogenous varillble I export bias • exogenous variable a variable which is taken as given by an economic model. Done with an e~port. : : I Objective Objectivdy Ex- Probabilities peeted Value I (OEV ) Subjl"Ctive Subjectively Ex- I Probabilities peetl-d Value (SEV) (SEq - ~ • experience good ~ a product whose value can be . Thus.g. Rectedvalue of a decision optIon requires the availability of the probabilities attached to each possible environmental state (e. on accum ulatlon of·the factor &onomics======= II . : ~ . may temporanly char~e a pnce lo:wer than the margmal cost. These principles differ by the way probabilities and the values (or payoffs) are generated or interpreted (namely either objectively or subjectively).export bias any bias in favour of exporting."Cted Utility • expectation the expectation of a variable is the same as its expected value I and is also used with both . : ~ I ~ : ~ . : • expected value maximisation pr. : I : better ~own after having consumed It.rience goods. . : ~ ~ . Thus.·ple the most widely professed rule in decision theory.:m of the products of ~ ~nvIron~ental states multIphed ~y theIr respective probabilities.Calculation of the ex. : ~ . It therefore is subject to direct manipulation by the modeller. meanings. the following possibilities are there: Objective Subjective Payoffs Payoffs Expected Utility (EU ) Subjectivdy Exp<. Most often applied to growth that is based disproportionately .

• export credit a loan to the buyer of an export. especially in the common circumstance. i. a country can indirectly subsidise exports. where the investor should export a certain amount or per~ centage of its output. extended by the exporting firm when shipping the good prior to payment or by a facility of the exporting country's government. as a production location designed to serve international markets. • export promotion a strategy for economic development which stresses on expanding exports. I ~ I I I I I I I I I • export requirement a requirement by the government of the host country for I FDI. agamst exports. • export pessimism the view that efforts to expand exports by the LDCs will lead to a decline in their terms of trade because of an inability (due to weak demand) or unI willingness (expressed via protection) of developed countries to absorb these exports. by setting a low interest rate on such loans. • export multiplier the multiplier for a change in exports. II ========&cmomics . . • export credit insurance a program to guarantee payment to exporting firms who extend export credits. The rationale is to exploit a country's comparative advantage.60 exportcrr:dit I e. • export platform describes the role of a host country. possibly including the home market of the parent firm. where an over-valued currency would otherwise create bias .. such as export subsidies.xpurtrequirement I II ================* used intensively in the export industry and/or technological progress favouring that industry. • export price index price index of the goods which a country exports. the increase in GDP caused by one-unit mcrease ill exports.e. In the latter case. • export limitation any policy which restricts exports. often through policies to assist them.

35 3. by changing their utility or cost. • external balance 1. such that one agent's decisions make another better or worse off. rather than Just their own. A beneficial or adverse side ef- : ~ I : ~ ~ . Say u and v be independently I 2 2. • F Distribution / F-Distribution defined in terms of two independent chi-squared variables. ~ · · ~ . Beneficial effects are positive externalities. while the harmful ones are negative externalities. the square of a t statistic may be wntten: .I.. 2. costs of individual firms depend on the output of ~eir entire industry.31 . Then. Eeonomics======= I . I As can be computed from the definition of the t distribution. The export of more or less. : ~ I • export substitution a shift to the export of increasingly processed products.processed raw materials is substituted for the export of raw or relatively unprocessed materials contributing to local (or nationaf) employment and the creation of value added. that is not taken into account by those directly involved in making it. these are consistent with perfect competition. the statistic: F =(u/u l ) / (v/vl ) has an F distribution with (u l' v) degrees of freedom. balance on capital account or balance of payments. any target value for the balance on current account. • external economies of scale a form of increasing returns to scale. in which productivity and thus . 6 ~ distributed chi -squared vari: ~ . : I · abIes with u l and VI degrees of freedom. • externalities a benefit or cost associated with an economic transaction. • externality an effect of one economic agent's actions on another. Unlike more conventional (internal) scale economies . respectively. balance of payments equilibnum. I t$JHIrt fUhstitutilm-IF Distributilm / F-Distributilm ~ I 61 *============== . : ~ I fect of production or consumpllon.

Thus. if production functions differ by scaling of a factor input only. has a tor available in a country. the abundance or scar. that is: pared across industries.. For example. Large values generally I by marginal rates of substitureject the hypothesis. ing on the level of significance • factor intensity reversal required. in the short I industry may be relatively capirun at least.".v 1)· I commonly defined by ratios of I factOr quantities employed at • F Test/ F -Tests a test for the joint hypothesis common factor prices.• factor intensity uniformity nomic variables. in an industry. the supplies of pri. factor of production the input or resource that is combined with other factOrs of production in a production pro- I • I II = = = = = = = = & o n o m i c s . the absence of factor intensity • factor augmenting a technological change or technological difference. F Test/ F-Tests I foctorofproductiun II t 2=(z2/1)/(v/v 1) I • factor endowment where Z2. usually comI freedom. couiltry's trade and other eco. Because. depend. this can be taken as given I labour intensive at low relative for determining much about a wages. being the square of a I the quantity of a primary facstandard normal variable. Most t 2 =F(1. chi-squared distribution.tion between factors.I factor prices. • factor intensity the square of a t variable with I v1 degrees of freedom is an F I the relative importance of one variable with (l.vJ degrees of : factor versus others in production.tal intensive compared to the mary factors are more or less other at high relative wages and fixed.sities is different at different city of a primary factor of pro. one duction. a property of the technologies • factor abundance I for two industries such that their this is fundamental to the H -0 I ordering of relative factor intenModel..62======~=== . but where a number of coefficients sometimes by factOr shares or are zero. I reversals.

tor. are driven towards equality in the absence of barriers to trade. hke . shewing th~t free and frictionless trade WIll cause factor price equalisation between two countries. : ~ . '. given their prices. linearly homogeneous technologies and their factor endowments are sufficiently similar to be in the same diversification cone. if they have identical.~ .II foetor price Ifoetor share cess. . : • factor price I the price paid f?r the services ~ of a unit of a pnmary factor of : production per unit time. with the prices in countries where those factors are not abundant. with at least as many goods as factors. to produce a good or ser. It ~ takes into consideration the I wage or salary of labour and t~e : rental prices of land and capI. Does not normally refer to I the price of acquiring owner.that the ~ goes to a particular primary facprices of inputs to pr?duc~on . which ~ might be called the 'purchase I : price'. This happens am on er other reasons because price ~centives cause countries to choose to specialise in the production of goods whose factors of production are abundant there which raises the prices of the factors towards equality. .& : o n o m u s = = = = = = = II .th ofb factor prices consistent WI the absence of profit in producing one or more goods. • factor proportions model ~ the Heckscher-Ohlin model of . trade. in different countnes. profit implies disequilibrium. in an industry. ~ 63 *=============== wages. • factor price equalisation ilieorem one of the major theoretical results of the Heckscher-Ohlin Model. : ~ I ~ : I • factor price frontier a curve in fact or space s~owiner the minimum combinations . that international trade . • factor share • factor price equalisation : the fraction of payments to an effect observed in models of ~ value added.~ tal. this shows a lower bound on equilibrium factor prices. Vlce.: ship of the factor itself. Since. . with perfect competition.

• factor-using biased in favour of using more of a particular factor. • factory systems the idea where factories may have been more efficient by reducing transactions costs. • Fed Funds Rate the interest rate at which US banks lend to one another. favourable exchange rate an exchange rate different from the market or official rate. but with an estimated covariance matrix. • Fama-MacBeth Regression a panel study of stocks to estimate CAPM or APT parameters. not an assumed one. • fads the conjecture that market prices for securities take long swings away from their fundamental values and tend to return to them. provided by the government on a transaction as an indirect way of providing a subsidy. I • I I I I • Feasible Generalised Least Squares (FGLS) the generalised least squares estimation procedure. but without the cost of loading onto a ship. committing it to consider trade agreements without amendment. their excess reserves held on deposit at the US. I • I I I • fat-tailed distributions describes a distribution with excess kurtosis. • factor-price space a graph with factor prices on the two axis. fast track a procedure adopted by the US Congress.FAS Free Alongside Ship. • factor-saving disproportionately in favour of using less of a particular factor.64 "'----------~= * factor space I Fed Funds Rate I II • factor space a graph in which the axis measure the quantities of factors . I I ~ II = = = = = = = B c o n o m i c s . at the request of the President. the President must adhere to a specified timetable and other procedures. Same as FOB. In return. .

etc. as . such as stocks. . Eetmomics======= II . • financial capital : financial assets. 2. a money whose usefulness results. ~ to be channelled to those who . mutual . For example. the advantage which a firm may high-frequency effects from : derive from being the first to ~ enter a market or from being the data. but only from a government's order (fiat) that it must be accepted as a means of payment. bank deposits. not from any intrinsic value or guarantee that it can be converted into gold or another currency.. a filter might remove some .tornu:tion Processing St4~rtls (PIPS) Ifirst mover iUl'PllnttlBe • Federal Information Processing Standards (FIPS) these are encodings defined by the US government and used to encode some data (like states and counties) 10 US data sets. • the first to use a new technol~ ogy. wish to invest or borrow. other sample. a filter is an al~ Factor Intensity Reversal. • fiat money 1. ~ • final good 65 • a good which requires no fur: ther processing or transforma~ tion.~ homogeneous of degree 1. often called the ~ • first mover advantage 'filtered' data. indirect means for funds from : those who wish to save or lend.•. advertising technique. to be ready for use by ~ consumers. ernment. money which is intrinsically useless and is used only as a medium of exchange.II Federal In. funds and some government • filters a way of treating or adjusting : programs. : • FIR More exactly. etc. Ex: amples include banks and other ~ depository institutions. investors or gov. gorithm or mathematical op• eration that is applied to a : . · ~ • financial intermediary ~ an institution which provides . ~ bonds. opposed to real assets such as : buildings and capital equip• ment.first degree homogeI1eous time series sample to get an. • data before it is analysed.

" ======================. population analog of the estimation problem. Relevant only in depression conditions. I I I fiscal policy any macroeconomic policy involving the levels of government purchases.. be consistent. continuous and I is Fisher-consistent if: strictly increasing. with respect to a variable that can be controlled. A fiscal stimulus is an increase in purchases or transfers or a cut in taxes. transfers or taxes.. Typically. I • first welfare theorem of I economics / first theorem of welfare economics the statement which states that I a Walrasian equilibrium is weakly Pareto optimal. used routinely in solving economic models.66 First Order Condition (FOC) I ..Economics . I where b is the true value of b. that money doesn't matter at all as aggregate demand policy. then the First E[d(ln L)jdb]=O at b=b o. o I Another interpretation or • first-order stochastic phrasing: 1\n estimation procedominance dure is Fisher consistent if the usually means stochastic domi. residents or firms. I • II • First Order Condition (FOC) one of the mathematical necessary condi tions for maximisation.her Consiste1u:y I Fisher Consistent . it consists of setting equal to zero the derivative of the function being maximised (or its Lagrangian). Maximising the tity of every good and every likelihood function L gives an agent has a utility function that I estimate for parameter b that is convex... usually implicitly focused on domestic goods. Welfare Theorem holds. Such a • Fisher Consistency / Fisher theorem is true in a large and I Consistent Estimation important class of general equilibrium models (usually static I a necessary condition for maxiones).I parameters of interest solve the nance. Assumes that investment dcmand does not respond to interest rate changes. The standard case is if ~ mum likelihood estimation to every agent has a positive quan.' • fiscalist view an extreme Keynesian view..

Fisher Index : skills.~ R"'. predictable futures than a rigid square root of the product of the : firm. calculated for a ~ etc.. is more responsive to ungiven period by taking the . residential arrangement.. -> ~lCounIl"et. is a price index. Economics==~==== II ..k PI'IOCl. ' I '\ : .Fisherian Criterion ~ for optimal investment by a .... Hence. investment. an attribute or property of a : distribution with known form ~ but uncertain parameter values.. I UwUMIIMJ Ic.. t:>f . 67 . the nominal rate moves with inflation. ible firm. set of . etc. thus keeping the real interest rate unchanged. (Fal ir\ l. timate the effects of another : kind of difference.Fisher Information .II Fisher Effict Ijk&ibility strategy _ Fisher Effect the theory where a change in the expected rate of inflation will lead to an equal change in the nominal interest rate. so that one can es.I mining the return on real in.Fixed Effects Estimator /1 ~ Fixed Effects Estimation (FE) a linear regression in which certain kinds of differences are sub~ tracted out.:.flexibility strategy nological constraints deter. Pursuing a flexibility Paasche index value and the ~ strategy would mean to build Laspeyres index value.: could be considered a strategic ~ 'response to uncertainty'. .Fisher Hypothesis the real rate of interest is constant.U")I'")I) "- Io<INnl'.l'=:tl')(.==============~ ~ . appropriate flexibilities into : projects and organisations. A flexvestment. I It is only well-defined for dis~ tributions satisfying certain as: sumptions. = real I ..I : .I. . The real rate of interest would be determined by the time preferences of the public and tech.Fisher Equation nominal rat~ of interest interest rate + inflation : .that it should invest in : real assets until their marginal ~ internal rate of return equals the I appropriately risk -adjusted rate : of return on securities.Iturecesn tIo. firm .

i. insurance and other costs adapted to changing circum. I I I II ========Bcon"".I the buyer to pay freight from ployees can be used for differ.level strategy of : relation between the change in 'permanent innovation'. _ flexible-accelerator model a macro model where there is a variable relationship between the growth rate of output and . .FOB pricing meanings: One part of the Free On Board Mill base priclabour force is given the chance I ing.I country to another. A pricing system in which to be flexible itself. 'accom.68 • I .I ible work force may have two . dual labour markets. .ies . whereas the other part of the labour force can be hired and fired with ease or employed with variable hours as needed. but forms of competition to those is used only as these initials. with ciently diversified so that em. as long as the benefits of possible future adjustments outweighs these costs. The a company. to be prices are quoted for delivery at considered functionally suffi. skilled I-FOB workers and the creation. ent functions or in different I even if that means higher project or organisational costs. I onto a ship. Contrasts mented.flexible exchange rate same as floating exc hange rate.flexible specialisation I the level of net investment. it's been suggested that a flex. In the context of seg.ce thus not including transportaa work force that can be I tion.that point.I needed to get a good from one stances. the price of a traded good exthrough politics.e.the point of production.I output and the level of net inmodation to ceaseless change' I vestment is the accelerator prin(rather than to control it). It means the price after loading favouring innovation. of an industrial cluding the transport cost.flexible exchange rate I FOB pricing /I jobs. strategy is based on flexible multi-use equipment. It community that restricts the I stands for 'free on board'. but before shipping. This I ciple. with elF and FAS.flexible work for.

I the amount of assets which resition of the negotiations dealt ~ dents of a country own abroad.. different locations. 1. due to inclina: 3.II FOGS Negotiations l.~ eign asset position... a component of a country's tion or constraints.. (host) country. this por. vestments are potentially 'hot : money' which can leave at the tic. timately in the formation of the ~ • foreign direct investment wro and its dispute settlement . investments undertaken by • footloose factor ~ multinational firms in pursuit of a factor which can move easily I their own organisational objecacross national borders. acquisition or construction of mechanism. eign direct investment is the times thought to have an advan: investment of foreign assets into tage in a globalised economy. equipment I and organisations.. : 2. : physical capital by a firm from • footloose activity ~ one (source) country in another an activity that is viable at many . in response to .. ForFootloose factors are some. depend on any specific location factor....~ the stock markets. It does not • footloose industry an industry which is not tied to : include foreign investment into any particular location or coun.. : investments in the equity of its Many manufacturing industries ~ companies because equity inseem to have this characteris. ~ domestic structures. I Beonomies======= II ..fi:weigndirectin~==t========"". more useful to a country than changing economic conditions. SlIUCRlllEalRIIITOCIlIlCRYlll_tLCMIM _ _ --.I rect investment is believed to be tional borders. It does not . tives trast to one that.6~9 • FOGS Negotiations ..~ • foreign asset position in ilie Uruguay Round. cannot. An industry is footloose I if its long run profitability is the same for any location in an I economy. Foreign ditry and can relocate across na.... in con. with the functioning of the : Also used to mean the net forGAIT System and resulted ul... ~ national fmancial accounts.

are conventionally I • I I I I • I I I • I I I I I I I II ========E&cmomics . if they form what may be a largely artificial foreign subsidiary called an FSC. Also called a 'free zone'. the cost in terms of more expensive goods is higher than the benefit from additional capital. when its macroeconomic changes cause large enough changes abroad for those in turn to cause further changes at home. however. • foreign investment argument for protection the use of protection. This has been the subject of a trade dispute with the EU which complained to the WTO that this constitutes an illegal export subsidy. • foreign repercussion the feedback effect on a domestic economy. forward linkages are output-oriented and. to attract FDI from abroad. • Foreign Sales Corporation (FSC) a provision of the US tax code which grants income-tax re- I I I I bates to American exporters. since much FDI has been motivated by firms trying to get behind a tariff wall to sell their products. or 'bonded warehouse'. whereas FDI is durable and generally useful whether things go well or badly. • forward linkages linkages between a producer or supplier and their customers. using a formula for tariff reductions as a starting point. a rise in income stimulates imports. in the matrix-context of input-output analysis. forward on the forward market.mentfor protecticm Iforward linkages I II first sign of trouble.70 foreign investment af3. causing an expansion abroad that in turn raises demand for the home country's exports. formula approach a procedure for organising multilateral trade negotiations. It does work. foreign trade zone an area within a country where imported goods can be stored or processed without being subject to import duty. In an otherwise nondistorted economy. As different from backward linkages. 'free port'. • forward discount opposite of forward premium. Most commonly.

forward rate also called the forward exchange I : . . a measure of industrial ~ the assumption where new . this is the exchange rate on I a system in which economic a forward market transaction.g. _ forward premium the difference between a forward exchange rate and the spot exchange rate. for perquisites. 60 or 90 days from now and at a price (forward exchange rate) that is agreed upon today. to create jobs . I . but at a specified date in the future. expressed as an annualised percentage return on buying foreign currency spot and selling it forward. Economics======= II . for friends and allies' and so : forth. it implies that cesses into separate parts which : profit must be zero in equilibI : . including in different : countries. : industry and can do so without .free cash flow ~ cash flow to a firm. I the percent of an industry's sales : . with free exit. ~ e. ~ 71 *================ can be done in different loca. to ~ make acquisitions. to use it for unprofitable : projects.II forward market Ifree entry traced in rows. Together the splitting of production pro.fragmentation ~ any costs whatsoever..free entry which accrue to the largest four firms.free enterprise rate. not today. I agents are free to own property _ four-firm concentration and engage in commercial ratio transactions. tions. typically 30.forward market a market for exchange of currencies in the future. Participants in a forward market enter into a contract to exchange currencies. . in excess of I the req uirement to fund all ~ projects that have positive net : present values when discounted ~ at the relevant cost of capital. Free cash flow can be a source : of principal-agent conflict be~ tween shareholders and managI ers. since shareholders would : probably want it paid out in I : some form to them and manI agers might want to control it. firms are permitted to enter an concentration.

This may I tip the policy in the direction of I protection.72 . for which there are the assumption where firms are I fewer free riders. : in trade policy.I from this location to the concation for resources is deter. search and matching model of . jority of consumers without their lobbying for it. is that trade ~ liberalisation benefits the ma. mined only by their supply and • free trade the demand for them. gated for a supply location with • free market economy / free 'price' (in the mind of consummarket economies I ers) to include transport costs an economy in which the allo.I sumers.g. even capitalist ones. distributed in space with varying distances from a ply and which therefore have no I given. There is no fixed number of firms.free trade I • I II ========* num. The assumption 1S that there is no institutional constraint on firms entering the market (e. Usually used.sumers. • free exit I free reserves excess reserves minus borrowed reserves. This is I a situation in which there are no mainly a theoretical concept as I artificial barriers to trade. a market. • free entry condition an assumption posted in d. The number of firms is determined in equilibrium. For a II =======Bconomks . often only implicitly. permitted to leave an industry • free spatial demand curve and can do so costlessly. such every country. so that it imof commodities. aggreopportunity cost. by the costs of starting up. to hire workers). central location. . I plies that there are no barriers to trade of any kind. places some restrictions I as tariffs and NTBs.free entry condition l. An example. with on the ownership and exchange I frictionless trade. : • free rider I : someone who enjoys the benI efits of a public good without ~ bearing the cost. demand schedule (pricejquanI tity of demand function) of con• free good goods that are unlimited in sup.

the absence of natural barriers world price must be equal. monetary system.Full Information MaxiAmericas (FTAA) mum Likelihood (FIML) a preferential trading arrange.~ .frictionless trade it follows that domestic and . I income which the variable completes a : how the income of an economy cycle of up and down move. equivalently a high discount fac- &onomics==-====== II .Free Trade Area (FTA) a group of countries which adopt free trade (zero tariffs and no other restrictions on trade) on trade among themselves.~ is divided among the owners of . . to con: tinue to hold it. careers and locations. those. ment. : to trade.Free Trade Area of the .II Free TradeArea (FrA) 1JUture-orien:"".RO""e'1""Jt=========7=3 traded homogeneous product.frictional unemployment • unemployment which comes : . ~ . etc. .~ an approach to the estimation ment being negotiated among ~ of simultaneous equations. such as transport I : costs.frequency ~ function defmed by a mapping the speed of the up and down ~ from possible paths of choices.g. . rent. : tions to the reals (e. different factors of production. the cash~ in-advance constraint isn't bindI ing on them. the num. a value .functional I functionals . the Friedman : rule for monetary policy is to ~ deflate so that it is not costly for . movements of a fluctuating economic variable. : into wages. per unit of time. that is. while not necessarily changing the barriers that each member country has on trade with the countries outside the group.functional distribution of ber of times. Then. . most of the countries (all but Cuba) of the western hemi.future-oriented agent from people moving between ~ discounts the future lightly and • so has a low discount rate or jobs. ~ .. .Friedman Rule ~ in a cash-in-advance model of a . . a mapping from paths of funcsphere. who have money.

game theorythe modelling of strategic interactions among agents. . . Most were originally drafted in 1947.) is I I small enough that each has a perceptible influence on the others. . The purpose of the same was to implement many of the rules and ne- I I I I I I I I I I I I I II = = = = = = = = B c o n o m i c s . Gamma Index Formula = actual number of links -----------half the number of nodes (number of nodes . but at a specified calendar date in the future.futures market a market for exchange (of currencies. etc. governments. and are still included in the WTo. i.gamma index a measure of the connectivity of a network comparing (through a ratio) the actual number of links with the maximum number of possible links (edges) in this network.game a theoretical construct in game theory in which players select actions and the payoffs depend on the actions of all the players.74 futures market I General~eement on Tariffi and Trade (GATT) " I tor. . participants contract to exchange currencies. and at a price (exchange rate) that is agreed upon today. not today.gastarbeiter a guest worker. in the case of the exchange market) in the future. _ General Agreement on Tariffs and Trade (GATT) a multilateral treaty entered into in 1948 by the intended members of the International Trade Organisation.gains from trade theorem the theoretical proposition where (in the absence of distortions) there will be gains from trade for any economy that moves from autarky to free trade.e. used in economic models where the numbers of interacting agents (firms. conventionally indentified by their Roman numerals.. _ GATT Articles the individual sections of the GAIT agreement.1) . as well as for a small open economy and for the world as a whole if tariffs are reduced appropriately. .

cause it is inferior) outweighs : the negative substitution effect. With the failure of the ITO to be approved. ~ . earth science and ma~ rine science. It provides for countries to provide national treatment to foreign service providers and for them to select and negotiate the service sectors to be covered under GATS. Contrasts with partial equilibrium.general equilibrium equanimity of supply and demand in all markets of an economy simultaneously. iffs than the same products : from developed countries.Gini Coefficient ~ a measure of income inequal- :&onomics======= II . which brings international trade in services into the wro.gentrification ~ the widespread emergence of I middle-and upper middle-class : enclaves in formerly deterio~ rated-inner-city neighbourhoods. : ecology. preferences : tariff preferences for develop~ ing countries. I : _ geobase I database or index of the inter. The simplest Ricardian model has markets only for two goods and one factor. . The number of markets does not have to be large. until it was subsumed within the wro in 1995. I : . national literature of geography. I : . but this is a general equilibrium model. where some deI veloped countries let certain ~ manufactured and semi-manu: factured imports from develop~ ing countries enter at lower tar. (GATS) I Gini Coefficient 75 gotiated tariff reductions that would be overseen by the ITO. negotiated in the Uruguay Round.Giffen good I a good which is so inferior and : so heavily consumed at low inI . _ General Agreement on Trade in Services (GATS) the agreement. : comes that the demand for It I rises when its price rises. The ~ reason is that the price increase : lowers income sufficiently that ~ the positive income effect (be. the GATT became the principal institution regulating trade policy.II GeneralAgreementon Trade in Servic. labour.generalised system of . ~ .

wl'lkk. Lorenz Curve and the diago. everyone else earns nothing). The Gini coefficient is a number between 0 and 100 (or 0 and 1). everyone has the same income) and 100 (or 1) means perfect inequality (one person has all the income. • global the world-wide presence of a I phenomenon or a world-wide I spatial pattern of locations of an organisation and/or a pattern of ~ I 1/ ========Eeonomics . services and capital that attracted special attention in the late 1990s.• global optimum nal. also used to encompass a variety of other changes that were perceived to occur at about the same time. by under the diagonal. aMI GDP po-r ~." 3 111 _ I r... ' I • ill II I~ 11 14 It measures the degree to which two frequency (percentage) distributions correspond. interdependencies. e.I competitiveness applied interfined as the area between the I nationally.g. ing from zero for complete I • global competitiveness equality. where 0 means perfect equality (exact correspondence. than all others possible. the increasing integration of world markets for goods. especially developing countries. to one if one person has all the income. 3. 1 : I ~ ~ (. I some criterion. the term sometimes refers to the domination of world economic affairs and commerce by the United States. divided by the total area an allocation that is better.plbo lb DCAF (latnt ~ teIedtd )'far) ~ i :: : ":. It is de. 2. I I I I I I I I I • globalisation 1. or reca¥aUabie GW c.76 global Igloba/isation " =================* ity within a population. WTO and World Bank. rang. among countries outside the United States. such as an increased role for large corporations (MNCs) in the world economy and increased intervention into domestic policies and affairs by international institutions such as the IMF.

. has a physical identity. which allows signatories with service. : owned enterpnses. the methods by which units of : government and state-owned ~ enterprises determine from . bought and sold and that ~ treatment. then the exchange rate between them is approximately determined by their two prices in terms of gold.7=7 ~ and analysed. on your foot' or. they constitute an : NTB. Contrasts : WTO. When these methods ~ include a preference for domesI tic firms. in terms ~ of per capita income or another • good . Economies======= II .: need to special and differential duced. Sometimes said inaccurately to be ~ • Grandfather clause anything that 'can be dropped I a provision in an agreement.II gold standard I Grandfotherclause . =========="". purchase of goods and services : by government and by stateI . to be 'visible'. ences. Trade in goods is ~ to keep certain of their previmuch easier to measure than . I I : • graduation I : termination of a country's eli~ gibility for GSP tariff prefer. also inaccu. whom to purchase goods and : services.~ including the GATT but not the rately. ~ • government procurement . If two currencies are both on the gold standard. • gold standard a monetary system where both the value of a unit of the currency and the quantity of it in circulation are specified in terms of gold. on the grounds that it has : progressed sufficiently. measure. ously existing laws that othertrade in services and thus much : wise would violate the agreemore thoroughly documented ~ ment. : • government procurement . that it is no longer in a product which can be pro. practice .

2.78=========B"". • I I I I I I I I I • Gross National Product (GNP) 1.. regardless of where. the total value of new goods and services produced in a given year. value of all the goods and services produced by workers and capital located with a country (or region). total value of all fmal goods and services produced for consumption in society during a particular time period. ics : T. the total value of new goods and services produced in a given year by a country's domestically owned factors of production./D'1 . • green box category of subsidies permitted under the WTO Agriculture Agreement includes those not directed at particular products. The GNP includes allowances for depreciation and indirect business II ========Economics . such as a VER under the GAIT prior to the wro. subsidies for environmental protection and regional development. regardless of nationality of workers or ownership. in contrast to NDP. • grey area measure a measure whose conformity with existing rules is unclear. Other constants as exponents and other variables are often included. It is referred as 'gross' in the sense that it does not deduct depreciation of previously produced capital.' D ..Y. where 'J T i · is exports from country i to c6untry j.VJ='ty~ I Gross National Product (GNP) II • gravity model a model of the flows of bilateral trade based on analogy with the law of gravity in phys. I I I I I I I I I Gross domestic product (GDP) 1. are their national incomes. regardless of by whom.Y. within the borders of a country. Yi. in contrast to NNP. It is 'gross' in the sense that it does not deduct depreciation of previously produced capital. • green field investment FDI which involves the construction of a new plant."". direct income support for farmers unrelated to production or prices.ra"". 2.'J = AY. is the dis'J tance between them and A is a constant. rather then the purchase of an existing plant or firm.

For an economy.. +M). and impor~s I M. Oman. For a firm or industry. mem.7"".+M) IX. added. .M. b which is net of its own mtermediate inputs.II gross output I GutfCooperation cou. agreed to ~ make resources available out~ side their IMF quotas. Kuwait. " : IIT (times 100). together : with Switzerland. called the Solow residual. • . is usually attributed to technology.Grubel-Lloyd mdex ~ the measure of the intra-indus. gross output is greater than net output which deducts the amount' of the good itself. Gr<:>ss National Product includes mcome earned by the factors of production (assets and la. used I as an intermediate input. Saudi Arabia and the United Arab Eri1irates . 1963. For an indus~ try i with exports X. Economics======= II .IPOOj : (X. the governors of the GI0 : .9 taxes such as' those on sales and property. What remains.group of ten ~ a group of ten countries.GC=C"". _ growth accounting decomposition of the sources of economic growth into the contributions from increases in capital. : X +M.bour) owned by a country's resIdents but excludes income produced within the country's borders by factors of production owned by nonresidents. that is accounted for by I . regardless of the locatlon of the labour and property. the index IS ~ I :: [(X. this is laraer than its value . _ Gulf Cooperation Council (GCC) an agreement among six. with the aim of coordinating and int~grating their economic poliCles.in 1981. it is the output of labour and property of a country's n~tionals. bers of the IMP. I ~ ~ : ~ I : ~ I ~ : I central banks have met on the occasion of the bimonthly BIS meetings. Since . Qatar. countries of Persian Gulf regIon Bahrain.J========"". This is the fractlon of I total trade in the industry. ~. industry or economy without deducting intermediate inputs.gross output the total output of a firm. : . try trade suggested by Grube! : and Lloyd (1975). labour and other factors.l~r"". which. 3.

i. It was is approximately zero.I of an international agreement.e. the H index iffs on those goods. with an infinite I sifying goods in international number of firms with near-zero trade and for specifying the tarmarket share each. which is a I real expenditure. By totally differentiating a model in the logarithms of its variables. If there is perfect I an international system for clascompetition.ciation will cause an increase in Hirschman index.lations and practices. the H index • Harmonised System (HS) is 10000. one . gate of squares of the percent. Hat algebra the Jones (1965) technique for comparative static analysis in trade models.I to the decrease in real income Hirschman Index) and therefore that a real depreIt stands for Herfindahl. I countries. • Harberger triangle the triangular area or areas in a supply and demand diagram that measure the net welfare loss or dead-weight -loss due to a market distortion or policy. If ~ compatible. such as a tariff. Other I adopted at the beginning of industry structures will have H 1989 and it replaced the previindices between zero and ously used schedules in over 50 10000.80 H Index (The Herftn. way of measuring the concen.hl-HirSChman Index) I Hat algebra 1\ • H Index (The Herfindahl. • Harberger-LaursenMetzler Effect the conjecture or result that a terms of trade deterioration will cause a decrease in savings due I • I I I Harrod neutral a particular specification of technological change or technological difference that is labour augmenting.I • harmonisation tration of market share held by I the change in government reguparticular suppliers in the mar.I to make those of different ages of the market shares held countries the same or more by the firms in a market. there is a monopoly. firm with all sales. as a result keto The H index is the aggre. a 'linear system is obtained relating I • I I II = = = = = = = = E c o n o m k s .

large ~ebts. H ec ksc h er.th . I and R&D. It sometimes refers only to the textbook or 2x2x2 model. .: mented International Trade I Organisation. • Heckscher-Ohlin Theorem (HOT) the prOpOSItlOn of the Heckscher-Ohlin Model that countries will export the goods that use relatively intensively their relatively abundant factors. • Heavily Indebted Poor : • Heckscher-OhlinI Countries (HIPC) . goods. a. ~ usually synonymous with the target of lilltlatlVes bemg to for. relative factor endowments I Economics======== II . The draft was . ~1. Samuelson Model (HOS the na~e g~ven to those poor.. accounting.. . used to distinguish the more • Heckscher-Ohlin Model : formalised. completed at a conference in I I Havana. 1 gIVe that debt as a means of as. the. in 1948. . • Headquarters services the activities of a firm which ~ typically occur at its main location and that contribute in a ~ broad sense to its productivity .Ohl·n M 0 d e. marketing. I 1 . and refined by Samuelson (1948.II Havana ~harter I Heckscher-ohlin-.~ ment. though sometl·mes the t erm IS I .muelSlmMOdel (HOSModel) small proportional changes (de.1953). d 1 SIStmg eve opment. or 'hats') I in terms of various elasticities and shares. at all of its locations and plants.I noted by carats (A). • Havana Charter : I the charter for the never-imple. Model was originally formulated by Heckscher (1919).1949. mathematical ver(H-O Model) ~ sion that Samuelson used from a model of international trade I the more general but less wellin which comparative advantage : defmed conceptual treatment of derives from differences in ~ Heckscher and Ohlin.. Model) countnes. : These may include manage. Cuba. I 81 across countries and differences in relative factor intensities across industries. and countries. fleshed out by Ohlin (1933). ~ . but more generally includes models with any numbers of factors.

used to derive the strong prediction about the factor content of trade. Model where a country's net I factors. the monetary base or the total of currency in circulation and diture.I 1. the world factor endowment. sities.82 Heckscher-Ohlin-*. . I • high powered money That is. whe~e pi is the factor con. same as monetary base.VW its and the sense of currency plus comthe world's factor endowment. or to factor content of trade equals its having arbitrary numbers of own factor endowment minus : these.V) I I • high-tech imlustries or activities " • Heckscher-Ohlin-Vanek Model (HOV) the Heckscher-Ohlin Model for the case of identical techniques of production. • high dimens~on • Heckscher-Ohlin-Vanek Theorem in trade theory. In the foreign exchange market.u) is the cost-minimising amount. P = VI_ SIVW. Contrasts with the twoits world-expenditure share of I ness of the 2x2x2 Model. Vi. I I Hicksian Demand Function denoted h(p. in tUl'n. where h(p. I tries considered to be high-tech The term applies most com. commercial bank deposits with • hedge I the central bank.mk Model (H. R&D intensity.u) and it refers to the amount of a good that is demanded by a consumer given that it costs p per unit and that the consumer will have utility u from all goods.I has generally relied on a calculation comparing R&D intenmonly to trade. to offset risk. known as the Heckscher-Ohlin-Vanek Theorem. for country i. and Si its share of world expen. hedgers use I • high-tech industries or the forward market to cover a I activities transaction or open position and the identification of those industhereby reduce exchange risk. I has typically been determmed by comparing industry R&D ex- II ========Economics . in tent of its trade.I 2. this refers to the prediction of the H-O-V having more than two goods. I mercial bank reserves. and/or countries.

where multiplying all arguments by a constant changes the value of the function by a monotonic function of that constant: F (DV) = g( D) F (V). does not change. for a production . So I the Hilbert spaces are also Banach spaces. : ~ . central region. techni cians) to industry value added or to the total value of its shipments. &tmomics======= II . In the Hexplanation for the mystery of ~ 0 Model. CRTS production the missing trade. : functions imply that marginal ~ products have this property. L 2 is an example I of a Hilbert space. : • Hilbert Space / Hilbert I Spaces a complete normed metric I space with an inner product. the property of a function compared to otherwise identi. product-market) area of a I heartland. • Homogeneous function . .I the monotonic function is the tionships with the core region. 0>0 is any constant.. and g( .e. constant returns to tributary (factor-supply or : scale. • home bias I a preference. V is a vector of arguments. for products I zero produced in their own country. city or ~ • homogeneous of degree X port. which is critical for factor price a function with the property equalisation. function. Special cases include homogeneous of degree X and linearly homogeneous. engineers. . constant raised to the exponent : X: F(OV)=OXF(V). ~ 83 .: whose value if you scale all arI cal imports. by consumers or : • homogeneous of degree other demanders. • hinterland ~ neous and.) is some strictly increasing positive function. scientists.II HilbertSpace/HilbertSpaces I homo~ofdegreezero penditures and/or numbers of technical people employed (i. Any Rn with I • homogeneous of degree 1 : the same as linearly homogen finite is another. This was proposed : guments by the same proporby Trefler (1995) as a possible I tion. A hinterland is delineated a homogeneous function where by the inter-dependency rela. where F (-) is the homogeneous function.

ferent products at the same Ohlin Theorem. the product of an industry in I • homothetic preferences which the outputs of different together with identical preferfirms are indistinguishable. take place in subsidiaries in • homothetic different countries. but need not. this presumption is used Contrasts with differentiated I for many propositions in trade product. on income or scale. not I trade .. same proportlons. I single firm. . For competitive consumers the same stage of production. a function of two or more ar.• horizontal integration tios of its first partlal denva. : intraindustry trade m which the • I exports and imports are at the • homothenc demand : same stage of processing..I guments is homothe~c if ~ ra. in order to assure that consumers with different in• homohypallagic I having a constant elasticity of : comes but facing the same substitution.84 homogeneous product I horiz6ntal intraindustry trade II ================* • homogeneous product I selves literally homothetic. this means that : ratios of goods demanded d e.corporate mergers inv?lving tives depend only on the ratios I competing firms producmg the of the arguments. Contrasts with vertical demand functions are not them. within a did not catch on. or producers optimising subject I Such mergers tend to reduce to homothetic utility or produc. One of the inven. IIT. This may. ences.~ prices will de~and goods in the tors of the CES function tried . pend only on relative pnces. theory. where he also explored production of different vari~t­ its theoretical and empirical ies of the same product or difimplications for the Heckscher.I • horizontal intraindustry . to christen it this in Minhas • horizontal integration (1962). _ II = . but the name level of processing. tion functions.= = = = = = = = E e o n u r n i c s .same or similar production at els. not th~ir lev.I competition in the market. demand functions derived from ~ Likely due to product differenhomothetic preferences. The I tiation.

salary.. train. other market. (M times M equals 1M.~ the assumption that individuals. • idempotent matrix These are normally measured and conceived of as private re. . the stock of knowledge and ~ meaningless.'ife7='C1"".~ iceberg. : that uses up only some fraction • human capital accumula~ of the good itself. If I the IC constraint were not imservations. the solution to the prob• human capital : lem might be economically 1.: a matrix M is idempotent if turns to the individual but can ~ MM=M.) also be social returns. embodied in an individual I duced an outcome that met as a result of education. ity constraint'. It is a very tracwith the implication that edu. or other compensation. I not to act in accord with.White Standard Errors I iden. . Often refers to I for the amount of the iceberg formal educational attainment. ~ itself that melts. the stock of knowledge and ~ • iceberg transport cost skill embodied in the popula. rather than tion I using any other resources. I posed. quire agents to prefer to act in tions of error terms across ob. a cost of transporting a good tion of an economy. . which is costless except nomic context.~ some criterion of optimality but ing and experience which makes : which an agent would choose them more productive. the attributes of a person which : Based on the idea of floating an are productive in some eco. 2.'"". When solving a : either within a country or in difI Eetmomics======= II ."".8=5 I principal-agent maximisation • Huber-White Standard Errors problem for a contract that the standard errors that have meets various criteria.~ constraints are those that resumed-and-estimated correla.~ port costs since it impacts no turns are in the form of wage.: accordance with the solution.lP"". insofar as it proskill.: table way of modelling transcation is investment whose re.II Huber.u:es======="". the IC been adjusted for specified as. • identical preferences • Ie Constraint stands for 'incentive compatibil.

Johnson (1955) had shown that a market distorted by a tariff could lose from growth and had also. _ ILS / Indirect Least Squares ILS stands for Indirect Least Squares.""8. It is standard to denote the identity matrix by 1. since individuals' and countries' incomes may differ. have the same preferences.Illiquid Assets assets which are not easily and quickly converted into money. I I identitymll.6===========* ferent countries.. Any square matrix multiplied by the identity matrix with those dimensions equals itself.trix I implicit contract II I I I Solve for the structural form parameters in terms of the reduced form parameters. b. One usually says 'the' identity matrix. . Steps: a. to the repeated bilateral trading game other than I I I I I I I I I I II = = = = = = = = & o n o m i c s . . independently.immiserising growth economic growth which makes the country worse off. . Bhagwati (1958) coined the term for growth that expands exports and worsens the terms of trade sufficiently that its real income falls. . . since in most contexts the dimension is unambiguous. worked out conditions for Bhagwati's result. Rearrange the structural form equations into reduced form. To be useful. Con~ trasts with perfectly competitive. model or analysis that is characterised by imperfect competition.implicit contract a non-contractual agreement which corresponds to a Nash equilibrium. an approach to the estimation of simultaneous equations models... group of agents (industry).imperfectly competitive refers to an economic agent (firm or consumer). _ identity matrIX a square matrix of any dimension whose elements are ones on its northwest-to-southeast diagonal and zeroes everywhere else. the assumption is often used together with homothetic preferences. Estimate the reduced form parameters. and substitute in the estimates of the reduced form parameters to get estimates for the structural ones.

In the labour market. Without ql!alification. the term refers to the GDP deflator and is thus an index of prices for everything that a country produces. _ import elasticity usually means the import demand elasticity. unlike the CPI. tected by an import quota. usually defined as the . either by sector or ~ overall. : and against trading more gen~ erally. to the one-shot trading game. an implicit contract is formally rep~ resented by a series of games in which the firm pays a salary and the employee works effectively because they expect to play the game again (continue the agreement) if it goes well. Thus. . I : ~ . . . enforceable contract. .implicit price deflator a broad measure of prices derived from separate estimates of real and nominal expenditures for GDP or a subcategory of GDP. : ~ . growth that is I based disproportionately on accumulation of the factor used I intensively in the import-comI peting industry and/or technological progress favouring that industry. value of imports divided by the : value of apparent consumption. . tariff revenue on a good or group of goods. I I 87 2. mean a bias against importing. not because they have an explicit.implicit tariff 1. divided by the corresponding value of imports. the difference between the price just inside a border and : the price just outside it. due both to PTAs and due to failures in customs collection. espe~ cially in the case of a good pro. Often lower than the official or statutory tariff. any bias in favour of import: mg.II implicitpricedejlator I importpenetr:on the sequence of Nash equilibria. ~ _ import penetration I a measure of the importance of I imports in the domestic economy. I &01Iomics======== II . applied to growth.import bias ~ ~.import demand elasticity the elasticity of demand for imports with respect to price. which is restricted to consumption and includes prices of imports. ~ 2. it tends to .

showing stitute or as a differentiated that social welfare functions I cannot have certain collections product. infinity and f'(infInity) = O. the desire to mimic the indus. or simply by in the money stock.88 . 1/ ========&onomies . either as a perfect sub. usu. industrialisation(ISI) a strategy for economic devel. It I or consumption over time after may be motivated by the infant I a one-time one percent increase industry argument.I • impossibility theorem tic market that competes with lone of a class of theorems folimports.One graphs for example the opment that replaces imports I percentage deviations in output with domestic production.lowing Arrow (1951). f'(0) = motion. That is. importpriceindex I inadmissibility II • import price index I in a two-good model with trade.I trial structure of advanced coun.I in this context.• Inada conditions tries.I a function f() satisfies the Inada conditions if: f(O) = 0.a graph of the response of the ports with domestic production. the other is the import-competI ing good. a possible action by a player in • import-competing a game may be said to be inadrefers to an industry which I competes with imports. price index of the goods that a lone good is the export good and country imports. Contrasts with export pro. of desirable attributes in com• import substituting mon. I system over time after a shock is known an impulse response (lSI) function graph.. One use is in • import substitution I models of monetary systems. a strategy for economic devel. ally by means of automatic liI • inadmissibility censmg. • import substitute a good produced on the domes. fO • import surveillance is usually a production function the monitoring of imports.• impulse response function opment based on replacing im.

From the 1. I victim spending too much in 2. • indifference curve mand the percentage change in quan. of choosing a utility. or service consumed. I • indicator variable That is for income I and con. I payment is designed not to be a dependent on anything the • income elasticity patient can control. The I percentage change in income. I • indemnity payment 2. .• indebtedness maximising strategy for the I the amount that is owed.costs of recovery.a means of representing the 1t Economics======= It . when used without another I recovery. income elasticity appears to mean 'of consumption'. the effect of a change in in. and zero if it is false. the I indemnity mechanism avoids elasticity of demand with rethe moral hazard problem of spect to income. not for the Contrasts with substitution ef. thus I the amount of an entity's (indigame player. The indemnity fect. an indicator sumption C: income elasticity variable is a variable that is one = (l/C) (dC/dI) I if a condition is true.I production of goods that comdidate solution to the problem petc with imports.in a regression.An action is or is not admissible as a can. that is.II income eJfoct I indiJforence curve 89 *================ missible if it is dominated by I tity demanded divided by the another feasible actions. where payprice on quantity demanded ment is made (often in previthat reflects the change in real I ously determined amounts) for income due to the price change. the ticity of demand.I financial obligations to credicome on the quantity of a good I tors. that portion of the effect of a kind of insurance. or government's) 1.I point of view of the insurer. firm. • income effect : vidual. • income elasticity of de. the income elas. injuries suffered. referent. normally. term comes with view of a game I • incomplete specialisation as a math problem.

• indirect utility function curve which represents the combinations of arguments in I denoted v(p.O==========ind=~e theory I industrialcuncentration II preferences and well being of ~ person who pays them. instances or examples. • inductive reasoning characterises a reasoning process of generalising from facts. An alternative to the older marginal utility explanation of this phenomenon. such as sales taxes which are visible to the I I I I I I I I I I II =======================Economics . it is a . • individually rational allocation an allocation is individually rational if no agent is worse off in that allocation than with his endowment. Distinguished from direct taxes. m) where p is a a utility function that yield a I vector of prices for goods. • indirect taxes taxes levied on a producer that the producer then passes on to the consumer as part of the price of a good. • induction a process of reasonmg ('generalising') leading from the observation and recording of particular cases to general conclusions or 'laws'.. I • indifference theory the analysis of consumer demand using inditTcrence curves and an income constraint to demonstrate the reason for the inverse relations hi p between price and quantity demand. often measured by the four-firm concentration ratio.""9". I as the prices. The indirect utility function takes the value of the maximum utility that can be I achieved by spending the budget m on the consumption goods with prices p. • industrial concentration the extent to which a small number of firms dominates an industry. consumers. Formally. and m is a budget in the same units given level of utility.

it means that ~ creasingly diverse and complex the expenditure share falls with I ways. regulatory and often also outin an open economy. including the capionly ambiguous or tenuous ties tal needed for transportation. though . and utilise critical skills to having an elasticity less than evaluate experimental results. ~ present.I Second. to governmental institutions. ' skills to formulate questions. Third.. the person must posmand.I sess the skills to search for anditure falls as price falls.tions must be simultaneously selves with objects. once a person has income. desire to know. When a household's : tion by observing and mimickincome goes up. For an swers to those questions in inincome elasticity. imports : side the taxation system. First. this means that expen. he and unit elastic. • inelastic I identify research methodoloI gies. should be able to access it. the ~ Activities operating outside the opposite of competition.. one. • indwelling I implicit in a full understanding a term M.. ~ • infrastructure • informal economy I the facilities which must be in a reference to those parts of the place in order for a country or economy which operate with.I of information literacy is the gest that 'human beings create realisation that several condiknowledge by involving them. someone must through self-involvement and .I area to function as an economy out official recognition or with I and as a state. it will buy a ~ ing the actions of others. that is. use analytic commitment . For a price elasticity of de. Contrasts with elastic . ~ • information literacy complicate the relationship. identified what is sought. their limited private informacreases.\1 indwelling I infrastructure 91 *================ Concentration is. smaller quantity of such a good. in effect. Polanyi used to sug. I Economics======== 1\ . • inferior good • informational cascades a good for which the demand I economic actors improve on decreases when income in.

I use' and 'extensive agriculture'). interac. erating the Leontief Paradox. gen. etc. II ========&onomics . I • interbank rate • instrument an economic variable that is con.: different from 'extensive land tor content of u. and provision of water and power and the institutions needed for security. as.I ate transactions.I the rate of interest charged by a bank on a loan to another I. primary inputs. • in~el1igent enterprise such enterprises that convert intellectual resources into a chain of service outputs and integrate these into a form most useful for certain customers.fertiliser. health and education. including intermedi . and sales to fmal users. called targets. the table can be used to calcu. labour. As I • intensity of land use developed by Wassily Leontief. Examples are monetary and fiscal policies used to achieve external and internal balance. in 'intensive agriculture' (as (1954) used this to find the fac. trade. generally yielding high factor inputs needed to produce I returns per unit area of land. specified net outputs. • injury harm to an industry's owners and/or workers. intensive • institutional thickness I of production. using a relatively a reference to the institutional large input of an input.I • intensive agriculture tutions of a region.92 injury I interbank rate It I ==========* communication..) per unit area of late gross outputs and primary land.g. I I I I trolled by policy makers and can be used to influence other variables. Leontief ~ e. collective action (lack of ~ characterised by relatively high inter-institutional conflict) and I levels of factor inputs (capital legitimacy of institutions in a [including fertiliser] and/or I labour) per unit of land. I factor inputs (capital. more spe.s. structure and qualities of insti. • input-output table I a table representing all inputs and outputs of an economy's I industries. regIOn.system of farming tion.I cifically the presence.

As an input. I. • interest parity equality of returns on otherwise identical financial assets denominated in different currencies. sidy. . Typical of models of comparative advantage. or covered.II interestparity I internationalad~tprocesS 93 bank. such as the Ricardian Model and Heckscher-Ohlin Model. I has itself been produced and : • international adjustment that. Also called interest rate parity. the : firm's average costs fall as its ~ own output rises. usually by a tax or subContrasts with intraindustry . • InternalIse I • interindustry trade trade in which a country's exports and imports are in different industries. unlike capital. with returns including the forward premium or discount. presumably to be . . so • intermediate input . it is in con. ~ perienced by them directly. May be uncovered. that they will take it into acan input to production which : count in their decisions. A very : 2. . an external cost or benefit : of someone's actions to be extrade. it is in contrast to a primary input I 1. der pegged exchange rates and : nonsterilisation. the mechanism by which paylarge portion of international ~ ment imbalances diminish untrade is in intermediate inputs. ~ to cause. that is. such I as a level of GDP that ~ mInImises unemployment : without being inflationary. Contrasts with exter~ nal economies of scale.~ international markets. • internal balance : a target level for domestic ag~ gregate economic activity. any mechanism for change in and as an output. ~ to another. : • internal economies of scale ~ economies of scale that are in. is used up I process in production. exthe sale of a product by one firm I &onomies======= II . with returns including expected changes in exchange rates. ternal to a firm. . Likely to be I inconsistent with perfect com: petition. Similar to the • intermediate transaction specie flow mechanism. used as an intermediate input. trast to a final good.

interoperability I ability of diverse intelligent de• international factor movevices to communicate with one I ment another in performing meanthe international movement of ~ ingful tasks. I country parent firms and their • international macroecoforeign affiliates). Thus includes migration and foreign direct investment. including primarily labour and capi.Trefler (2002). industry. aggregation. I I I of July 2000. an organisation formed to • intra-mediate trade help countries to stabilise ex. an international organisation with liquidity services to maintain fmancial stability. any factor of production. in contrast to interas national income and the price industry trade. cial stability and assistance.94 international. leading to price and interest rate changes that correct the current and capital account imbalances. tional bOlmdaries between differinternational borrowing and ent components of a corporate I network (e. nomics same as international finance. Can be horizon• International Monetary tal or vertical.-nuwement I intra-mediatetmde I /I change-market intervention causes money supplies of surplus countries to expand and vice versa. Ubiquitous in I the data. it had 182 member countries.I another term for fragmentachange rates.g.I tion. between homelending. much lIT is due to level.I • intra-firm (international) trade tal. Also flow of imports and exports of may include the movement of ~ goods and services across nafinancial capital in the form of . As I • 1I=======&Onomics . 2. • Intraindustry trade (lIT) but with more emphasis on the trade in which a country exinternational determination of ~ ports and imports in the same macroeconomic variables such . Fund (IMF) 1. but today pursu. Used by Antweiler and ing a broader agenda of finan.

because a rise in income inmachinery and equipment or I creases output by more than inventories. unemployment as result of de• invertible : ficiency in aggregate demand. where of national income and interest I is the identity matrix. 'Invisibles trade' is I • IS-LM model trade in services. used as a synonym for 'service'. the curve vertible if there exists another I representing the combinations matrix B such that BA =I.). Used by Arndt (1997).toUrIsm. I visible. Contrasts with I a Keynesian macroeconomlC Economks======= II .LM model. while a rise in • investment spending I the interest rate reduces aggrethe total amount of spending I gate demand through investduring some period of time on : ment.munications.I is normally downward sloping ing or producing structures.I ment I • ment. I capital goods. comproducers. That is. It creating capital goods. These stocks are in. Acquir.~ • involuntary unemployries is considered to be invest. rate at which aggregate demand • investing I equals supply for all goods.I in the IS. : • lSI I • invisible : Import-Substituting with reference to international I Industrialisation trade. . invisible trade I (imports or exports of a region or country) trade in non-com• inventories modity services such as finance stocks of goods in the hands of I (banking. tal and an increase in invento. a matrix A is in. insurance etc. aggregate demand (through consumption). I said of a matrix if its inverse : • IS-Curve exists.II intra-product specialisation lIS-1M:=1==========9=5 • intra-product specialisation another term for fragmentation. transportation or eluded in the definition of capi.

I ket areas served by two market bination of two factors of pro. with slope equal to the raI line connecting points which are tio of the (factor) prices. I I isostante I term used by Tord Palander • isocost line (following Schilling) to refer to a line along with the cost of ~ the boundary between two marsomething . the IS-curve and the LM-curve.:pmodel l Israel-US Free TradeArea II model. • IS-LM-BP model a particular version of the Mundell-Fleming Model that extends the IS-LM model by including in the diagram a third curve. Isotims mum-total-trans port-cost are the basis for calculating agpoint.. I subject to equal transport cost • isodapane for given materials (or prodpoints of equal additional trans.generally a com. which are therefore delivered prices from both cenconstant along the line. The isostante these are usually drawn for I specifies the points with equal given prices. Since transport costs. gregate 'isodapanes' . representing the balance of payments and/or the exchange market.ucts) around a point of supply port costs around the mini.. the BP-curve. popular particularly in the 1960s. an tres.-IM".centres with varying prices and duction .S"". • isoquant a curve representing the combinations of factor inputs that yield a given level of output in a production function. I I I I prices are) constant.I or around a market. isocost line is usually a straight I • isotim line.is constant. in which national income and the interest rate were determined by the intersection of two curves.""96=========L"". most commonly in factor-price space where it shows the combinations of prices of factors consistent with zero profit in producing a good at a specified price of the good . I • • iso-price curve a curve along which price is (or I • Israel-US Free Trade Area a free trade area between the " '========&onomics .

k percent rule ity function prefers a certain : a monetary policy rule of keepreturn to the same expected re. organisation. which. health insurance. Just-in-time if X is a real-valued random .S.Jigyobusei (jp) f ~ stated. trac. *=========== &onomics===================== /I . . . for a change describes the situation of a per~ in policy or policy regime to be son with a U. : This phrase is often used as .~ ing the growth of money at a turn with uncertainty.associated cost between differing a path that looks like a let.Jensen's Inequality ~ goods or services. .J-curve I the dynamic path followed by : . require that the compensation second one would not. without specifying the multidivisional system o . and the . which typically I production designed to causes the trade balance to : minimise the time and thereby worsen before it improves. percentage. if it did. . . then ~ manufacturers but have found E[g(X)] > = g(E[X]). fixed rate of k percent a year. the gainfree to leave for another job ~ ers should be able to compenbecause the first job has medi: sate the losers and still be betcal benefits associated with it I ter off. perhaps actually be paid. principles and methods were variable with E( IX I) finite and : first applied by Japanese car the function g() is convex. job who is not I viewed as beneficial.Kaldor-Hicks criterion .I: . : demand and the delivery of . The criterion does not which the person needs.II J-curve I Kaldor-Hicks criterion 97 United States and Israel that ~ because 'pre-existing condiwas initiated in 1985. wide application in other activiinequality is the inequality one : ties.job lock : the criterion which. tions' are often not covered un: der U.just-in-time the balance of trade in response ~ an organisational system of to a devaluation. Jensen's .I em stages of production as well I as between initial expressions of ter '1'. can refer to when showing that I an investor with a concave util.S.

a given nominal regresSIOn. the interest rate would fall and investment demanded rise.a larger real amount.. investing and the level of output. • Keynesian macroeconomics the theory which shows how a market-based capitalist economy may reach equilibrium with large scale unemployment and how government spending may be used to raise it out of this to a new equilibrium at the full-employment level of output. I sors are not in the opinion of the bandwidth (window width) the writer thoroughly 'justified' h goes to zero. Subsequntly. a regression where the regresobservations n goes to infinity. I • I I I I I I I • kernel estimation the estimation of a regression I function or probability density I function.""9".. fall. Keynesian growth models models in which a long run growth path for an economy is traced out by the relations between saving. The keiretsu system has the virtue of maintaining long term business relationships and stability in suppliers and customers. • keiretsu system the framework of relationships in post-war Japan's big banks and big firms. and Sumitomo) which own a lot of equity in one another and in the bank and do much business with one another. nh goes to infinity.8=========== . I Often used pejoratively. Mitsubishi. Related companies organised around a big bank (like Mitsui. and the product I by an argument or a theory. Such estimators are consistent and asymptotically ~ • kitchen sink regression normal if as the number of .:retsu system I kitchen sink regression I 1\ would make this the same as the Pareto criterion. The keiretsu system has the disadvantage of reacting slowly to outside events since the players are partly protected from the external market. other • Keynes effect times describes an exploratory as prices. II =======&onomics . Contrast the Keynes effect with the Pigou effect. I I I I I amount of money will be. This Keynes effect disappears in the liquidity trap.

describing 'peakedness'. early industrialisation income ~ inequality increases over time. hypothesised by Kuznets : (1955) to have an invened-U~ shape. ~ then at some critical point it Economies======== /I . that ~ there is heteroskedasticity but I not cross-correlation./I k-nearest-neighbour estimator I Kuz. time) on the horizontal axis. and the endpoints of the ranges are called knots. The spline regression is designed so that the resulting spline funccion. That is. ~ • kurtosis ~ an attribute of a distribution. Kurto: sis is calculated as E[ (x-mu)4]j ~ S4 where mu is the mean and s . . • Kruskal's theorem let X be a set of regressors. y=Xb+e where E[ ee'] is the : matrix OMEGA. • knightian uncertainty unmeasurable risk. Kuznets made I the proposition that when an : economy is primarily agricul~ tural. it's a spline regression. . is the standard deviation. y be a vector of dependent vari- ~ abIes and the model be: . with the closest neighbour having the most impact on the escimate. The theorem ~ is that if the column space of I (OMEGA)X is the same as the : column space of X. • knots if a regression will be run to estimate different linear slopes for different ranges of the independent variables. curve 99 • k-nearest-neighbour estimator it is a kind of nonparametric estimator of a function. that during . • Kuznets curve ~ a graph with measures of in: creased economic development ~ (presullled to correlate with . estimating the dependent variable. Here. k is a parameter to the estimator. that is. and average their Y values. Given a data set {Xi' YJ.g. and : measures of income inequality ~ on the vertical axis. . is continuous at the knots. it estimates values of Y for X's other than those in the sample. it has a low level of in~ come inequality. The average could be weighted. e. The process is to choose the k values of Xi nearest the X for which one seeks an estimate. then the ~ GLS estimator of b is the same : as the OLS estimator of b.

Contrasts with leading indicator. that is an estimator for the median of the process given the data. reaching peaks and troughs somewhat later than other macroeconomic variables such as GDP and unemployment.ket I I I • outctJ1MS I laissez foin economics II starts to decrease over time.100 labour . laissez faire economics a school of economics inspired by Adam Smith who believed that if we would just let the market I • I I I I I I • I II = = = = = = = = E e o n o m i c s . so: Let = et-l I I I I I • lagging indicator a measurable economic variable that varies over the business cycle. Kuzners (1955) showed evidence for this.D) I where mO is a guess at the conditional median function. employment dummies or employment rates. lag operator denoted by L. Say the data are stationary {Xt' Yt}' The dependent variable is y and the independent variable is x.Yt. The criterion function to be minimised in LAD estimation for each observation t is: q(xt.D) = IYt =m(xt. which often appear on the right side of such regressions: wage rates. compared to some definition of neutrality. • labour-using a technological change or w. Lagrangian a function constructed in solving economic models that inelude maximisation of a function (the 'objective function') subject to constraints. Such variables.:hnological difference that is biased towards usage of more labour. for each constraint. a variable 'Lagrange multiplier' times the amount by which the constraint is violated. • LAD estimation / LAD estimator can be used to estimate a smooth conditional median function. • labour market outcomes shorthand for worker (never employer) variables that are often considered endogenous in a labour market regression. It equals the objective function minus. a lag operator operates on an expression by moving the subscripts on a time series back one period.

such as provid.==========""l""O""l function without any son of in. : • Laissez-faire ~ I a economic theory advocating minimum role for government ~ in the economy. and LAFTA was replaced in 1980 with the Latin : the principle that. her con. a system of law to pro~ tect individuals and their prop. with the aim of establishing a free trade area. countries will tend to export goods for which they have comparative advantage and import goods for which they have comparative disadvantage. competition would ~ create order and eventually pros. perity for all. sumption of a good or service : (other consumption being held ~ constant). tion. • law of diminishing returns achieved. erty. but ~ would not be produced by pri. LAIA_has the more limited goal of encouraging free trade but with no timetable for achieving it. ~ • large country a country that is large enough for its international transactions to affect economic variables abroad. goods and services which for : some reason are needed. • Latin American Integration Association (LAIA) an organisation of Latin American countries which replaced the failed LAFTA. as the input of . EeonomuS======-4== II . ally will tend to decline. usually for its trade to matter for world prices.I : vate firms. • law of diminishing tlnarginal utility .. and that they will experience gains from trade by doing so. in any proAmerican Integration Associa. Contrasts with a small open economy.issez-foire IlRw oftliminishinomu. given the freedom to respond to market forces. This aim was never . the marginal utility I of the good or service eventu. as a person mcreases . : ~ . and production of such .~ tervention.~ duction function. I . • Latin American Free Trade Association (LAFTA) a group of Latin American countries formed in 1960.II JA. • law of comparative advantage the principle which. I .: ing for defence against external ~ enemies.

the acronym I Usually reflecting learning by LDC has stood for Less De. definition.nsmg. I which varies over the business cycle. holding other factors fixed.law of one price I the principle where identical goods should sell for the same ~ .cost reductions resulting from oped Country. However. ther average cost or average I product as a function of the ac-LDC cumulated output produced..10"". the marginal product of that factor must eventually decline. for many years. _ leading indicator a measurable economic variable I I . early in their history."". a relationship representing eitrade were free and frictionless. which was cost falling. . LDC has also . - I . Contrasts with lagging indicator. reaching peaks and troughs somewhat earlier than other macroeconomic variables such as GDP and unemployment and therefore useful for forecasting them. law alone price I learning objective II one factor rises.I doing.learning objective a written statement describing II = = = = = = = = E c o n o m i c s . the learning curve shows veloped Country.2===========.learning by doing refers to the improvement in technology that takes place in some industries. as they learn by experience so that average cost falls as accumulated output nses. veloping country. or average product more or less the same as de..learning curve price throughout the world if . which has a I skill improvements based on narrower and more formal repetitive (usually production" related) experiences.learning curve effects been used for Leas t Devel. I I I I . in I recent years.

leontiefpa~ measurable achievements you hope can be accomplished during your class experience or any other definable learning activity. in which the fact where a good is available suggests that it is of low quality. I I Akerlof's 1970 paper. was capital abun: dant. exports. that is. but it adds 'generative learning'.S. that the U.lender of last resort : the function whereby the cen~ ~ tral bank readily makes cash . that u. processes. Jinks to : a composite of two or more resources and communication goods or factors which includes opportunities designed to facili. and the Heckscher-Ohlin ~ Theorem would then predict I . : .I them in fixed proportions.e. For example.Leontief composite materials.least squares learning the kind of learning that an agent in a model exhibits by adapting to past data.Leontief paradox ~ the fmding of Leontief (1954) .S. ~ 103 . . i. : ~ ~ . Internet.s. engage in adaptive learning.learning organisation an organisation that is continually expanding its capacity to create its future. tate learning environments and I analogous to the Leontief tech: nology. why are used cars for sale? In many cases because they are 'lemons'. . resources. advances to commercial banks : in the event they misjudge .lemons model describes models like that of : . hypertextually organised course or program . by running least squares on it to estimate a hypothesised parameter and behaving as if that parameter were correct. A learning organisation is not merely trying to survive. This was surI prising because it was thought . imports embodied a : higher ratio of capital to labour ~ than U .II learning organisation l. they were problematic to their previous owners. I .learning web ~ their cash reserve require an integrated system of I ments. .based. : ~ .

625. bution with high kurtosis.s. . which is ordiIsoquants are L-shaped. nanly betw~en zero and one.gram at about . Due originally to Lepto. such a distribution has I unit-value isoquants of two or greater kurtosis than a normal more goods to deduce patterns distribution. . • Leontief technology • Lerman Ratio a production function in which a government benefit to the ?O sub~titution between inputs lmderemployed will presumably IS possIble: F(V) = mini(Vi/ I reduce their hours of work.x2}. This term is used of specialisation and factor in Bollerslev-Hodrick 1992 to I prices as they depend on factor characterise stock price returns.I: tities of inputs. : Moffitt (199~) estimates it in I regard to the U.man ratIo. AFDC pro• leptokurtic an adjective describing a distri. mputs or lunctions of the quan.pnces and technology.~ Ler. and ai are the constant income to the benefit is the per unit input requirements ."' . I • Lerner Index I a measure of the profitability of 11=======&011"". uses ment. The ai). where V is a vector of in. endowments. actual increase in puts Vi.S. exports would be relaLeptokurtic I tively capital intensive. the distribution. 'High' means the fourth central • Lerner Diagram moment is more than three thi. • Leontief Production Function has the form q=min{xl. drawn for given times the second central mo.ratio of theil.means 'slim' in Greek Lerner (1952) and popularised arid refers to the central part of ~ by Findlay and Grubert (1959).=lO=4=================Lwn==:rhM~~FU~I~I~ II that u.s diagram. I where q is a quantity of output I and xl and x2 are quantities of : · c.

Pearce's (1952) diagram uses : unit isoquants rath~r than ·unit ~ value isoquants and is much . the act of taking a public comthe proposition where a tax on : pany private by buying it with all imports has the same effect ~ revenues from bonds and using as an equal ta. essary to solve the problem of Due to Lerner (1936).I : .Lerner-Pearce Diagram this name is' sometimes given ~ measures the extent to which a Eetmomics======= II . from Domowitz. particular. more cumbersome. and it will not hap.Lerner Symmetry Theorem . One estimate.105 *================ a firm that sells a good: (pricemarginal cost) / price. Can also be the ratio of the possibility. if the country spends a dispro.37. This can happen only: wry.Lerner paradox : assets. . : .Leviathan cally on balanced trade. so that a change in : the all-powerful kind of state imports leads to an equal ~ that Hobbes thought 'was necchange in the value of exports. ~ to the Lerner Diagram. .Leveraged Buy-Out I (LBO) .x 011 all exports.Likert Scale . : .I other organisation or an indipen (from a stable equilibrium) ~ vidual or a collection of if the tariff revenue is redistrib. the ratio of debts to total . way.~ scribe the accounts of some ported good. ~ social order.I Normally used to describe a portionately large fraction of : firm's accounts but could deth~ tariff revenue on the im.: organisations I uted. Hubbard. _ leverage ratio ~ often. and Petersen (1988) is that the average Lerner index for manufacturing firms in their data was . as in a I real model. of trade. . excluding for exmight worsen a country's terms : ample accounts payable) to eqI . In fact. where a tariff. The result depends criti. if I the revenues of the company to the revenue is spent in the same : payoff the bonds. identified by ~ debts (or long-term debts in Lerner (1936).

• linear model / linear econometric model an econometric model is linear if it is expressed in an equation in which the parameters enter linearly. the importer must buy a certain II ========Eeonomics . I I a requirement that. gen- erally involving the variables like the total transport costs and the distance. downward sloping average transport-cost function. whether or not the data require nonlinear transformations to get to that equation.4=agree. I • linking scheme some price-per-unit p.1=06==========I=im. homogeneous of degree 1. in order to get an import license. 1 = strongly disagree. 3=not sure. and 5=strongly agree). • linearly homogeneous Tirole. or I quantity. dependent variable Ilinking scheme II person agrees or disagrees with the question in a survey (e. • linear transport cost function a reference to a theoretical. I I I I I I I I I I I I • linear pricing schedule say the number of units. The latter would result in a curvi-linear.. following the notation of . non-linear total transport costs with declining marginal distance costs would tend to make long-haul transportation relatively inexpensive and might create the incentive to select locations which reduce the number of short-haul links and take advantage of the 'distanceeconomies' of (fewer but) long hauls. • limited dependent variable a dependent variable in a model is limited if it is discrete (can take on only a countable number of values) or if it is not always observed because it IS truncated or censored. The function would be linear ifit is suggested that the increase in transport cost is proportional to the increase in distance. In general. A linear pricing sched.g. linear mathematical function.". 2 = disagree. paid for is denoted q and the total paid is denoted ~ T(q). Linearity may exist with or without terminal (or distance-fixed) cost. ule is one that can be Sometimes called linear homocharacterised by T(q)=pq for I geneous.

less bureaucratic. the curve .. in its neighbourhood. young ones. • liquidity constraint many households or families.g. • locality : localisation economies or exter~ nal economies of localisation. cannot borrow to consume or invest as much as they would want. but are constrained to current income by imperfect capital markets. ego benefits resulting from the : local access to a specialised ~ work force or the specialised Beonomics========= II . • little giants a reference to those mediumsized firms which are technologically and organisationally particularly innovative and forward-looking in terms of employee relations. ~ • local optimum I : an allocation where by some ~ criterion is better than all those . with fewer managerial layers. equals the money supply in the : domestic money market. e. I Agglomeration economies ~ (benefits. money) is the most liquid asset. • living wage a wage which allows families to meet their basic needs without resorting to public assistance and provides them some ability to deal with emergencies and ~ I plan ahead. representing combinations of : income and interest rate at ~ which demand for money . .• LM-Curve ~ in the IS-LM model. money. It is ~ normally upward sloping beI cause an increase in income in: creases the demand for money ~ while an increase in the interI est rate reduces the demand for . It is not a poverty wage. cost reductions) re: sulting from the concentration I of the same or similar activities: . . In contrast to corporate giants. Cash itself (i. or the amount of assets in a portfolio that have that capacity. • Ljung-Box Test : the same as the portmanteau I . such mediumsized firms are more entrepreneurial.IIlUJUidity I locality 107 *================ amount of the same product from local producers.e. • liquidity the capacity to turn assets into cash. . test.

I . I I I I I I location quotient a measure of the relative significance of a phenomenon (e. Thus. or barriers to trade. _-- ::" . or why a multinational firm locates there... such as availability of a natural resource. . . May explain why a country's firms succeed in trade. . 'A sufficient condition for local identification is that' a certain Jacobian matrix is of full column rank..:s * eo u t. the idea of locally identified models...... . or a stage of production.. But for models that are nonlinear in parameters... I I I I . • locally identified linear models which are either globally identified or there are an infinite number of observably equivalent ones.. • Locally Asymptotically Normal (LAN) a characteristic of many ('a family of') distributions..... employment in software activities) in a region compared with its significance in a larger ('benchmark') region. transport cost. A high location quotient for a specific activity implies specialisation and the export of the goods or services produced by the activity. Normal (£AN) Ilocational triangle I • II reputation of a locality to which some but maybe not all of these specialised activities contribute....-_ _ _ _ _ __ _ ee I I I t1 .rymptotica.locational advantage any reason for a firm to locate production. which can be distinguished in data from any other 'close by' model.. Mot} . M+t" 'tit. locational triangle the triangle which has been devised and used by Wilhelm I • I II ========&onomus .... • location decisions and locational decision -making decisions and behaviours related to locational choices. to4II.g.108 Locally A.. "---------------. 'we can only talk about local properties'... • locally nonsatiated / local nonsatiation an agent's preferences are 10cally nonsatiated if they are continuous and strictly increasing in all goods.. . in a particular place..

. and (b) the tails of the density function are not 'too thick. and by Beyers and Krumme substitution between products (outputs) on optimal locations.log concavity a function f( w) is said to be logconcave if its natural log. : I I ~ I . A random variable is said to be log-concave if its density function is log-concave.a. f"(w)/f(w) . normal. In practice. as the large country demands more of their exports.log convexity ~ a random variable is said to be I log-convex if its density function Economics===================== II .IllOComDtive effect I log convexity 109 *================ Launhardt and Alfred Weber to construct their basic locational modeL This model was used to demonstrate the impact of the forces of attraction of three (in a polygon more) reference locations (originally 2 raw material locations and one market) vis-a-vis the (dependent) optimal (=least-transport-cost) location of a processing plant. : ~ I : ~ ~ . for vector-valued random variables. If pdf fO is log-concave..f'(w)2 < = 0 Since log is a strictly concave function. and extreme value distributions have this property.l. : ~ . ~ I : ~ I : ~ ~ . The uniform. : any concave function is also logconcave. In(f(w)) is a concave function. : ~ . exponential.e. then so is its cdfFO and I-FO. . : .' An equivalent definition. Random vector X is log-concave iff its density fO satisfies the condition that f(ax 1 +(I-a)x 2 )·[f(x 1 ) ]a[f(~)](l-a) for all xl' and x2 in the support of X and all a satisfying O. the triangle was used by Isard and Moses to demonstrate the impact of substitution benveen distances and/or materials. beta. assuming f is differentiable. The trUncated version of a log-concave function is also log-concave. Subsequently. causing them to expand as well.locomotive effect the effect that economic expansion in one large country can have on other parts of the world economy. the intuitive meaning of the assumption that a distribution is log-concave is that (a) it doesn't have multiple separate maxima (although it could be flat on top). i. is in Heckman and Honore.

718281828.. 'natural log'. and F is the logistic real-valued functions on [0. agent has knowledge of a phe. x=log Y < = > eX=y. that nomenon. tions with fInite means and vari.Ln A log-convex random vector is one whose density fO satisfies I the set of continuous bounded the condition that f( aX I + ( 1.functions with domain RN. than one. i. Pareto distribu. a)x2 ). log always means I tribution but is very similar.a.1]. he/she also has per. So normal distribution is that it I has a closed form cdf.Ll I Here. I. 'b) I Pr(Yj=l)=F(x j . [f(xI)]a[f(~)](l"a) for all • logistic distribution Xl' and ~ in the support of X a logistic distribution has the cdf and all a satisfying O. and so real-valued random variables do gamma densities with a co.I can be only one or zero.I • logit model cro-economic models: If an a univariate binary model. V is the space of ances have this property. b is a parameter to be esthe set of Lebesgue-integrable timated.I.I Equivalently.e. x I pdf is f(x) = e'(l +e )"2 = • logical omniscience F(x)F( -x) an assumption underlying the information facets of most mi.y) = integral of x(t)y(t) II ========Economics . and a fect knowledge of all its impli. This is an efficient of variation greater I infinite dimensional space. I cdf.E uct (x.no log or naturtJllog IJogit model II =========* is log-concave.I for dependent variable y.L2 I same but with a different cdf for a Hilbert space with inner prod.continuous indepdendent variable x" that: cations. that is loge' where e is the natural constant that is I Another advantage over the approximately 2.I that have variances. I F(x) = 1/(1 +e"X) This distribution is quicker to • log or natural log compute than the normal disin-economics. The probit model is the .I dt.

. . the variable Y=e x has a lognormal distribution. Example: Yearly incomes in the United States are roughly log-normally distributed... .\\loanormal distributitm I LouPreAcC:. • long run costs ~ production costs when the firm : is using its economically most ~ efficient size of plant.cs======= II . Then. • long-term capital ~ in the capital account of the bal: ance of payments.. ==========1=11 • lognormal distribution let X be a random variable with a standard normal distribution. but it is the rate for dollar loans that is used as a benchmark for other transactions..~ • Louvre Accord ber of units of output. • London Interbank Offered Rate (LIBOR) the interest rate which the largest international banks charge each other for loans... ied. relationship between output and : the lowest possible average total ~ cost when all inputs can be var. LIBOR includes rates quoted each day for many currencies. long-term I capital movements include FDI ~ and movements of financial : capital with maturity of more ~ than one year (including equi. oflnc..)1nt • long run average costs total costs divided by the num. The long : an agreement reached in 1987 I Beonom. ~ run average cost curve plots the . ~ • longitudinal data . • Lorenz curve : a curve indicating the cumula~ tive percentage of income plotI ted against the cumulative per: centage of population. ties). excluding the eufO. a synonym for panel data. . In fact. I I c... • Lome Convention an agreement originally signed in 1975 committing the EU to programs of assistance and preferential treatment for the ACP Countries. The Lome Convention was replaced by the Cotonou Agreement in June 2000. usually of Eurodollars.

• made-to-measure tariff Nondistorting lump sum taxes I a tariff set so as to raise the and subsidies do not exist. I I • macroeconomics • lump sum the branch of economic theory a tax or subsidy which does not I concerned with the economy as distort behaviour. Ml includes only chequable demand deposits. Japan.I the property of the Heckscherless of the level of his or her I Ohlin Model where changes in income. and UK to stop the decline in the value of the US dollar that they had initiated at the Plaza Accord. especially of ~ domestic price. ply.I fect outputs in the Rybczynski II ========Econumics . but are a convenieut fiction for theo.112 . • Ml Money Supply factor endowments as they afa measure of total money sup. . Also called a scientific tariff.I price of an imported good to the retical analysis. US.I lead to magnified changes in cause they do not influence a I the corresponding endogenous person's decision on how much variables: goods prices as they I affect factor prices in the to work. lwe ofvariety I magnification ejfo&t ~ I I II among the central banks of France. Germany. • lump sum taxes 1 • magnification effect a tax of a fixed amount that has to be paid by everyone regard. It deals with large ag(or subsidy) in an amount (the gregates such as total output. By using a tax I a whole. fl d domestic producers unaffected. gams rom tra e. lump sum) independent of any I rather than with the behaviour aspect of the payer's or I of individual consumers and recipient's behaviour. • love of variety preference for variety. M2 includes everything in Ml and also savings and other time deposits. Lump sum taxes are certain exogenous variables considered efficient taxes be. so as to leave . not alter behaviour. • M2 Money Supply a measure of total money supply. Stolper-Samuelson Theorem.. it does firms.

... good.. marginal benefits equal ~ marginal costs. . .~ mation' crease in the production of a I the increase in output of one ~ good made possible by a one- . but the authorities do nonetheless intervene at their discretion to influence the rate. or repair . generally referring to the rate at which the consumer is willing to substitute one good for another (without loss or gain of satisfaction). . The program was established in 1965 and expanded in 1989..marginal propensity to save the increase in saving per unit increase in (disposable) income. : ~ I I ~ .marginal propensity to import the increase in expenditure on imports per unit increase in (disposable) income. the rate at which factor inputs can be exchanged in a production process without a change in the production (output) leveL . 2.1=3 ~ Theorem.. ~ .II managedflORt I marginal rateoftra~""""".I tives..twn. transformation.Maquiladora this is a program for the temporary importation of goods into Mexico without duty. I ~ .Management Buy-Out / I Management by Objectives (MBO) the purchase of a company by I its management. Sometimes means Management By Objec.e.margin~l rate of transforsequent upon a one unit in.managed float an exchange rate regime in which the rate is allowed to be determined in the exchange market without an announced par value as the goal of intervention. a goal-oriented personnel I evaluation approach.marginal benefit I the increase in total benefit con. i.marginal principle to maximise the net benefits.through further processing.: . I I . Due to Jones (1965)..to exports. ~ .· ========1".marginal rate of substitution 1. under the condition that they contribute . : Economics======== /I . : the strategic or action variable ~ should be increased until MB = I Me.

That puts some pressure on managers to perform. • marginal revenue product the change in total revenue which results from employing one more unit of a factor. Thus.I formation curve. this means control over corporations is traded. any departure from the ideal benchmark of perfect competition. Such a firm's use of advertising differentiates its brand from other I I I I I I I I I I I II ========Eeonumics . • market clearing equality of supply and demand. • market power theory of advertising the theory of advertising is that established firms use advertising as a barrier to entry through product differentiation. the power held by a firm over price and the power to subdue competitors. • market equilibrium equality of supply and demand. Examples: For workers in an isolated company town. created by and dominated by one employer. given the technology. I 11UJrketpower theory ofadvertising unit decrease in the output of ~ another. instances of a free market being unable to achieve an optimum allocation of resources. A market-clearing condition is an equation (or other representation) stating that supply equals demand. the absolute I value of the slope of the trans. • market failure 1. a continuum from perfectly competitive to monopsony and there's an extensive practice/industry/science of measuring the degree of market power. that employer is a monopsonist for some kinds of employment. and factor endowments of a country. I I II • market for corporate control when shares of public firms are traded and in large enough blocks. 2. otherwise their corporation can be taken over. 2. particularly the complete absence of a market due to incomplete or asymmetric information. • marginal revenue the addition to total revenue resulting from the sale of one additional unit of outpUt. • market power 1.~1=14=======11UJ=rg=ina=l=rrn=.

if Y is a nonnegative random ply of a good and sells it on the : variable. .e. _ Markov Strategy ~ in a game. The sys: tern has the Markov property ~ if the present state predicts fu. monopoly. I . only the most ~ ginal cost. In a first-order : which price is in excess of marMarkov process. then ~ E(Y) = kPr(Y = k). all such : processes can be represented by ~ a Markov transition density .Markov Property ~ a property that a set of stochas.market price of risk is a synonym for the Sharpe ratio. This makes it hard for new competitors to gain consumer acceptance. the amount (percentage) by crete set. i. oligopoly. There are four main idealised market structures that have been used in trade theory: perfect competition.markup the values are drawn from a dis. a Markov strategy is : one which does not depend at I all on state variables that are ~ functions of the history of the : game except those that affect ~ payoffs. 115 *================ ~ recent draw affects the distribu. ifPr(Y <0) =0. _ Markov Process a stochastic process where all ~ .~ _ Markov's Inequality cally buys up the domestic sup.marketing board a form of state trading enterprise. tion of the next one. A marketing board typi. not perfectly substituted by existing or potential competitors. matrix.II marketpriceofrisk I markup brands to a degree that consumers see that its brand is a slightly different product.. A profit-maximising &onomics======== II . tic processes may have. 1. : . and international market. _ market structure the way that suppliers and demanders in an industry interact to determine price and quantity.. ture states as well as the whole : history of past and present ~ states . ~ k is any positive constant. the process is I memoryless..that is. . and monopolistic competition. A Markov process can : be periodic only if it is of higher ~ than first order.

hX I 'post-multiplying') horizontal + hM > 1. for international barter ex2. that is. p and x can be vectors.m).116 MarShallian~ndFunction I matrix multiplications II seller facing a price elasticity of ~ demands. Used more by cngidenoted x(p. the order of the multiplicand and is m.for a depreciation to improve fect of international trade that I the trade balance. One ef. both defined to be numbers of the respective vecpositive for downward sloping tors results in a number which II ===================Economks . characterised by mechanisation. The process of mulelasticities of demand for ex. some. Can be used as a measure I large-volume output. h will set a markup . and cost.change to be stable. I • Matlab industries. where hX. I a matrix programming lan• Marshallian Demand guage and programming enviFl1nction ronment. The the demand elasticities for a I sum of the products of this country's exports and imports I multiplication of corresponding respectively.tiplication of matrices proceeds ports and imports exceed one I by multiplying (more exactly: (in absolute value). the ratio of price to marginal high wages. the multiplier cannot be altered • Marshall-Lerner condition I as is the case in regular multithe condition where sum of the I plications. hM are vectors by vertical vectors.e. tion which is demanded by a I producer given that it costs p I • matrix multiplications per unit and the budget limit the multiplication of matrices or that can be spent on all factors I vectors is 'commutative'. in wro terminology. times used for the extent to I • mass production which an applied tariff exceeds I a production system the bound rate. for the exincreases competition is to re. 3. low prices. it is the I neers but increasingly by econoamount of a factor of produc. of market power across firms.mIsts. Under certain asdemand. i. or economies.I change market to be stable and duce markups. sumptions. this is the condition equal to (p-c)jp=ljh.

-MERCOSUR possible revenue for the govern. : and continually clarifying. exports are . organisation: 'reflecting upon.merchandise trade imported good. except that the price speci.maximum price system .~ primarily serve to increase a fied amount of money or physi.a common market among ArEeonomics======= II . Contrasts with trade in services. country's financial wealth. ~ exports and imports of goods.II maturity date I AIeR. _ maximum revenue tariff a tariff set to collect the largest . viewed as desirable and imports similar to a minimum price sys: as undesirable unless they lead tem. I °1° mercant11sm 0 0 . . horiwntal vector x vertical vector = a number vertical vector x horiwntal vector = matrix matrix x vertical vector = vertical vector horizontal vector x matrix = horiwntal vector matrix A x matrix B'l = matrix C matrix B x matrix A = matrix D ment. rather than the lowest. and seeing how : they shape our actions and deI ClSlons. especal assets. . _ mediall voter theorem the proposition where political parties will tend to adopt moderate policies to appeal to voters near the middle of the political spectrum.. : cially of gold and foreign cur~ rency.I : to even greater exports. o o _ . To that end.mental models I : one of Senge's five learning dis~ ciplines for the learning . permitted for an ~ .maturity date I an economic doctrine of the the maturity date of a financial 16th and 17th centuries that asset is the date at which that international commerce should asset is converted into a speci. Thus. fied is the highest.COSUR ~ ~ 117 *==~~========== is placed in the position of the resulting matrix (or vector) where the two vectors would intersect (overlap). and ~ improving our internal pictures I of the world. : ~I ~ : .

. the artefact of classi• M-Estimators cal micro-economic theory of estimators that maximise a the firm).e..I the name suggested by the European Union for the trade tribution. known as the 'Com. without agreement to start a price of the imported good. new round. I • millennium round and solve the resulting equations for the parameters of the dis. a way of generating estimators: I there is a need to adhere to inset the distribution moments I termittent milestone deadlines.I than the size of the tariff. : and added Chile and Bolivia as I • micro-micro theory: associate members in 1996 and I concerned with the 'study of 1997. Paraguay and I world price down by even more Uruguay. equal to the sample moments. I round which they and others • Metzler paradox hoped would be initiated at the possibility. I while there may be some free• method of moments dom to make changes to the estimation design of an evolving product. This will happen if it drives the I II = = = = = = = = E c o n o m i e s . class of economic model envi . as it mon Market of the South' may do if the foreign demand ('Mercado Comun del Sur'). The em' means I • milestones 'maximum-likelihood-like' .tor development progress and sition which can be proved in a adhere to deadlines.1""1. what goes on inside the black I box' (i. port good is inelastic. Brazil.. That ministerial ended may lower the domestic relative .".8===========* M-Estimators I millennium round II gentina. sample average. It ~ for the importing country's exwas created by the Treaty of . subprojects where a project is • metatheorem I broken up (to be able to monian informal term for a propo. that a tariff ~ 1999.I • milestone stabilisations: ronments. Asuncion on March 26. 1991. identified by the Seattle Ministerial in Metzler (1949).

II MiWs test I monetarism
- Mill's test one of two conditions needed for infant industry protection to be welfare-improving. This requires that the protected industry become, over time, able to compete internationally without protection.
~

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merce and Industry, MITI was ; renamed METI as of January : 6,2000.
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- minimum efficient scale the smallest output of a firm consistent with minimum average cost. In small countries, in some industries the level of demand in autarky is not sufficient I to support minimum efficient : - mobile and immobile I scale. factors of production - Ministry of Economy, ('factor mobility') Trade and Industry the mobility between different (METI) uses or occupations of factors the Japanese government min- I of production (land, labour, istry which deals with eco- I capital, etc.). nomic issues, including the ; _ mode of supply vitality of the private sector, external economic relations, I the method by which suppliers energy policy, and industrial of internationally traded serI vices deliver their service to development. buyers. The four modes usually - Ministry of International identified are: cross-border sup~ ply, consumer movement, proTrade and Industry (MITI) ; ducer presence and movement the Japanese government min- : of natural persons. istry which deals with trade and ~ _ monetarism industrial policies. Established I in 1949 as the Ministry of Com- a view where market econo-

: - mixing regulation ~ 1. specification of the proporI tion of domestically produced ~ content in products sold on the : domestic market. ~ 2. specification of an amOlillt of ; domestically produced product : that must be bought by an im~ porter for given quantities of I imports, under a linking : scheme.

Beonomics=======

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mon;ristview I monopolisticcumpetition II
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mies are inherently selfstabilising and that variations in the quantity of money are the main cause of fluctuations in the level of aggregate demand. • monetarist view in extreme form, the monetarist view is the view where only the quantity of money matters by way of aggregate demand policy. Relevant only in an overheated economy. • monetary base the same as high-powered mone)" It refers to the cash in commercial banks, plus cash in circulation and deposits of tl1e commercial bank at the central bank. • money income nominal income. • money market the money market, in macroeconomics and international finance, refers to the equilibration of demand for a country's domestic money to its money supply. Both refer to the quantity of money that people in the country hold (a stock), not to the quantity that people both in and out of the country choose

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to acquire during a period in the exchange market, mostly for the purpose of then using it to buy something else.

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money overhang a money supply which is larger than what people want to hold at prevailing prices. This was said to be a major cause of inflation in Russia after the fall of the Soviet Union, which left an excess of money in circulation. money supply there are several formal defInitions, but all include the quantity of currency in circulation plus the amount of demand deposits. The money supply, together with the amount of real economic activity in a country, is an important determinant of its price level and its exchange rate.

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• monopolistic competition essentially the same as imperfect competition. A market situation in which one or more firms may be capable of influencing the price of the product. It is characterised by product differentiation, often established through advertising.

II ========:&onomit:s

I! monopolyar;gument I morbidity
• monopoly argument the monopoly argument for a tariff is the same as the optimal tariff argument. It gets its name from the fact that a country using a tariff to improve the terms of trade is acting much like a monopoly firm, restricting its sales to get a better price. • • monopsoms 0·C fi lrm fi h ' th I b f a lrm t at lS .e so e uy~r 0 a good or serViCe, most likely Of labour in a particular market. • monopsony a state where demand comes from one source. If there is only one customer for a certain good, that customer has a monopsony in the market for that good. Analogous to monopoly, but on the demand side not the supply side. A common theoretical implication is that the price of the good is pushed down near the cOSt of production. The price is not predicted to go to zero because if it went below where the suppliers are willing to produce, they won't produce. • Monte Carlo Simulations the data obtained by simulating

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~ a statistical model in which all ; parameters are numerically : specified. ~ One might use Monte Carlo I simulations to check how an ~ estimation procedure would : behave, for example under con~ ditions when exact analytic de; scriptions of the performance of : the estimation are not algebraI . . . lcally feaslble or when one ; wants to verify that one's ana: lytic calculation for a confidence ~ interval is correct. . ~ • moral hazard I the tendency of individuals, ~ firms, and governments, once : insured against some contin~ gency, to behave so as to make ; that particular contingency : more likely. A pervasive prob~ lem in the insurance industry, it ; also arises internationally when : international financial ins tim~ tions assist countries in finan; cial trouble.

; • morbidity ~ an incidence of ill health. It is : measured in various ways, of~ ten by the probability that a ran; domly selected individual in a : population at some date and ~ location would become seri-

Economics=======

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K is a dollar quantity of capital. Y is output.. this is likely to mean a Heckscher-Ohlin Model with more than two factors.sKd(ln K)/dt where f is the global production function.sLd(ln L)/dt .hh=a: I Multifiber Arrangement (MFA) /I ously ill in some period of time.if the facility'S operating costs are high and the aim is to have it available in time of war . multi-factor productivity(MFP) same as total factor productivity.. a certain type of Solow residual. and instead there are multiple diversification cones. • multi-cone equilibrium a free-trade equilibriun1 in the Heckscher-Ohlin Model in which prices are such that all goods cannot be produced within a single country. • Multifiber Arrangement (MFA) an agreement (OMA) amongst developed country importers and developing country export- I I I I • I I I I I I I I ========&onomics . • multifactor model a model with more than two factors. but keeping the machinery in working order and supplies available.. This may be preferable . L is a dollar quantity of labour. • movement of natural persons one of four modes of supply under the GATS. Also called temporary producer movement. MFP = d(ln f)/dt = d(ln Y)/dt . In the context of trade theory.. this involves the temporary movement across national borders of nalliral persons employed by or associated with a firm in order to participate in the firm's business.g ""12""2========""mD=t. SK is the share of input costs attributable to capital expenses. or a two 1\ I I I I cone equilibrium. Contrasts with one cone equilibrium. Contrast to mortality. t is time. SL is the share of input costs attributable to labour expenses.to having it produce in peacetime under a subsidy or import protection. will arise if countries' factor endowments are sufficiently dissinUlar compared to factor intensities of industries. • mothballing the preservation of a production facility without using it to produce. This.

~here s is the marginal propenSlty to save. In the simplest Keynesian ~~l of a closed economy. such as rural viability. were discontInued ill Novemer : 1998. and was superceded in 1995 : investment in developing counI tries . who argue that subsidies are needed to serve these other purposes.I Guarantee Agency tities traded. land conservation..~ MI GA helps encourage foreign ply. • Multilateral Agreement on Investment (MAl) an agreement to liberalise rules on international direct investment that was negotiated in the OECD but could not be compIe ted or adopted because of adverse public reaction to it. thIS IS l/s. ==========1"". rules that would otherwise ap. ~ • multiplier 1.II multifunctionality I multiplier effict.m. a numerical coefficient which relates the change of a component of aggregate demand (such as the export demand for a region's products) to a consequent change in income (or employment). cultural heritage. : ~ ~ . by the ATC. : ~ . the ratio of the change in an endogenous variable to the change in an exogenous variable. Preliminary text of the agree~ent w~ leaked to the Internet m Apnl 1997. ~egot1at1ons . : ~ . ~ : ~ groups.oppo~edlt. 2. : ~ ~ . where . Usually means the multiplier for government spending on income. • multiplier effect the tendency for a change in aggregate spending to cause a more than proportionate change in the level of real national income. &onomies======= II . • multifunctionality the purposes that an industry may serve in addition to producing its output. : ~ . Most often applied to agriculture by countries that wish to subsidise it. etc. It was negotiated (MIGA) in 1973 under GATT auspices ~ one of the five institutions that as a temporary exception to the I form the World Bank Group.2=3 ers of textiles and apparel to ~ • Multilateral Investment regulate and restrict the quan.. in Keynesian macroeconomic models.any ~ .

• mutual recognition the acceptance by one country • National defence arguof another country's certificament for protection tion that a satisfactory standard the argument that imports has been met for ability. for the amount I of trade which is far less than • multivariate discrete : predicted by the HOV version choice model ~ of the Heckscher-Ohlin Model.I rium. I can do better by raising its tarwhich would drive interest rates iff.. perfor. etc. by Grossman (1982). Used by Dixit and : the empirical observation. the public terms of trade with a tariff.63) and I • Nash equilibrium Fleming (1962). in a tariffwould rise less than one-for-one and-retaliation game. zero would hold less in money bal. ~ Trefler (1995). crete choice model.Nash • Mundell-Fleming Model used as an adjective applied to an open-economy version of the a strategy in a game. safety. tional capital flows. trade another term for fragmentation.I country able to improve its sponse to inflation. is likely to be inferior to free trade for both. Due to Mundell (1962. tent of trade is far less than the .tariffs are not Nash. since each ances and more in other assets. this .tionaldefencea. A Nash equilibrium.g. positive tariffs. with down.I in their factor endowments.~tforprotection " ~ • mystery of the missing • multistage production . given the actions of the says that nominal interest rates other players. the factor conthe choice is made from a set .124 multistRgeproduction I Na. E. an equilibrium in game theory where each player's action is • Mundell-Tobin Effect I optimal. ========* II =======Bconomks . with more than one dimension I differences between countnes is said to be a multivariate dis.should be restricted in order to mance. a discrete choice model in which ~ More precisely. with each with inflation because in re. '.means IS-LM model that allows for that it is part of a Nash equilibinternational trade and interna.

Per. : I : • natural person ~ this term appears in the GATS I and it deals with the interna~ tional movement of employees : of firms that are providing ser~ vices in another country. Economics======= II . sons are called 'natural' to dis: tinguish them from 'juridical ~ persons'. the general term used to refer to the total value of a country's output of goods and services in some accounting period. mothballing. • national income (GDP) deflator a general way of referring to the price index that measures the average level of the prices of all the goods and services comprising the national income or GD P. . ~ . It would be equal to the amount of frictional unemployment in the system. and therefore the total income of its factors of production. • natural monopoly a market situation where economies of scale are such that a single firm of efficient size is able to supply the entire market demand. : ~ . the income generated by a country's production. NI is the same as GD P. : ment the rate of unemployment which would exist when the economy is operating at full capacity. • natural increase growth of the population due to an excess of births over deaths. ~ • natural rate of unemployI ~ : ~ • national treatment ~ the principle of providing for- . • national income 1. 2. : ~ ~ I eign producers and sellers the same treatment provided to domestic firms. Except for some adjustments that don't usually enter theoretical models. without specifying the formal accounting concept such as Gross Domestic Product. or corporations. and stockpiling. including production subsidies. such as partnerships .II national income I natural rate OfU~loyment ~ 125 sustain a domestic industry so that it will be available in case of trade disruption due to war. since there are a variety of ways of providing for defence at lower economic cost. This is a second best argument. that are given : certain rights of persons under ~ the law.

I commitment being to apply the agreement to everything else. each good uses two (different) factors. With an arbitrary but equal number of goods and factors. to which the agreement will not apply.necessity test a procedure to determine whether a trade restriction intended to serve some purpose is necessary for that purpose. Contrasts with positive list. knd~s that I those allocations that are suffihe/she does not know it. products. each factor produces two (different) goods.neighbourhood in mathematical Euclidean space.. a list of those items.negative list in an international agreement. . for an ecoimplicit assumption of most nomic variable. . the I I _ Nemawashi (jp) a Japanese term that refers to the practice of broad consultation before taking action. I . _ neighbourhood production structure a structure of technology for a general equilibrium model due to Jones and Kierzkowski (1986). I I I I I I I I . Considered a distortion because the first agent has inadequate incentive to curtail their action. entities. the neighbourhood of a does not know something . etc. i. but that is not artificially encouraged by subsidies or other stimulants. II = = = = = = = = E c o n o m i c s .natural trade trade which is either free or restricted.e. a small set of points surrounding and including a par.negative introspection I ticular point.than I particular allocation includes all he/she. Examples are pollution from factories (a production externality) and smoke from cigarettes (a consumption externality).. such as an allodecision models: If an agent cation.126 naturaltrade I Nemawashi (jp) I II =================* . however. Thus.negative externality a harmful externality. ciently similar to it. in a way that yields more unambiguous results than one normally finds in high-dimension trade models without specific factors. . a harmful effect of one economic agent's actions on another.

utility maximisation by consumers. including profit maximisation by firms.neoclassical growth model . _ neoliberalism a view of the world which favours social justice while also emphasising economic growth. mainstream economics based on neoclassical assumptions. with corresponding implications for determination of factor prices and the distribution of income. : ~ I ~ : I to scale and smoothly diminishing returns to individual factors.neutral I one or more sectors displaying : 1. Keynesian. Harrod-neutral. Contrasts with classical. and the benefits of free markets. and properties of constant returns E&onomus======= II . 127 *================ ~ . gross domestic product minus : depreciation. Tends to ascribe inevitability.net present value : same as present value. other. Due . and Marxist. • : . ence if it is not disproportionto Solow (1956) and Swan : ately in favour of using more ~ or less of one factor than an(1956).neoclassical production : several different ways that are function ~ not normally equivalent: Hicksa production function with the . neutral. . being ~ sure to include (negative) pay.II neoclassical \ neutral _ neoclassical a collection of assumptions customarily made by mainstream economists starting in the late 19th century.Net National Product I (NNP) I gross national product minus ~ depreciation. This can be defined in . if not necessarily desirability. where income arises from neo. ments as well as (positive) rea model of economic growth : ceipts. ~ .Net DomestIc Product I (NDP) .neoclassical economics most of modern. said of a technological diminishing returns to saving ~ change or technological differand capital accumulation. . I : . efficiency. to market outcomes.I classical production functions in : . . and market equilibrium.

Many contributed to this literature. the business cycle. I 3. 2. but the most prominent was Krugman. incorporated aspects of imperfect competition. and product differentiation into both general equilibrium and partial equilibrium models of trade and trade policy. • nominal 1. the· inflation-unemployment tradeoff. I • new economy this term was used in the late 1990's to suggest that globalisation and/or innovations in information technology had changed the way that the world economy works.128 new hamar I nominal 1/ =================* Solow-neutral. increasing returns. • • new bancor a proposed new non-national world currency to be used for payment and reserve purposes.. • new economic geography the study of the location of economic activity across space. said of a trade regime if the I structure of protection favours neither exportables nor I importables. new trade theory models of trade that. said of economic growth if it I expands actual or potential output of all goods at the same rate. : not being biased in favour of I one over another. particularly a strand of literature begun by Krugman (1991a) using agglomeration economies to help explain why industries cluster within particular countries and regions. to be issued by the IMF and intended to maintain a fixed purchasing power in the dollar and euro countries. In the : Heckscher-Ohlin Model neutral growth will occur if all factor I endowments grow at the same rate or if there is Hicks Neutral technological progress at I the same rate in all industries . particularly in the 1980s. I I I I I • I I Newly Industrialising Country (NIC) a group of countries previously regarded as LDCs which have recently achieved high rates and levels of economic growth. in the form most directly /I ========Economies . and the valuation of enterprises. Conjectures included changes in productivity. starting with Krugman (1979) .

I • currencies are exchanged on an : • nonconvextty exchange market. Because convexity is needed for to the real interest rate. I model or system that states representing technology. regional aids and ~ some environmental subsidies.haved.I mles. Con. as measured in terms of money. based on an import • nominal exchange rate the actual exchange rate where : quota or performance related. nonconvexities may imdustry directly by the tariff and/ I ply market failures. sidies. 2. proof that competitive equilib• nominal rate of protection I rium is efficient and well-bethe protection afforded an in.~ without distortions.. thus not subject to countervailing duties. propositions in trade theory are trasts with the ERP. only in nondistorted econothe nominal protection pro.II nominal exchange rate I noneconomic:jectil1es argument. in contrast to a form that has been adjusted or modified in some fashion. or constraints are not served in the market. subsidies for industrial : research. or NTB on its output. strictly valid. in contrast I mathematically convex. usually in contrast to real. • non-actionable subsidy a subsidy which is permitted by • noneconomic objectives argument for protection the rules of the wro. prefer• nominal interest rate the interest rate actually ob.for protection observed or named. Contrasts with effective I • nondistorting lump sum redundant appellation for a tariff. 129 ~ These include non-specific sub. vided by a tariff.ences. often only implic• nominal tariff I itly. ignoring I effects of other trade barriers • nondistorted on the industry'S inputs. Many . the tariff itself. i. Contrasts I the property of an economic with real exchange rate.e. I the view where a restriction on Imports may serve a purpose Economics================== II . ~ • non-automatic licensing I import licensing that is discre~ tionary. lump sum tax or subsidy.

eiinclude goods whose shares of . any policy or official practice pose is itself the restriction of : that alters the conditions of intrade. or at least by government and by central they were until it becan1e complanning rather than by free use I mon to speak of trade in serof markets. this is a subsidy which is available to shorthand for a complaint that more than a single specific in. I • nonviolation • non-specific subsidy I in WTO terminology. Unless that pur. The achieved at lower economic cost term is therefore broader than in other ways. high.I that act to increase trade as well put.~ • Nontariff Measure (NTB) nomic models. they are often mena COlIDtry in which most major I tioned as exam pIes of economic decisions are imposed I nontraded goods. Except when services are I being distinguished from • non-market economy goods.I a country's action. increases as incomes increase. market economy. consumption. tion which is done without I • normal good sterilising its effects on the doany good for which the demand mestic moneY'supply. though not a dustry and is therefore non-acI violation of WTO rules. I nontariff barrier. but usually applied • nontraded good to consumer preferences that I a good which is not traded. nullified or impaired a • nonsterilisation member's expected benefits the exchange market interven.. ther because it cannot be or beexpenditure rise (and others cause trade barriers are too that fall) with income. etc. has tionable under WTO rules. homothetic.ics . then this is a second-best ~ ternational trade. although the • nonhomothetic two are usually used interany function which is not changeably. Contrasts with a vices. including ones argument. can be as those that restrict it. since changes in out.130 nonhrmwthetic I norma/good II outside of conventional eco.I from the agreement. ========* II =~=====Econo".

in exchange for foreign cur. in contrast to positive which is about 'what · > 1S •. These are usually ~ purchases or sales of its own : currency in the exchange mar~ ket. . • official reserve transactions : transactions by a central bartk ~ which cause changes in its offiI cial reserves. 131 • normal value price charged for a product on the domestic market of the producer. : ~ . but in real models. . such as most trade models. for example. not on facts. the quantity of one good which a country will export (or 'offer') for each quan ~ tity of the other that it imports. for a twogood model. The numeraire can also be defmed implicitly by. This may be a currency. a diagram which combines ~e offer curves of two countnes (or one country and the rest of world) to determine equilibrium relative prices. It identifies 'what ought to be' if such values are adhered to. • normative the value judgements as to 'what ought to be'. • numeraire the unit in which prices are measured. rencies or other foreign-cur: reney-denominated assets. • offer curve a curve showing. Also called the reciprocal de: mand curve. it is convenient for ~ representing both exports and I imports in the same curve and : can be used for analysing tar~ iffs and other changes. In I Economics====================== II . the numeraire is usually one of the goods whose price is then set at one. I M I )( I • normative theory the theory which depends on underlying values. the requirement that prices sum to some constant.II normal value I official reserve trans7============ . ~ • offer curve diagram ~ . Used to compare with export pnce in determining dumping.

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the balance of payments, a purchase of its own currency is a credit (+) and a sale is a debit
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• offset requirement as a condition for importing into a Gountry; a requirement that foreign exporters purchase domestic products and/or invest in the importing country. • offsets side payments or other commitments made by countries or corporations to secure export orders. In the aerospace industry, companies often have to subcontract parts production and/or to transfer technology; in order to receive a pllrchase order. However, offsets can take many other forms, including barter trade. • Ohlin definition the price definition of factor abundance. In contrast to the quantity definition, the price definition incorporates differences in demands as well as supplies. Due to Ohlin (1933). • OLI Paradigm represents a mix of three different FDI theories = 0 + L + I,

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each with a different focus or question: 0: Ownership Advantages (Firm Specific Advantages) address the why question. L: Location Advantages (Country Specific Advantages) focus on the where question. I: Internalisation Advantages refer to the how or organisational question. • oligopoly a market structure where there are a small number of sellers, at least some of whose individual decisions about price or quantity matter to the others.
Pr1ce

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oligopsony a market ~tructure in which there are a small number of buyers.

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one cone equilibrium a free-trade equilibrium in the Heckscher-Ohlin Model where prices are such that all goods can be produced within a single country; and there is

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<;>lily one diversification cone. This will arise if countries' factor endowments are sufficiently similar compared to factor intensities of industries. Contrasts with multi-cone equilibrium.
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lation.

- one-way arbitrage the use, by a potential supplier or demander in a market, of a different market or markets to accomplish the same purpose, taking advantage of a discrepancy among their ; _ open position prices. With transaction costs, this enforces smaller price dis- I an obligation to take or make crepancies than would be per- delivery of an asset or currency mitted by conventional arbi- I in the future without cover, that trage. Due to Deardorff I is, without a matching obligation in the other direction that pro(1979). ~ tects them from effects of change - one-way option ; in the price of the asset or curthe situation of a speculator on : rency. Aside from simple owneran exchange market with a ~ ship and debt, an open position pegged exchange rate. If there is ; can be acquired or avoided using doubt about the viability of the : the forward market. peg, the speculator can sell the I : - open regionalism currency short, knowing that there is only one direction (one ~ regional economic integration way) that the currency is likely I which is not discriminatory to 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.

~ • Open Market Operation ; (OMO) : the sale or purchase of governI : ment bonds by a central bank, I in exchange ·for domestic cur~ rency or central-bank depos: its. This changes the mon~ etary base and therefore the ; domestic money supply, con: tracting it with a bond sale and ~ expanding it with a bond pur; chase.

E&onomics=======

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Adopted as a fundamental principle, but not defined, by APEC in 1989. Bergsten (1997) offers five definitions, ranging from open membership to global liberalisation and trade facilitation. • open-economy multiplier the simple Keynesian multiplier for a small open economy. Equals l/(s+m), where s is the marginal propensity to save and m is the marginal propensity to import. • opportunism the suggestion (widely associated with transaction cost analysis) where a decisionmaker may unconditionally seek his/her self-interests, and that such behaviour cannot necessarily be predicted. This proposition extends the simple self-interest seeking assumption to include 'self-interest seeking with guile', thereby making allowance for strategic behaviour. • opportunity cost the cost of something in terms of opportunity foregone. The

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opportunity cost to a country of producing a unit more of a good, such as for export or to replace an import, is the quantity of some other good that could have been produced instead. • optimal currency area the optimal grouping of regions or countries within which exchange rates should be held fixed. First defined (as 'optimum currency areas') by Mundell (1961). optimal tariff the level of a tariff which maximises a country's welfare. In a nondistorted small open economy, the optimal tariff is zero. In a large country, it is positive, due to its effect on the terms of trade.

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Even then. • optimum optimorum the best of the best or the global optimum. : I . • Organisation for European Economic Cooperation (OEEC) ~ an internatioQ.outputa7ting ~ 135 • optimal tariff argument an argument in favour of levying a tariff in order to improve the terms of trade. a complete alloc~tion of . an OMA is effectively a multi-country VER. factors and goods that m some: I sense maximises welfare. . countries to restrict the quantities traded of a good or group of goods. this is a beggar thy neighbour policy. or in general equilib. since it lowers welfare abroad.: ject to a technological con. a profit maximising .~ rium. it had 30 member countries.' As of July 2002.: sumers subject to a budget con.~ straint. Usually refers to a . most preferred choice by con. In . 1961. to refer to the best among these. • Organisation for Economic Cooperation and Development (OECD) an international organisation of developed countries which 'provides governments a setting in which to discuss. I : • output augmenting I : said of a technological change • Orderly Marketing Arrangement (OMA) ~ or technological difference if an agreement among a group .~ straint.II optimal tarijfargument . The argument is valid only in a large country. develop and perfect economic and social policy. established in 1~48 as the re: cipient institution of aid ~ through the Marshall Plan. it was replaced by the : OEeD. : ~ I I : • optimum ~ the best. when there are several allocations each of which is locally optimal. one production function proof exporting and importing : duces a scalar multiple of the I Bconomics======= II . choice by firms or industry sub. Since the impetus normally comes from the importers protecting their domestic industry. . This term is used. only if other countries do not retaliate by raising tariffs themselves.al organisation .

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other. Also called Hicks neutral. • over-valued currency the situation of a currency whose value on the exchange market is higher than is believed to be sustainable. This may be due to a pegged or managed rate that is above the market-clearing rate, or, under a floating rate, it may be due to speculative capital inflows. Contrasts with under-valued currency.
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Pareto criterion the criterion that for change in an economy to be viewed as socially beneficial, it should be Pareto-improving.

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Pareto optimality the condition which exists when it is impossible to make any individual better off without making any other individual worse off.

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• para tariff a charge on imports which is not . included in a country's tariff I • Pareto-optimal schedule, such as a statistical : a situation where no Paretotax, stamp fee, etc. I improving change is possible. • parallel import trade which is made possible when the owner of intellectual property causes the same product to be sold in different countries for different prices. If someone else imports the low-price good into the highprice country, that is a parallel import. • para-tariff a charge on an imported good instead of, or in addition to, a tariff.
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• Pareto-improving making no one worse off and making at least one person better off.

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partial equilibrium equality of supply and demand in only a subset of an economy's markets, usually just one, taking variables from other mar

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kets as given. Partial equilibrium models are appropriate for products that constitute only a negligibly small part of the economy. They are used routinely (not always appropriately) for analysis of trade policies in single industries. Contrasts with general equilibrium. - pass-through the extent to which an exchange rate change is reflected in the prices of imported goods. With full pass-through, a currency depreciation, which increases the price of foreign currency, would increase the prices of imported goods by the same amount, and vice versa. With no pass-through, prices of imports remain constant. - path dependency reference to effects of past commitments or acquired knowledge on subsequent actions and decisions. Recognising that 'history matters' for a future course of action or development, such past commitments or learning activities could entail previous investments, e.g. in transaction-specific assets, contracts, research & development, or the
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pool of (usually locally) learned I behaviours and organisational routines which constrain (in~ eluding spatially) future activiI ties. ; - path dependent ~ the property where you get to : depend on how you got there. ~ That is, if the equilibrium that ; will ultimately be reached by a : system depends on the values ~ of variables taken on away from ; equilibrium, then the equilib: rium is path dependent.
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: - patriotism argument.for ~ protection I the view in which one is help~ ing one's country by buying do: mestically produced goods in~ stead of imports. In a ; nondistorted economy, this is : not correct, since the country ~ can do better producing where ; it has a comparative advantage : rather than using scarce re~ sources where it does not.
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~ - pattern of specialisation what all goods a country pro-

~ duces and what it does not pro: duce.

: - Pauper labour argument I the view that a country loses by

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importing from another country which has low wages, presumably by lowering wages at home. This view ignores the fact that low wages are due to low productivity, and that the high-wage home country, with high productivity, will have comparative advantage in some products and will gain from trade. • perfect competition an idealised market structure where there are large numbers of both buyers and sellers, all of them small, so that they act as price takers . Perfect competition also assumes homogeneous products, free entry and exit, and complete information. Most international trade theory prior to the New Trade Theory assumed perfect competition.
Price

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perfect foresight exact knowledge of the future. Under perfect foresight, for example, the forward rate would exactly equal the spot rate, that later prevails when the forward contract matures.

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• perfect substitute <l good which is regarded by its demanders as identical to another good, so that the elasticity of substitution between them is infinite. perfectly competitive refers to an economic agent (firm or consumer), group of agents (industry), model or analysis that is characterised by perfect competition. Contrasts with imperfectly competitive. • perfectly elastic refers to a supply or demand curve with a price elasticity of infinity, implying that the supply or demand curve as usually drawn is horizontal. A small open economy faces perfecdy elastic demand for its exports and supply of its imports, and a foreign offer curve that is a straight line from the origin.

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.. etc. Perfectly Elastic & Inelastic Demand p"" p. Permatemps tend to receive I collusion. re• personal distribution I gardless of the location of the the distribution of income on I plant from which delivery is acthe basis of income groups. The mill price at one lower wages and less benefits. example. or location.II peifo'mul-ncerequirement Iplace Utili.. domestic content.. I location determines the delivered price at all locations...r. • personal mastery one of Senge's 5 principles for &onomics======== II . ~ P"j«dyln</a.. they perform regular jobs and work over extended periods of I • Pittsburgh Plus time with other workers who I a form of spatial price discrimiare given regular employee sta. I I the learning organis ation : 'learning to expand our personal capacity to create the results we most desire.nation based on oligopolistic tus. in order to obtain an import or export license. I I • permatemps • phytosanitary workers arbitrarily classified as ~ pertaining to the health of 'temporary' by employers while I plants. For tually made. in terms of exporting.« 139 I I C o Q-y P.'vEl.' • pessimum distance reference to the (possibly) disadvantageous location of a smaller city relative to a larger one. satisfaceach of these groups had of the I tion) associated with or derived from the attributes of a place total income.. . D I I Q7 • performance requirement a requirement where an importer or exporter achieves some level of performance. by dividing all income I recipients into ten groups : • place utility I (deciles) and showing the share the utility (benefits.r. and creating an organisational environment which encourages all its members to develop themselves towards the goals and purposes they choose.

especially political ones. a field within economics that an agreement reached in 1985 I concerns the interactions beamong the central banks of : France. appreciated substantially since • political economy of 1980. to indicate that there is a wide range of discretionary. 3. but not a great many. among several countries II = = = = = = = = E c o n o m i c s . a field within economics encompassing several alternatives to neoclassical economics.S. Germany. two years later. which had economic policies. I I I 1.140 Planned Unit Development :UD) I political econmny ofprotection II • Planned Unit DevelopI more than two. Also called radical political • Plaza Accord I economy. including Marxist economics. 2. that would be ment (PUD) I bilateral. mixtures of : larger multilateral agreements. the I the study of reasons. I in which the former are signed usable open spaces a. early name for the discipline of economics. housing types and land uses. Japan.I protection vre Accord. dollar. a land development project which would be multilateral. legitimate decisions within which the user may choose. especially of the U. • planning curve the long nm average cost curve. comprehensively planned as an • plurilateral agreement entity via a unitary site plan I the plurilateral agreements of which permits flexibility in I the WTO contrast with the building sitting.nd the I onto by only those member preservation of significant natucountries that choose to do so. in which the coundollar had fallen 30%. By the time of the Lou. US ~ tween political processes and and UK to bring down the value I economic variables. while all members are party to I the multilateral agreements. ral features. • plurilateral tries choose to use protection. I • political economy • plasticity resources and investments are called 'plastic'.

I.refers to 'what is'.I goods which are at least in part tions. with them (or minimise the risk .to normative which involves nominated assets in portfolios. Economics======= II . Considered a distortion I because the first agent has inI adequate incentive to act. value judgements as to 'what The exchange rate adjusts to ought to be'.rrms for the tourism I industry (a production externalI ity) and ·reduced contagion of disease due to vaccines (a consumption externality). etc.. and campaign contribu. having given degrees of I risk and uncertainty associated . as these lead policy male. in an international agreement. Usually refers to such transactions across national borders and/or across currencies. in contrast tions of different currency-de. entities. ther 'negative' or 'harmful'. equate these proportions to de.e. • positive role in changing the propor. a list of those items. • portfolio investment the acquisition of portfolio capital. change rates which stress their . ExI amples are the attractiveness of well-kept fr. how an investor can maximise the expected return from a 'portfolio' of various kinds of financial assets. • portfolio flow the sale or purchase of fil!ancial assets across countries. The word is not. involved in realising some given : products.: demanded because their possesers to erect tariffs. ~ sion or consumption implies I social or other status of those • portfolio approach an approach to explaining ex. the opposite of eisired levels. lob.II portfolio approach I positive list 141 *================ Includes models of voting. ~ • positive list • portfolio theory the analysis as to .in this use.~ • positional goods bying. a beneficial effect of one ecoI nomic agent's actions on another. with no expected return).~ acquiring them. to which the I agreement will apply. • positive externality a beneficial externality.

like predatory would decline over the long pricing (predation) in other term.contexts.""14.. with the intent. In reality. dumping for the purpose of I driving competitors out of bus i• Prebisch-Singer Hypoth.I people experience when they hibit or restrict its use until it is have access to a larger number known to be safe.2==========:Ostmodernism I preferenceforl1ariety II commitment to apply the agreement to anything else. and therefore that de.. I GMOs. from entering into the market• precautionary principle place. of raising prices to gain monopoly profits. . once they are gone.I ness and then raising price. • predatory dumping I • I • postmodernism a still tenuous attempt to lend identity to a new era beginning I in the early 1970s which is associated with changes from and reaction to certain attributes of I modernity or modernism. veloping countries that were I • predatory pricing led by comparative advantage to specialise in them would I a company engages in predafind their prospects for devel. This is·the one motivation for dumpesis the idea where the relative ing that most economists agree prices of primary products I is undesirable. the view that when science has I • preference for variety not yet determined whether a I the increased utility which new product or process is safe or unsafe. predation the use of aggressive (low) pricing to put a competitor out of business.. more closely suited to their own ~fl ====================Bconomics .I tory pricing when it sets the opment diminished. Due to price of its goods very low. Applied to I of differentiated product varitrade. Contrasts with negative list. for example.. this has been used as the ~ eties. in Prebisch (1950) and Singer I order to eliminate its competiI tors and prevent new companies (1950). this may reflect their ability to find products basis for prohibiting imports of . policy should pro.

ity.ences Iprice definition particular ne~d~. in trade theory. countoms unions. they are better off consuming small quantities of each of a larger number of products. 143 *======= ~ • present value . "n ~ in country J. Encouragement to e: relative to factor Y iff wXA/ this term instead of the m re ~ wYA < wXB/wYB. J=A.II J!refoY. the value today of a stream of : payments and/or receipts over ~ time in the future and/or the . • preferences 1.~delled in the Doot-StIglitz utIlity function. tra e ~ porting country. in trade policy. interest rate. b~t . c s. as . rangement ~ • price definition a group of countries which ~e 'Y ~ a method of defining relative lower (or zero) tariffs agal st . accorded to another country's exports.: goods done in the exportmg wards different goods. used as a means to prevent identical and/or homothe ic .B. then present value ~ at time t=O is V = St (Xt)/ : (1 +r)t. factor abundance based on raimports from members th n : tios of factor prices in autarky: outsiders.or under-invoicing. Includes FTAs. I=X. past. this refers to special advantages. and common m . converted to the prese~t : using an interest rate. b • preferential trading ar: rity measure. is the autarky price of factor I misleading FfA has come fr Jagdish Bhagwati. If Xt IS '. and/or identity of tra~ed the attitudes of consumers to.used also as a secu. Traditionally theory use the assumptlon f. try A is abundant in factor X kets. : now beino.~ Compared to country B. .. Bhagwati and Panaganya E&onomics======= 1/ . 2. ~uc h as lower-than-MFN tanffs. it is Preferences. where wIJ . this refers to . ~ • preshipment inspection ment. qual. . over..Y.~ country by specialized agencies resented by a utility functlon.as m. or firms on behalf of the imSome propositions in. ~ certification of the value. the amount in period t and r the . usually in order to promote that country's deve1op~ (1996). as :ep.

a n ti c Own and . Applies also to a country if it is a small open economy. =~~~·i~Y Price. When this occurs internationally and the lower price is charged for export. generally measured empirically by a price index. "'. • price level the overall level of prices in a country.iod 8 . I P. I manded of a good or service in response to a change in price • price inelastic having a price elasticity of less than one (in absolute value).. • price elasticity of demand change in the quantity de I • I /I I I I I price line a straight line representing the combinations of variables. • price undertaking a commitment by an exporting firm to raise its price in an importing-country market. and changes in prices can therefore be represented by changing the slope of. government action to Increase the price of a product. .""l". May be associated with a price floor. or rotating. as a ~ P. a price line. I I I I I I II = = = = = = = = E c o n o m i c s .. and that therefore must take that price as given in making its own decisions. • price elasticity the elasticity of supply or demand with respect to price. usually two goods.44============~e discrimination I price undertaki1ltf • price discrimination the sale by a firm to buyers at two different prices. • price support . Applies to all buyers and sellers in markets that are perfectly competitive. • price taker an economic entity which is too small relative to a market to affect its price. The slope of a price line measures relative prices. it is regarded as dumping. P. but often captured in theoretical models by a single variable. . A steeper line means a higher relative price of the good measured on the horiwntal axis . usually by buying it. ~ P' . that cost the same at some given prices.

Conhuman capital (or skilled : trasts with social benefit. • pricing to market the practice of an exporting firm holding fixed (or not fully adjusting) the price it charges in the export market when its costs or exchange rates change.~ ing an additional unit of a good ing suit and preventing an anti. ~ returns I the proposition which states that ~ the marginal product of the last : unit of labour employed deI clines as additional units of . the proposition that the satis. The stock is not used up in production.I trasts with sqtial cost. leading est payments on its outstand. Important espe• primary factor cially for explaining why counan input which exists as a stock I tries may choose protection providing service that contrib. such as a conservices later. sumer or firm. or service declines as additional : units are acquired. and sometimes : . . or policy change.. I *================ : _ principle of diminishing . cooperated. such as a conmarginal utility . or policy change.even though all lose as a result. capital.~ .II pricing to 11UJrket I private cost 145 means of settling an anti-dump. action. . mary factors are labour.ally by not cooperating. the benefit to an individual ecouse. dumping duty. : the cost to an individual eco• principle of diminishing ~ nomic agent.Prisoners' dilemma • primary budget surplus the primary budget surplus a strategic interaction where (or deficit) of a government two players both gain individuis the surplus excluding inter. al. Confaction derived from consum.to a Nash equilibrium in which both are worse off than if they ing debt. . I labour).: action.~ sumer or firm. from an event. The major pri.private benefit though it may deteriorate with .private cost I natural resources. providing a smaller flow of : nomic agent. land. Economics======== II . from an event. labour are employed. utes to production.

if paid I directly to producers per unit of ~ production. it measures 'transfers from consumers and taxpayers to agricultural producers as a result of measures (of) support. I • I I I I I I I I I I • producer subsidy equivalent I 1. a function whose integral over any set is the probability of the variable being in that set. • producer presence a mode of supply of a traded service in which the producer establishes a presence in the buyer's country by FDI and/or permanent relocation of workers. product cycle associated with observed regularities in the way in which the production and marketing of products change during the life of a product and thereby change their interaction with and demands on their environment. II ========&onomies . Producer Support Estimate (PSE) introduced by the OEeD to quantify support in agriculture. I • product cycle the life cycle of a new product. producer support estimate. then as it becomes standardised and more familiar. 2. would lead to the I. Also called producer subsidy equivalent.I ing policies serve to subsidise producers.' expressed as percentage of gross farm receipts. I same level of output as existing policies. that first can be produced only in the country where it was developed. this ought logically to measure the extent to which exist. can be produced in other countries and exported back to where it started.146 privategoods I product cyck I II =========* • private goods a good that cannot be consumed without paying for it and the supply of which is reduced when it is consumed by a particular user of it. • probability density for a continuous random variable. • probability distribution a specification of the probabilities for each possible value of a random variable. defined as the ad valorem subsidy that. Due to Vernon (1966) .

the use of government policies is superior to that being offered : to alter the outcome of internaby competitors. data on production .I port subsidies or subsidies that binations of inputs.prohibited subsidy .profit maximising ~ word has a negative connotathe level of a variable or .~ international trade. to : of foreign firms. Includes embargo.prohibition the range of possibilities for a ~ denial of the right to import or particular economy. applying to particular : products and/or particular . ~ tional oligopolistic competition _ product localisation I so as to increase the profits of modifying and adapting for.~ domestic firms at the expense eign-made products/services.~ .protectionism resent unskilled labour. These include subsidies that are . . zero. . In empirical stud.production externality an externality arising from pro. : advocacy of protection.: a subsidy which is prohibited ~ under the rules of the wro.prohibitive tariff ies of skilled and unskilled ~ a tariff that reduces imports to labour.production worker a worker directly engaged in ~ countries. . market. =========14=7 _ product differentiation ~ profit of a firm. duction. . production. causing buyers to believe that a ~ . export. and few advocates of behaviour that maximises the protection in particular situa- Eeonomics======= II .II protluatliffiren#lltWn Iprotectionirm. policy.production possibilities I levels of output that are within : . ~ require use of domestic rather : than imported inputs. workers are often taken to rep~ .production function : specifically designed to distort a function that specifies the out. . This is a key render them suitable for a new ~ element of strategic trade . such as exput in an industry for all com. The . tion.profit shifting particular version of a product .

involving the trade ministers of the U . • protocol of accession legal document specifying the procedures for a country to join an international agreement or organisation.. • quality multiplier I I I I secondary effects resulting from learning.. innovative activiI ties and quality improvements I · of existing products or technologles. EU and Japan. Useful for making comparisons of real values (wages. this contrasts with the nominal exchange rate... GDP) across countries with different currencies. iff XA/YA > II = = = = = = = = E c o n o m i c s . the U. Since the purchasing power parity theory is rarely correct. country A is abundant in factor X relative to factor Y. push-pull factors push factors act to drive people or goods and services away from a place whereas pull factors draw them to a new location. including the rights and responsibilities that accompany such accessIOn. computed to yield absolute purchasing power parity. • quantity definition I I I I a method of defining relative factor abundance based on ratios of factor quantities: Compared to country B. in either its absolute or its relative form. • public goods a good that can only be supplied to all if it is supplied to one and the availability of which is not diminished by anyone consumer's use of it. Canada.8===========~OCOI o/accession I quantity definition tions will acknowledge being protectionists. EU and Japan to discuss trade policy issues.. Canada.1""4. I • I I I I • quad refers both to the Quadrilateral Meetings and to the participants in those meetings. • purchasing power parity exchange rate an exchange rate. • quadrilateral meetings meetings which occur occasionally. • purchasing power parity theory a theory of the exchange rate that the rate will adjust to achieve purchasing power parI II ity.".S.S.

.IllJUantity theory ofnumey I relICtion C:ient XB/YB. . . . . This is useful for gen. 1n• quota rent ~ put-output coefficients.I exchange rate with an over-valerating demand functions for : ued currency. Done by a firm ~ is (structurally) linked to anwhich exports into the domes.. their own prices in terms of the . / • quasi-linear utility a utility function of the form ~ • ration foreign/exchange U(xO. where II is the quantity of factor I with which country J is endowed. iff. ~ .: systems model. 1=X. This between the quantity of money ~ range refers to the maximum in the economy and the price : distance over which a product level. Due to Bhagwati : the independent subsystem) on (1985). ~ another variable (representing I the dependent subsystem). 'prothe economic rent received by : pensities to consume locally' the holder of the right (or li~ (pel) and probabilities in trancense) to import under a quota. J=A. price.B. ~ can be sold at a givenEo. I E&onomics======== II . sition matrices represent exEquals the domestic price of the : amples. other subsystem within a larger tic market. • range • quantity theory of money ~ usually used in the context of the idea that there is a direct link I the 'outer range' of a good. 149 ~ imported good. • reactlon coeffi Clent I • . numeraire xO. minus the world price times : the quantity of imports.. The coefficient ate jobs there and lessen the . the motive is to cre. ~ specifies the impact of a change threat that its exports will be I in one variable (representing restricted.x1.B. eral reference to the manner in FD1 in response to the threat : which a dependent subsystem of protection. ~ terms used as a relatively gen• quid pro quo FDI . : to ration access to scarce forwhere ui( x) are strictly concave ~ eign currency under a pegged functions.xn) = xO + Siui(xi). net of any tar.Y. Usually done by goods xi that depend only on ~ means of import licensing.

0 0 . • real 1. cient of horu:onUI t ubcr adt koH(N/c. refers to the real exchange rate. a real appreciation means that the nominal ~alue of a country's currency has Increased by more than its I I I I • I I I I I I real exchange rate 1. Real Estate Investment Trust (REIT) a trust (corporation) which pools the capital of different investors to acquire (or provide financing for) all forms o(real estate.0 5 . the quantity of domestic goods needed to purchase a unit of foreign goods. 1/ =======Economics .=~~~~~~~~~~~= Ho. relative price level. The real exchange rate is: R = EP* jP where E is the nominal domestic-currency price of foreign currency. Most familiar specifying output choices of firms In a Cournot duopoly. which may have decreased. the real price of foreign goods. and P* is the foreign price level. 0 ' .0 20 1.e. i. adjusted for inflation. used with 'appreciation' or 'depreciation'.0 '. • reaction function the function that specifies the choice of a strategic variable by one economic agent as a function of the choice of another agent. the nominal exchange rate adjusted for inflation. A REIT functions like a mutual fund for real estate.' ] r~actlort I • • reaction curve the graph of a reaction function ..0 3 . as ill real models. 2. so that the prices of its goods relative to foreign goods have increased.) " . 3. II 0 .1.iZl:lnt:81 dicplace. or monetary ones.0 .0 4 ..ent V{c..0 150 * I reactum curve I real exchllrngerate .0 : I :!20 1. Thus. Unlike most other real variables . P is the domestic price level. I o 10 ~ ~ ~ ~ ~ ~ ~ I Coeff. • real balance effect the influence that a change in the quantity of real money has on the quantity of real national income demanded.0 . 2. this adjustment requires accounting for price levels in two currencies. referring only to real economic variables as opposed to ~ominal.

the ~ • redistribution policy Heckscher-Ohlin Model. : importing) to be spent like any ~ other income.: iff revenue is given to consumsources. measures taken by government the models of the New Trade : to transfer income from some Theory. This includes the Ricardian Model.I proportion to what they paid by flation. : forbidden under WTO rules. ~ • real national income national income adjusted for ~ inflation. the nominal interest rate which is adjusted for inflation. A 'wage expressed . the relative price of traded ~ This terminology is used in the goods in terms of nontraded I Agriculture Agreement. Since in general • real model I equilibrium the effects of a taran economlC model without ~ iff depend on how the revenue money. Equals the nominal in. in real terms' is just the real : wage. . ~ however there is no red box. 3. Equivalent to I a category of subsidies which are definition l. will not change the quantity of imports.~ ers as transfer payments (not in terest rate minus the rate of in. either because the tariff is prohibitive.: is spent.1\ reIIl interestmte I reflexivity 151 *==============~ Equals the reciprocal of the ~ • red box terms of trade. : • real terms ~ same as real. models. Most general equilib. I : I • redundant tariff a tariff which. where goods. this is a useful neutral rium models of trade are real ~ assumption. : Presumably equivalent to pro• real interest rate I hibited subsidies. to get I • redistributed tariff revenue the percentage yield an asset . • reflexivity a post-structuralist concept in- Economics======= II . ~ individuals to others. and . a common assumption that tarholder gets in terms of real re. if changed. or because some other policy such as a quota or an embargo is limiting quantity.

these I theories suggest the dominance • region contiguous areas with common of the 'mode of regulation' (soor complementary characteris.I of the capitalist economr Rejecting market forces as ronment and context. foone's own knowledge and un.I supply and relative demand.cusing on structure and change derstanding of one's local envi. allocative mechanisms. Used good economy.152 =~~=""'='====* region I relative location II creasingly used in industrial so. including in both interna. 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 locato income decreases as income II = = = = = = = = & o n o m i c s .I other.good to the demand for aning a straight line which ap.I price adjusts to equate relative ics. most useful in representproximates the information in I ing general equilibrium in a twoa group of data points .I mcreases. I motivate(s) individuals to achieve economic stability. • regional policy in a trade context. 'ments: I • relative demand • regression analysis I the ratio of the demand for one the statistical technique of fmd. I a statement related to the dis• regionalism tribution of market share in hinthe formation or proliferation I terlands of competing cities or of preferential trading arrange. 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. government rules tics or linked by intensive inter. where relative throughout empirical econom. this usually • Reilly's law of retail gravitation refers to a regional aid.I shopping centres.cial norms.I and private practices) which action or flows. tional trade and finance.

I. from government policies. the ratio of two prices. the relationship between the prices of different goods and services. or other forum. . I : .rent grad.II relative price I rent seeking ~ 153 *================ . the payment to the owner of : land or other property in return ~ for its use.. the using up of real resources : in an effort to secure the rights sults over time. I 2. the price of one thing (usually a ~ood) in ter~s of another. or the pre. ____ . In in a trade dispute in the wro : international economics.e.remedy .. tions. lent ~ a representation of the decline .rdiability Di. . the measure recommended by the dispute settlement panel to resolve the dispute.rent seeking consistent measurements/re.relative price 1. I most useful in representing I Rent ~ general equilibrium in a twoper:n~rc I lJeight of good economy. s good to the supply of another. May be thought of in terms of the amount of one good which can be had for a certain expenditure compared to the amount of another good which can be had for the same expenditure.bncc caD the ability of a statistical instrument to come up with similar/ ~ . ~ to economic rents that arise . .rent ~ 1. 2. the I ~onomics======== 1/ . : ~ . in rent with distance from a the ratio of the supply of one : market or centre. where relative Buildinss price adjusts to equate relative I supply and relative demand. ~he relatiive price ~f good X ill terms of good Y IS pX/ pY</SUB< i>. economic rent. mium that the owner of a re: source receives over and above ~ its opportunity cost. usually a measure which will bring the offending country into compliance with wro (or other) rules.relative supply . : ~ .

that is. Using up resources to win such privileges from governments or their agencles. • rent-seeking the activities of individuals or firms to obtain special privileges. and it therefore has the form of a rate of return like an interest rate.S. precious metal such as gold or SDRs. • results-based trade policy the use of trade policies targeted to specific indicators of economic performance. to prevent other firms from selling their product in their market. the U. insisted on achieving specified market shares in trade with Japan. Since capital can only be measured in monetary units. often because it is an intervention currency. • rental price the payment per unit time for the services of a unit of a factor of production. I I I I I I I I I I I • I • revealed preference the use of the value of expendi- II ========E&onomies . the rental price is. • reserve currency a currency that is used as international reserves. from assets rather than labour. This is a restraint of competition and would normally be illegal under competition policy. in the early 1990s. such as land or capital. • return to capital same as the rental price of capital. which will enable them to increase their incomes. dollars per dollar's worth of capital per unit time. more broadly. • reserve asset any asset which is used as international reserves. • rentier a person whose income comes mainly from rent on land or. I I I • restrictive business practice action by a firm or group of firms to restrict entry by other firms. such as monopoly power. For example. including a national currency. returns to scale same as increasing returns to scale.154 ================~* rental price I revealed preforence I II term usually refers to efforts to obtain quota rents. say.

&onomics======== II . the higher expected return • reverse engineering ~ (in the sense of ~athematical the process of learning how a : expected value) which an uncerproduct is made by taking it ~ tain asset must pay in order for apart and examining it. Risk aversion is usually quantified by the mathematical expected value that one is willing to forego in order to get greater certainty. • Ricardian Model the classic model of interna. competition and a single factor : of production. : risk aversion desire to avoid uncertainty. and it is therefore common in the early stages of a country's development. ! : • risk : 1. the difference between the tional trade introduced by . with con~ stant requirements of labour . a tariff is one of the easier taxes to collect. Dif: fers from definition 1. the probability of loss. Many other kinds of tax cause smaller distortions and are hence preferable to tariffs for this purpose.~ 2. pattern and the gains from 3. per unit of output that differ : across countries. . However. risk averse investors to be will: ing to hold it. ~ • risk premium I 1. labour. interest rate on a risky asset and David Ricardo to explain the I: that on a safe one. I I • ~ : ~ • revenue seeking the use of real resources in an ~ effort to secure a share of the disposition of tariff revenues. 2. because ~ 'uncertainty' includes probabilI ity of gain as well. It assumes perfect . ~ advantage.II revenueargumentfora tariff I risk ~~iU~m=========~1~5~5 ture to 'reveal' the preference of a consumer or group of consumers for the bundle of goods they purchase compared to other bundles of equal or smaller value. . • revenue argument for a tariff the use of a tariff to raise revenue for the government. in exchange markets. the diftrade in terms of comparative I ference between the forward . uncertainty that associates I with a transaction or an asset.

. satisficing 1. Usually plural: sanctions. as when an international organisation sanctions the use of particular economic policies. . SPS measures are subject to rules in the WTO to prevent them from acting as NTBs. plants and animals. -SAP Structural adjustment program. so as to cross between members without tariff.sanction 1. 2. satisficing 1/ I I =================* rate and the expected future spot rate. the agreement to remove all GATT-inconsistent trade-restricting and trade-distorting measures by the time negotiations were completed. _ Ru1es of Origin (ROO) rules included in a FTA specifying when a good will be regarded as produced within the FTA.rollback 1. . at constant prices. the phasing out of measures which are not consistent with an agreement. _ Rybczynski Theorem the property of the HeckscherOhlin Model that.156 rollback I satisficer. in the Uruguay Round. Due to Rybczynski (1955). Typical ROOs are based on percentage of value added or on changes in tariff heading. . a forceful measure used by a nation or group of nat:ions against another as a penalty for violating international law or international norms. an increase in the endowment of one factor inI I creases the output of the industry that uses that factor intensively and reduces the output of the other (or some other) industry. as in the GATT and WTo. to approve or give permission for an action. satisficer.Sanitary and phytosanitary regu1ations(SPR) government standards to protect health of humans. a references to behaviours that are constrained by limited information and 'bounded ra- I I I I I I I I I I I I I I II = = = = = = = = E c o n o m i c s .ru1es-based trade policy institutional arrangements in which national trade policies are governed by internationally agreed-upon rules. 2.

second-best argument for . I I . 1. relative to other factors. an argument for protection an economic rent that is due to . .7 tionality'.."". Contrasts with the optimising behaviour usually assumed in economics and trade theory. it was incorporated into the European Union. are conditioned by the individual's 'aspiration levels'. ~ I : ~ I .II saPingfunction I second-best RI. any argument for protection : which can be countered by ~ pointing to a different and less .gUmen:=J1t1=rJte&=tuJn". compared to other countries.5.======""1". _ scientific tariff : a made-to-measure tariff.scale economies I : surcharge. : ~ . :-SDR : Special Drawing Right.scarce factor the factor in a country's endowment with which it is least well endowed..secondary tariffs the relationship between saving ~ any charges imposed on imand national income.. Currently (2001).K. increasing returns to scale. . but not yet much in international.. : .. ports in addition to the statu: tory tariff. I Eeonomics======= II .. Alternative models based on satisficing are spreading within economics.scarcity rent I 2. the participants include all EU countries except Ireland and the U. rather than the best possible. 2. In 1999. to partially correct an existing something being scarce.. convention) signed in 1985 to eliminate all frontier controls and permit free movement of persons between the participating countries. May be defmed by quantity or by price.· ". protection . distortion in the economy when .Schengen Agreement an agreement (later. distortionary policy that would : achieve the same desired result ~ at lower economic cost.. seeking or achieving '1 satisfactory outcome.saving function : . Satisficers' behavioural objectives are associated with fmding satisfactory solutions (instead of 'optimal' solutions) to problems which. plus Iceland and Norway. : ~ . I . such as an import . in turn. .

nondiscriminatory. this means either age is the benefit that a govern.I for protection tional exchange.' • selective closure a form of plant closure where the decision-maker has options between different plants and where the ultimate decision is based on relative (internal and/ or external) locational merits. thority derives from the ability • self-sufficiency argument to create money. In internaprodu~tion. if domestic production generates a positive externality and a production subsidy to internalise it is not available. In interna. • selective I I I • seigniorage I • self-sufficiency the difference between what I provision by one's self to all of money can buy and its cost of : one's own needs.importing only non-necessities. then a tariff may be second-best optimal.158 secular change 1. if one country's I the view which states that a money is willingly held by an1/ ========E&onomks . This I means one which affects only some countries.I not trading at all (autarky). in contrast to MFN policy. such as a decade or more. This type of closure is 'the most spatially specific type of closure. the first country derives these seigniorage benefits. or ment or other monetary au.lf-SUjJi&iency argumentfor protection " I applied to a trade policy.' the first-best policy for that purpose is not available. not all. tries often would prefer to Distinguished from cyclical I make selective but are required change which occurs in shorter I by GATT Article XIX to be time periods such as a year.~ tional trade. use of safeguards.Therefore. This is the case of a reserve currency. • segmentation a segmented pattern of business organisations where every segment is 'conceived as a number of organisations) with similar characteristics which are both the cause and the effect of their membership of particular economic niches. Selectivity • secular change ~ is an important concern in the change over a long period of . For example. seignior. which countime. I I I other.

sensitive in trade negotiations and agreements. Beonomics======= II . . understood to be more stringent than material injury but otherwise apparently not rigorously defmed. Trade in services is the subject of the GATS. change becomes for relevant ex: change rate decisions. When for~ eign exchange is rationed.shadow price 159 *================ . That is. . ~ the increased value that will be I achieved by relaxing the con: straint by one unit. It may be based on fear that war or foreign governments will interrupt imports. Contrasts with good. the future we seek to create. : ~ . and : the principles and guiding prac~ tices by which we hope to get I there. since many policies could provide for that contingency without sacrificing all the gains from trade. organisation: 'building a sense : of commitment in a group.II sensitin I Shimbel Index country is better off providing for its own needs than depending on imports. person or institution. by ~ developiiIg shared images of . : . the implicit value or cost asso: ciated with a constraint. ~ such as trade-limiting customs I procedures. the ~ shadow price of foreign ex.serious injury the injury requirement of the escape clause. iffs. I . This is a second-best argument.shallow integration ~ reduction or elimination of tar. quotas and other barriers : to trade in goods at the border.service a product which is not embodied in a physical good and that typically effects some change in another product. Shimbel Index measure of the minimum number of links necessary to connect one node with all nodes in the network. ~ . Contrasts with ~ deep integration.shared vision I : one of Senge's five learning dis~ ciplines for the learning .' I _ . : . countries often identify lists of particular sensitive products or sensitive sectors that they regard as especially vulnerable to import competition and that they wish to exempt from trade liberalisation.

size distribution of income the distribution ofincome among groups of income recipients. .~16~O~~~~~~~~~~sm~'t~gaUhalnud~non~immne • Shitauke gaisha a Japanese term that refers to a subcontract( ed) company _ short 1.' meaning to sell it forward in anticipation that its value on the spot market will fall.e. it means to sell short.the market prior to making dehvery. rather than selecting among them. then the exchange rate between them I II I is approximately determined by their two prices in terms of silver. single undertaking a term. An important source of imports for Russia in 1990s. If two currencies are both on a silver standard. used by itself as a verb.' this means that the seller does not currently have the thing being sold. i.simple money multiplier the amOlll1t by which a change in the monetary base is multiplied to bring about the eventual change in the total money supply. such as a rise in the amOlll1t of money that individuals or households may choose to hold as cash when the money supply increases . in trade negotiations. to resell. 2. as 'to short a currency. to the location relative to (in relationships with) other key locations ('relative location'). used with 'sell' or 'sale. . but intends to acquire it on . It is called the simple money multiplier because it does not take into aCCOlll1t possible offsets to the process. for requiring participants to accept or reject the outcome of multiple negotiations in a single package. _ silver standard a monetary system where the value of a currency is defmed in terms of silver. often in their luggage. buying goods and bringing them home. • situation a reference to the 'relational' attributes of a location. • shuttle trade the trade accomplished by individuals and groups travelling to other countries. some people travelling abroad several times a month for this purpose. de- I I I I I I • I I I I I I I I I II = = = = 0= = = E c o n o m i c s .

~ social Darwinists was Herbert proximation) its policies do I Spencer.Social Darwinists I model that a country is too : a disparate group of turn-ofsmall to affect world prices. I I • small country assumption the assumption in an economic : . that may be greater than the :. Economics======~ II . the fittest') as a basis for social world markets in which it par. ing a good or service produced. . not alter world prices or in. social issues who sought to : utilise the Darwinian law of • small open economy an economy which is small ~ natural selection ('survival of enough compared to the . al. ~ utility of the individuals in an • social cost I economy to a level of welfare the real cost to society of hav. • SMAC function an acronym for the CES fimction based on the names of the four authors who introduced it in Arrow et al. • social indifference curve comes. : tions of goods that. though it is sometimes used in the context of only a single . (1961). in.social welfare function : a function mapping levels of product. The country is thus a ~ a curve showing the combinaprice taker in world markets. .~ the-century commentators on comes or interest rates.SOE I Small open economy. private costs incorporated by ~ the producer in its market price.. level of social welfare.1\ SMAC function I SOE I 161 *================ fined on the basis of the size of their incomes.: policy.~ for the economy as a whole.. The best-known of the ticipates that (as a good ap. when availThe term is normally applied ~ able to a count~ yield the same to a country as a whole.

either private or government.Solow model the neoclassical growth model. .Spatial entrapment a concept used to describe the situation of women restricted to distinctly female labour markets close to children and home in the urban periphery. _ Spatial demand curve refers to the aggregate demand curve containing the individual demand of consumers located at different distances from the focal point of supply. that has been granted by government the exclusive right to import certain goods. I I I I . with factor income shares as weights.. . Also called the Solow-Swan Model.space-cost curve expresses the spatial variability of total production costs of a firm with a given output level. In other words. as if the delivered price of the good is increasing for the consumer with distance by the corresponding transport cost.sole importing agency an entity. : ~ I I----\--~--Io/C D... 1\ = = = = = = = = & u n o m i & s . Used to compare sources of growth across countries. Due to Solow ( 1957).2==========s=ole:Porling agency I Spatial entrapment II . Smith (1966) superimposed this spatial cost curve on the I I I I I I I I I I I spatial revenue curve in order to determine the 'spatial margin of profitability'. Also called the growth of total factor productivity.Solow neutral a particular specification of technological change ortechnological difference that is capital augmenting. _ Solow residual a measure of technological progress equal to the difference between the rate of growth of output and the weighted average of the rates of growth of capital and labour.b. prices). as seen from the perspective of the supplier (and her f. demand is aggregated across space. : ~ .""16. .o.

and less of others. Every point on the : originally intended within the curve represents different locaIMF as a sort of international tions but equal total production I money for use among central costs (outlays) based on varybanks pegging their exchange ing (optimal) input combinarates. terms of a basket of currencies.63~ . country's currency. doing less than everything. With many special privileges. the results of an optimisation . I account. profitability or positive rent. some things. ~ 2. the GATT principle where de~ this means each country proveloping countries be accorded .special drawing right process.specialisation I loss-making spaces. thus separating profitable from : .. ~ permits tariff preferences • Spatial iso-outlay line this is a theoretical construct I among developing countries used to introduce space into and by developed countries. I today it plays the role in that • Spatial margin a line or boundary signifying the I form of a unit of international end of profitability or viability. trans. as I when a country produces fewer • special and differential ~ different goods than it contreatment : sumes. It also . the SD R is a transferable tions (and resulting varying I right to acquire another transport costs for these in. The curve represents I as under the GSp. in micro-economic production I favour of developing countries. Defined in puts). just the opposite of self-suffiport costs outweigh net-returns : ciency. it means them from some requirements I each country has some goods of developed countries. producing more than is ~ needed by you with regard to • Spatial margin of agricultural production . duces just one good. 1. theory. In a 2x2 trade model. this is Beyond this boundary.II Spatial iso-outlay line I specialisation ===========1"". leading to net losses. . exempting goods and countries. ~ In international trade. the boundary of a region of : hence 'specialising' in the first..

le " I ========* that it does not (and cannot competitively) produce. have the time or resources needed to move. specific tariff a tariff specified as an amount of currency per unit of the good. But an extreme form of the model can have all factors specific. • specific commitment under the GATS. gold. • specie coins. • specie flow mechanism under the gold standard.. the resulting monetary contraction would reduce prices. Due to David Hume. or specifically. Also may be called complete specialisation.I I • 11----========&onDmi&1 . not be of any use in other in. in the short run. i. Must commonly. A country with high inflation would export less.164 specie I specificity ru.e.more loosely factors that could be used elsewhere but do not. the identifIcation of a category of services in which a country will apply national treatment and assure market access for foreign service providers. import more and thus lose specie. the mechanism where international payments would adjust. normally including only those made of precious metal. I I I I I I I I • I I I I • specificity the property where a policy measure applies to one or a group of enterprises or industries. as opposed to all industries. specificity rule • specific factor the principle where the optimal a factor of production which is policy for correcting a distortion unable to move into or out of ~ is one that deals most directly. With the money supply fixed to the quantity of gold. an industry. the specific factors model has one specific factor (often capital or land) in each industry plus another factor (often labor) that is mobile between them. • specific factors model a model where some or all factors are specific factors. The term is used to . I I I dustries and . with that distordescribe both factors that would tion.

market where goods. . • spot rate I the exchange rate on the spot ~ market. where the delivery will be made at a future date. Freedman (1953) proNigeria) by expatriate firms. Used by Bhagwati (1984). . of an equilibrium. stabilising. . A common phenomenon in the exchange market. especially under an adjustable pegged exchange rate. : 2. Beonomics======= II . one must pay to buy something. : such as a currency. : • spread ~ the difference between the price . services. • spot market 1. Also called the spot : exchange rate. not ~ subject to large or erratic flucI tuations.II specu~ative attack I stable ~ 165 *================ • speculative attack in any asset market. This differs from a futures market. vided a classic argument that • splintering : speculation on a floating exanother term for fragmenta. a market for exchange (of currencies. the surge in sales of the asset that occurs when investors expect its price to fall. of an economic variable. 2. I • stable . I • splashing ('industrial ~ • stabilising speculation splashing') I speculation which decreases the a term used to refer to the es~ movements of the price in ~e tablishment of multiple branch : market where the speculation plants across the landscape (of ~ occurs. aggre~ gate employment and prices. or financial assets are traded for immediate delivery. 1. and the price ~ one receives for selling it. equilibrium.~ change rate would be tion. where the : dynamic adjustment away from ~ equilibrium converges to the . • stabilisation policy : the use of monetary and fiscal ~ policies to stabilise GDp. substance of the site. in the case of the exchange market) in the present (as "Opposed to a forward or futures market in which the exchange takes place in the future).

The economy would remain in equilibrium with no possibility of future incre. • standstill 1. as well : as from the dependence of the I . in population or per capIta lllcomes. Con- : trasts with dynamic gains from I trade. especially in a neoclassical growth model. re- I perfect competition and in- ~ creased product variety. I • static model an economic model which has I no explicit time dimension. 2. b education and access to JO S. • static gains from trade the economic benefits from trade which arise in static models. A static model abstracts from the process by which an equilibI rium or an optimum might be I reached only over time. I • I I I I I I stationary state the economic condition envisioned by the classical writers once the growth of population had reached the point where output per capita was reduced to the subsistence level and the accumulation of capital had reduced the return to investment to zero. in the Uruguay Round. the agreement not to introduce new GATT-inconsistent trade-restricting and trade-distorting measures during the negotiations. Dissatisfaction with using the simple measure of real per-capita GDP has lead to use of indicators which include length of life. including the efficiency gains from exploiting comparative advantage. Contrasts with dynamic model. a commitment to refrain from introducing new measures that are not consistent with an agreement. thereby approaching the economist's concept of utility as expressed in a utility function.166 standard ofliving I stelldy state II =======~* • standard of living ~ duction in distortion from im- the concept has moved from a more or less strictly pecuniary interpretation of well-being to one which incorporates nonpecuniary components. level of . • steady state a type of equilibrium. variables in the model itself on .ases. II = = = = = = = E c o n o m i e s . a changing past or future. the reduced costs from scale economies. infrastructure and amenities.

involve the commitment of considerable resources (capital) and have long-time horiwns with significant levels of uncertainty.strategic decision-making as different from programmed. I : . Due to Stolper and : Samuelson (1941).straight-line PPF : the PPF which arises in the I Ricardian Model or in the HO . strategic decisions tend to be relatively infrequent. usually in : the form of sharing comple~ mentary strengths. the proposition of the Heckscher-Ohlin Model where a rise in the relative price of a good raises the real wage of the factor used intensively in that industry and lowers the real wage of the other factor. not repetitive.strategic alliance I : an agreement among compaI nies for the purpose of achiev~ ing a common goal. any purChase of foreign exchange is accompanied by an equal-value sale of domestic bonds and vice versa. 2. the real wage of a country's : scarce factor and raises the ~ . a constant mar: ginal rate of transformation. It is a ~ downward ~loping straight line . offsetting open market operations to prevent an act of exchange market intervention from changing the monetary base. ~ . .·11 sterilise I strlltegic decision-mRking • ~========1~6~7 ~ tions) that protection lowers . . achieving . I in which those variables that are not constant grow over time at a _ constant and common rate. sterill~ . routine decisions. to use. Eeonomics======== II . : ~ I ~ : ~ . the further proposition (requiring addition assump- ~ . real wage of its abundant facI tor. Model if the two sectors have : the same factor intensity.Stolper-Samuelson Theorem 1. With sterilisation. cost efficiencies or adjusting to : rapid technological or market ~ changes. . therefore. with. _ sticky place a concept used in industrial geography to refer to the geographic consequences of inertial forces which prevent hypermobility (in an increasingly 'slippery production space') from completely obliterating production assembles in space.

.. to address whether PTAs help move the world toward or away from multilateral free trade. in a context of ~ changes that are required by the imperfect competition and/or I IMF and World Bank in order increasing returns to scale to for a developing country to alter the outcome of interna.I term goals and objectives of an enterprise.. subsidies and even : the list of budgetary and policy export subsidies. • strategic variable I an economic variable that is cho.teo "aU policy I substitution effect II • strategic trade policy I • structural adjustment the use of trade policies. • substitution effect 1. I cuts in government spending. I stumbling block the term which Bhagwati (1991) used. • strategy I determination of the basic long. This 'conditional competition in a country's I tionality' typically includes refavour.I program ing tariffs. tax increases and of industry profits. leaving aside any change in quantity demanded that can II ========Economics .I cation of resources necessary for carrying out these goals.I sen with regard to. economic behaviour by I someone else.ic ""16.8==========S. Most frequently refers to the choice of firms in an oligopoly. the change in the quantity of a good demanded resulting • I I from a change in its relative price. in response to changing economic circumstances. usually by allowing its ducing barriers to trade and firms to capture a larger share capital flows. including trading conditions or changes in policy. and sometimes with a view to influencing.qualify for a loan. • structural adjustment the reallocation of resources (labour and capital) among sectors of the economy. and the adoption of ~ courses of action and the allo. includ. together with building block.

being .surplus costs that are irrevocable and : in the balance of payments.sunk costs ..sustainable development I ILL .. normally .. l"~'-' . this &onumics======= II . I transactions within it. that ~ protects non-renewable re- : sources and the environment..." .. ~" ~. ....pl: I"UI ~( : dise trade.II sunk costs I SlNp be attributable to the associated change in the consumer's real income.. straight or . 2.. Thus. It may also be thought of as a change in the quantity demanded as a result of a move. .. curved and drawn with quantity : on the horiwntal axis and price ~ on the vertical axis. . that portion of the effect of price on quantity demanded that reflects the changed tradeoff between the good and other alternatives.: a system of resource us<....-!. usually with respect to I pnce.... Supply . or should not be used to influence ~ in any category of international current decisions... .. I I : . 10 I'i. . '" .' ment along a single indifference curve. that category.': :/: ~ ..!:::. ~... ... the sur~ plus is the sum of credits mi. 169 *================ ~ upward sloping. Also ~ called simply the 'balance' for elastic.. .swap 1. curves for exports and for for: eign exchange usually have the ~ same qualitative properties as ~ supply curves for labour.~"' :" -~ " .. plus.supply curve : of trade is the same as the surthe graph of quantity supplied ~ plus on trade.~.~\lI. . Contrasts with income effect. .... potentially backward bending... ~ .... current account and ~ capital account.. the balance .supply elasticity : the elasticity of a supply func~ tion.superior good a good the demand for which is : nus the sum of debits.. . in the exchange markets..-. and similarly for merchanI . or the trade suras a function of price.

and a language for describing and understanding. the price of a swap. usually on the quantity of imports. This causes the effective rate of protection on these goods to be higher than the nominal rate and puts LDC producers of primary products at a disadvantage.0==========* swap rate I tariffjumping II is a simultaneous sale of a currency on the spot market together with a purchase of the same amount on the forward market."". the level of tariff which would be the same. . • swap rate . . specified level. helps us to see how to change systems more effectively. in spite of its I higher production costs. 2. rate.' . By combining these two transactions into a single one. . a tariffline. an arrangement between central banks whereby they each agrees to lend their currency to the other. the tendency for tariffs to be higher on processed goods than on the raw materials from which they are produced. the forces and interrelationships that shape the behaviour of systems. indicating the prod• tariff binding uct to which it applies. in or. fect. Thus. transactions costs may be reduced. in terms of its ef. • tariff factory . under the ' GATT. called the bow1d . • tariff jumping the tariff on an item above a the establishment of a produc- II = = = = = = = = E c o n o m i c s . and forward exchange rates. the difference between the spot . • tariff escalation in a country's tariff schedule. • tariff heading the descriptive name attached to . by a foreign firm through FD I in a country. • systems thinking the last of Senge's five learning disciplines of his learning organisation: 'A way of think ing about. • tariff equivalent ' . and to act more in tune with the larger processes of the natural and economic world. . a production facility established .17"". by a country not to raise . a commitment. as a given NTB. . der to serve its market without paying a tariff.

used until 1988.II tariffline Itariffic4tion 171 *================ tion facility within a foreign ~ iffs. ~ when it was replaced with the _ tariff peak : harmonised system. in a tariff schedule.: The term is used to highlight nal tariff.~ ture for specifying tariffs in the iff schedule. in order to avoid a tariff. In the Uruiff and imports above that quan. Also ~ agricultural NTBs were called a tariff quota.~ tariff equivalents. I have in getting their products .: guay Round.tariff wall which are particularly high. organised by product.~ they alter the terms of trade to ments and the GSp. their own advantage.tariffication iff and an import quota in which ~ conversion of NTBs to ad valoimports below a specified quan. .I rem tariffs. I United States.tariff prel. the purpose : being to replace unwieldy NTBs Ii tariff schedule ~ with tariffs that can then bethe list of all of a country's tar- E e _ i e s = = = = = = = II . developed country tity enter at a higher tariff.erence past the tariff. ten defined as greater than . often in the cona lower (or zero) tariff on a ~ text of the incentive therefore product from one country than ~ provided for FDI. . This is one : very specific form of trade war. presumably a high one. at the level of their tity enter at a low (or zero) tar.: . is applied to imports from most countries. three times the average nomi.~ _ Tariff Schedule of the ing. This violation of the ~ . . tariffied and bound.~ a tariff.Tariff Rate Quota (TRQ) I a combination of an import tar. ~ the difficulty foreign sellers c. including some : tariffs knowing that by doing so preferential trade arrange. through FDI or licens.I iff or a small group of tariffs : . country. United States (TSUS) _ tariff line : the official product nomenc1aa single item in a country's tar. the game of countries setting special cases. of. a single tar.tariff-and-retaliation game MFN principle is permitted in . . perhaps in lots of industries.

• task environment those elements or inputs in an orgmsation's environment that bear potentially on goal setting and on goal attainment within an organisation .iffi=a.dimen- II ========Ecrmomi&s . I I • technical regulation a requirement of characteristics (such as dimensions. retaliation I technological trajecttwy II come the subject of negotiation. packaging. • tax increment financing is used to facilitate the financing of larger development projects by capturing the property tax revenue stream projected for the development and investing it into improvements associated with the project. I • I I I I I I technical coefficient in input-output analysis.". performance or safety) that a product must meet in order to be sold on a country's market. I • I • technological trajectory the movement of multi. • tariffs and retaliation the process of one country raising its tariff to secure some advantage. I • I I I I Technical Barrier to Trade (TBT) a technical regulation or other requirement (for testing.) applied to imports in a way that restricts trade. the first raises its tariff still further. technique of analysis a method for displaying or manipulating economic models.1""."".""".2=========t. etc. marketing.7"". Technical (input) coefficients represent direct backward linkages of an industry to other industries and constitute the 'recipe' for production of that industry. to which another country responds by raising its tariff. etc. • team learning one of Senge's five learning disciplines for his 'learning organisation': transforming conversational and collective thinking skills. labelling. certification. quality.a"". identifies the percentage or portion of the total inputs of a sector required to be purchased from another sector irrespective of the geographic origin of this purchase. so that groups of people can reliably develop intelligence and ability greater than the sum of individual members' talents.

: to fall on the world market ment of persons employed by ~ relative to the country's exports. . country.temporary admission 1 permission to import a good ~ .terminal costs : economic activities which are transshipment and loading ~ concerned with the costs that must be paid regard.terms of trade effect duty free for use as input in pro1 the effect of a tariff on the terms ducing for export. cepts of terms of trade can be : meaningfully applied to many ~ exchange type interactions. the con. distributerms of trade that do not refer · . marketing etc. : of trade.) and contrade. : of production and other eco~ nomic activities. One could imagine the trajectory as a 'cylinder' in a multidimensional space (Dosi). and with the . but to price or exchange ~ sumption (retailing.1 organisation and coordination less of the distance involved. Progress can be defmed as an improvement of these tradeoff's.Terms of Trade (TOT) 1 exchange (logistics. mainte' to contractual conditions of : nance (repair etc. wholes alrelationships between exports . or: a pattern of 'normal' problemsolving activity within a technological paradigm. the terms of same as the optimal tariff argument. ~ trade of a region or country .~I temporary admission I tertiary sector . 1 tion. improve when the prices for : exports increase or those for ~ imports decrease.). By reducing the de. Economics======= II . and imports. improving its terms of trade. the supplier into the buyer's . 1 f : .. 173 sional trade-off's amopg technological variables that the paradigm defines as relevant. Yes.temporary producer ~ mand for imports. ing) of goods and services .terms 0 trade argument 1 . Thus. that works by restricting the quantity of trade in order to improve the terms of trade. a tariff' levmovement 1 ied by a large country causes the a mode of supplying a traded ~ prices of those imported goods service by the temporary move. _ tertiary sector .

.ater are frequently used examples. thread a hierarchical arrangement of linked notes where each successive contribution is written as a response to an earlier note in the discussion (to organise discourse).mction or a slope.. a private or civil wrong.I tion' . squared errors..g an estimate of a ing transport technologies. Air and w. in law.mction in I the growth of real output betheir actions that are predicated yond what can be attributed to on estimates of things such as fu. In this case.Dm=.S I Total Factor Productivity (TFP) " • the commons shared resources. One might also think of agents in a model as I • total factor productivity minimising some loss fi. Usually used by online conferencing forums and called 'threading' . I • I I • the loss function also known as the 'criterion func. Often econometricians I needed to connect two places by minimise the sum of squared er. ~ • tort the loss function is the sum of . and perhaps also to additional assumptions specified in the proposition. I labour and capital employed. I I I I would be true in the world if the world conformed to the model's assumptions.. The term. fi.. A function that is • time-space convergence minimised to achieve a desired refers to the diminishing time outcome.""17""4=========t""he""C. • theoretical proposition a property of an economic model which is derived (deduced) from its assumptions. and its .transportation due to improvrors in makir. It usually takes the form of a prediction about something that I • I I Total Factor Productivity (TFP) a measure of the output of an industry or economy relative to the size of all of its primary factor inputs.increases in the quantities of ture prices.

~ seems to be due to Frankel provement for the importing I (1997). accommeasured by the Solow re. : • trade intensity index I • trade creation for a group or bloc of countries. • trade integration the process of increasing a I : • trade liberalisation : reduction of tariffs and removal I or relaxation of NTBs. a curve representing amounts of q~ade among which a freely trading country is indifferent. this tion in the importing country . the ratio of members of a preferential trad. conducted and published by the WTo.~ trade. If greater than one. Index associated with welfare im.II trade creati011 I Trade Policy Review :echanism (TPRM) 175 acronym TFP. It is : displays trade diversion. is said to suggest that the bloc were it not for the PTA. I sidual. markets through trade.: plished by trade liberalisation. often refers to ~ country's participation in world the growth of this measure.the bloc's share of intra-bloc ing arrangement that replaces trade to the bloc's share in world what would have been produc. Concept I due to Viner (1950). Trade Policy Review Mechanism (TPRM) the periodic review of the trade policies and practices of the member countries of the WTO. based on its community indifference curves and its transformation curve. I I • ~ : ~ . Due to Meade (1952). country since it reduces the cost of the imported good. • trade indifference curve in a diagram measuring quantities of exports and imports. • trade flow the quantity or value of a country's bilateral trade with another country. Economics======= II . as . trade which occurs between I usually in a PTA.

the sides of which represent the quantities exported and imported. • trade-weighted average tariff the average of a country's tariffs. as weights. • trade-and. such as an export requirement. trade-weighted exchange rate the weighted average of a country's bilateral exchange rates using bilateral trade. consumption. • traded good a good that is exported or imI I I I I ported or sometimes a good that could be exported or imported if it weren't for those pesky tariffs. using a transformation curve together with one or more price lines and sometimes community indifference curves to illustrate production. used for customs valuation purposes. paid or payable. and the New Trade Theory. This is easily calculated as the ratio of total tariff revenue to total value of imports. not as payment for any I I I " ========Economics . • transfer payment payment made by the government or private sector of one country to another as a gift or aid. and trade and the effects on them of tariffs and other exogenous changes.curve diagram one of the most frequently used diagrams of trade theory. exports plus imports. • trade triangle in the trade-and-transformation-curve diagram. • trade-related investment measure any policy applied to foreign direct investment which has an impact on international trade.transformation. the right triangle formed by the world price line and the production and consumption points. encompassing especially the Ricardian Model.176 trade theqry I transfor payment I II =========* • trade theory the body of economic thought which seeks to explain why and how countries engage in international trade and the welfare implication of that trade. I I I I I • I I I I • transaction value the actual price of a product. the Heckscher-Ohlin Model. weighted by the value of imports.

nits!!!!!! ===". given that outcome a ~ available more or less everyoccurred on the preceding ex.. • transfer payments social benefits paid to individu..~ • ubiquitous materials or ties (p) (probabil~ties of ou~.II trtInsftrJl4ymmts I ubUJuitous""'""::~Dr!!!!!!m!!!!!!·'[. by devoting re. i out circuits. I ~ • two cone equilibrium I a free-trade equilibrium in the ~ Heckscher-Ohlin Model where : prices are such that all goods ~ cannot be produced within a • transformation curve i single country. materials or production (or mentj during a specific period: consumption) inputs that are of time. frontier. : trasts with one cone equilibI . a matrix of transition probabili. • transition matrix : num. • triad : Europe. and instead there same as production possibility : are two diversification cones. Also called a unilateral i short-term bonds issued by the transfer. . so as to shift profits into the jurisdiction with the lowest corporate income tax rates. Conformed into another. North America and I : Japan. it is as ~ dissimilar com pared to factor though one good is being trans.. ~ price. used to pay to I : cover government spending. • transfer pricing the practice of pricing goods and services flowing within a corporation between corporate units located in different tax jurisdictions.. where in a similar quality and periment j during the previous : at approximately the same period of time). intensities of industries.~ inputs come a on any gIven expen.. rium. Still.!!====1!!!!!!7!!!!!!7 good or service nor as an obli. The name comes from ~ This.~ a fully connected network withment. : government. ubiquitous inputs II . or a multi-cone equilibthe idea that.~ • treasury bills gation. will arise if countries' facsources to producing one good : tor endowments are sufficiently instead of another.• tree als or households by govern.

the location ~ of production (ceteris pari.B 0.2 I o I • 1 2 lebor In Foo" Production 3 I United Nations Conference on Trade and Development (UNCTAD) an intergovernmental body es- II ========Economi&s . such as one dollar.4 0.6 1. • unit isoquant the isoquant for a quantity equal to one unit of a good.ducti •• O..178 utIeO'Peretl intertst jlllrity ~nited Nations Con. without any cover against exchange risk. bus) will tend to be relatively close to the market (in order to save transport costs).. affect the weight or bulk of: the final product. as in the exchange between low -wage developing countries and highwage developed countries. i * the foreign interest rate and a the expected appreciation of foreign currency at an annualised percentage rate.2 Food 1 Pr.. The unit isoquant is useful for relating the price of a good to the prices of factors employed in its production. U ncovered interest parity requires approximately that i = i * + a where i is the domestic interest rate. • unequal exchange trade where the labour used to produce a country's exports is more than the labour used to produce its imports. 'Romote buyers are subsidised by buyers near the production location. • uncovered interest parity equality of expected returns on otherwise comparable financial assets denominated in two currencies.formee on nwIe . • uniform delivered pricing a common pricing scheme for consumer and other goods where prices charged at different locations are uniform and independent of transport costs.B 1. Un~ I I I I I I laoquant 1. • unit isocost line an isocost line along which the cost is equal to one unit of the numeraire.6 I 0.4 for Food I Land in 1. II may have an effect on location: ~ Inasmuch as such ubiquities .' • unilateral transfer transfer payment.

. times other considerations). .Value Added Tax (VAT) ._ j /1 \\ Beonomics======= II . .. a tax which is levied only on the : value added by a ftrm.of a good. urban growth boundaries exist in many cities. als and organisations who add a function which speciftes the utility (well being) of a con : value to a product. responsible for trade and development. I : . . ~ with output. the portion of a firm or : industry's cost which changes .. sumer for all combinations of : goods consumed (and some..value added ~ the value of output minus the I value of all intermediate inputs. . I ~ : . °1 variable cost .S. one of whose : tribution of.utility function . .urban-growth boundary a politically specifted line around cities.upstream subsidisation ~ representing therefore the conexport of a good. .. inputs has been subsidised. ~ ~ .price ~ ~ times quantity .value network : the communications network of ~ relations between all individu. . ~ primary factors of production. .I cost. A VAT ~ is usually subject to border tax I adjustment.value quota I : a quota specifying value .tablished in 1964 within the United Nations. Historically. . particularly in California. it has often been the international voice of developing countries. in contrast to ftxed . and payments to.I I _ f ~:'. counties and regions across the U. Sometimes also called urban-limit lines or rural-limit lines. beyond which development is discouraged or prohibited.value marginal product ~ marginal value product. Represents both their welfare : and their preferences.

each other's inputs or outputs.tiating with the foreign exportwardly or backwardly related I ing country. • vehicle currency the currency used to invoice an international trade transaction. ""' I I I • vertical intraindustry trade intraindustry trade in which the exports and imports are at the different stages of processing. straint (VER) • vertical integration I a restriction on a country's imcorporate mergers involving ports that is achieved by negofirms that are involved in for. 'Visibles trade' is trade • vertical integration I in goods. i. • vertical mixing ensures a variety of different ages. for it to restrict its production stages. experience sets and skills on design teams. II ========&OtJOmiu ..~18~O~~~~~~~~M~nII~'~ble~~ I VoluntRry Export Restmint (VER) I 2!lOO 1. • visible I I I I I 1 in referring to international trade. • vertical specialisation another term for fragmentation.000 I. Contrasts with invisproduction of different stages of : ible. so as to stabilise the domestic price of the imported good. processing of a product within ~ • Voluntary Export Rethe same firm. the tax is set equal to the difference between the target domestic price and the world price."'" I. Contrasts with horiwntal lIT.ZOO A merger accomplishing an internalisation of such linkages increases control of input or I output markets and thereby lover prices and other market facets.e. especially when it is not the national currency of either the importer or the exporter. I • variable levy a tax on imports that varies over time. they buy I exports. -. Essentially.800 II 1. used as a synonym for 'good'.

I • Western Hemisphere Free : Trade Area (WHFTA) I • WARP : name sometimes proposed for Weak Axiom of Revealed Pref. I homogeneous of degree zero. this usually re: fers to any of several gains from I : trade theorems. ~ • welfare proposition . diagram. • Walrasian auctioneer a hypothetical entity that facilitates market adjustment in disequilibrium by announcing prices and collecting information about supply and demand at those prices without any disequilibrium transactions actually taking place. a triangle represent: ing the net welfare benefit or ~ loss from a policy or other . E&onom. In trade theory. the extent to which a tariff that is higher than necessary to be ~ • :1£ro degree homogeneous prohibitive. . Due to Bhagwati (1987).II Voluntary Import Exptmsion (VIE) I: degree homogeneous 181 • Voluntary Import Expansion (VIE) the use of policies to encourage imports. in trade theory. ment including most or all of : th(. it often : means the triangle or triangles ~ representing the deadweight I loss due to a tariff.cs======== II . ~ • welfare triangle ~ in a partial equilibrium market .· countries of the western • water in the tariff ~ hemisphere. in response to pressure from trading partners.~ a preferential trading arrangeerence. change. Now called FTAA.

Notes .

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