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International Economics

Quotas

A quota, a type of trade barrier, is a restriction on the quantity that can be imported into a country. Quotas and Tariffs are effectively the same except that governments collect revenue from tariffs while exporting firms can collect extra revenue from quotas (box 3). This increases the firm's export revenues. Effects of Quotas 1.…
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Global Labor Arbitrage

Global labor arbitrage is where, as a result of the removal or reduction of barriers to international trade, jobs move to nations where labor and the cost of doing business (such as environmental regulations) is inexpensive. The alternative is impoverished labor moves to countries with higher paying jobs. Two common barriers to international…
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Tariffs

A tariff is a type of trade barrier that acts a tax on imports. The tariff maybe in the form of a specific or ad valorem tax. Tariffs raise the price of the imported good to lowers its consumption. Tariffs encourage consumers to pick the local option. A specific tax is imposed on each unit, i.e., $0.50 on a pack of cigarettes, while an ad…
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Trade Finance

Banks involved in commercial lending provide a wide range of financing packages for international trade, commonly called trade finance. Trade finance not only assists the buyer in financing its purchase but also provides immediate cash to the seller for the sale. This type of financing is profitable for the lending institution. This mechanism is…
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The Non-Availability Approach

The Non-Availability Approach explains why a country imports the goods that are not available at home. It was conceptualized by Irving Kravis. There are two kinds of unavailability - absolute and relative. Absolute Unavailability The presence or absence of natural resources could easily be fitted into the Heckscher-Ohlin model.…
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Letters of Credit

Letters of credit are an obligation of a bank, usually irrevocable, issued on behalf of their customer and promising to pay a sum of money to a beneficiary upon the happening of a certain event or events. Letters of credit are the substitution of the credit and good name of a bank for that of their customer, permitting the customer to do business…
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