Chapter 7 Flashcards
(19 cards)
Whcih countries are advanced & which are developing according to real income
advanced:
- North america, western europe, japan, etc
devloping:
- Africa, asia, latin America, middle east
What do developing nations typically export?
- Primary goods: agriculture, raw materials, fuels
- Low-tech manufactured goods: textiles, apparel
What do advanced nations typically export?
- Capital goods, technology, services,
What are the barriers to integration into global trade that developing nations face?
- Poor infrastructure and corruption
- Weak education systems
- High trade barriers and transport costs
What institutions support developing countries?
- IMF
- World Bank
- Generalized system of preferences
Why is there an export instability problem?
- Countries typically concentrate in 1-2 commodities
- Causes price and revenue fluctuations
- Low elasticity of supply and demand (people wont suddenly buy more with an increase of money)
Why do terms of trade worsen for developing countries over time?
- export price sof developing nations decline over time (things loose value or start to be worth less in comparison to higher value items)
Why do developing countries have limited market access?
- Global protectionism affects: Agriculture, and labor-intensive goods
- Tariff escalation and quotas make it so the countries are discouraged to have value-added production (higher taxes on non-raw materials)
How do agricultural subsidies by advanced nations work?
- Supress prices by dumping surplus, meaning they help US farmers which hurts developing nations
- Also displaces developing countries’ exports, which pushed people to by the subsidized goods, not developing nations goods
What does the International Commodity Agreement (ICAs) do?
Agreements to stabilize prices and revenues
What are buffer stocks?
- Agencies buy/sell commodities to stabilize prices
Pros: Dampens volatility (Stops prices from rising too high or falling too low)
cons: costly
Why are there multilateral contracts? What do they do?
- Importers and exporters agree on min and max prices to get price range stability without disorting markets
What does the free trade movement aim to do? What is a criticism of the fair trade movement?
- Aims to get better prices to farmers
- Ends up benefiting retailers more then farmers
What is OPEC?
- Controls 40% of worlds oil
- Sets output quotas to raise prices
- Saudi Arabia is central to strategy
What are cartel limitations?
- Many members, diverse costs/ demands
- Risks of substitutes, cheating, recession effects
What has been done to respond to OPECs market power?
- Raise fuel economy standards
- Excise taxes, drilling in protected lands
- Invest in renewables
What do aid institutions do?
World Bank: Funds hospitals, schools, and infrastructure
IMF: loans to fix payment imbalances, financed by member quotas
What is the import substitution strategy? What are the pros and cons?
- Produce formerly imported goods domestically
- pros: protects home industries, creates local jobs
- cons: inefficient, lacks scale, invites corruption
What is the export-led growth strategy?
- Encourages trade and integration into the world economy
- Emphasis on efficiency, openness, and competitiveness
