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Back office Refers to the activities of a firm that are necessary to its functioning but are not directly part of production, such as accounting. Such activities, despite the name that suggests a location behind the shop or shop floor, are increasingly done at remote locations, including in other countries, as business process outsourcing.
Backward bending Refers to a curve that reverses direction, usually if, after moving out away from an origin or axis, it then turns back toward it. The term is used most frequently to describe supply curves for which the quantity supplied declines as price rises above some point, as may happen in a labor supply curve, the supply curve for foreign exchange, or an offer curve.
Backward indexation The setting of wages based in part on past performance of prices.
Backward integration Acquisition by a firm of its suppliers.
Backward linkage The use by one firm or industry of produced inputs from another firm or industry.
BAFFLING PIGS and DUKS Acronyms for the 12 original members and non-members of the Euro Zone. BAFFLING PIGS = Belgium, Austria, Finland, France, Luxembourg, Ireland, Netherlands, Germany, Portugal, Italy, Greece, and Spain. DUKS = Denmark, United Kingdom, and Sweden.
Bailout The provision, usually by a government, of funds to a firm or to another government in danger of insolvency so as to prevent them from defaulting on their debt.
Balance of indebtedness See net foreign asset position.
Balance of merchandise trade The value of a country's merchandise exports minus the value of its merchandise imports.
Balance of payments 1. A list, or accounting, of all of a country's international transactions for a given time period, usually one year. Payments into the country (receipts) are entered as positive numbers, called credits; payments out of the country (payments) are entered as negative numbers called debits.
2. A single number summarizing all of a country's international transactions: the balance of payments surplus.
Balance of payments adjustment mechanism Any process, especially any automatic one, by which a country with a payments imbalance moves toward balance of payments equilibrium. Under the gold standard, this was the specie flow mechanism.
Balance of payments argument for protection A common reason for restricting imports, especially under fixed exchange rates, when a country is losing international reserves due to a trade deficit. It can be said that this is a second best argument, since a devaluation could solve the problem without distorting the economy and therefore at smaller economic cost.
Balance of payments deficit A negative balance of payments surplus.
Balance of payments equilibrium Meaningful only under a pegged exchange rate, this referred to equality of credits and debits in the balance of payments using a traditional definition of the capital account. A surplus or deficit implied changing official reserves, so that something might ultimately have to change.
Balance of payments surplus A number summarizing the state of a country's international transactions, usually equal to the balance on current account plus the balance on financial account, but excluding official reserve transactions, or omitting also other volatile short-term financial-account transactions. It indicates the stress on a regime of pegged exchange rates.
Balance of trade The value of a country's exports minus the value of its imports. Unless specified as the balance of merchandise trade, it normally incorporates trade in services, including earnings (interest, dividends, etc.) on financial assets. Term dates back to 1615.
Balance on capital account A country's receipts minus payments for capital account transactions.
Balance on current account A country's receipts minus payments for current account transactions. Equals the balance of trade plus net inflows of transfer payments.
Balanced budget 1. A government budget surplus that is zero, thus with net tax revenue equaling expenditure.
2. A balanced budget change in policy or behavior is one in which a component of the government budget, usually taxes, is adjusted as necessary to maintain a balanced budget.
Balanced growth Growth of an economy in which all aspects of it, especially factors of production, grow at the same rate.
Balanced trade 1. A balance of trade equal to zero.
2. The assumption that the balance of trade must be zero in equilibrium, as would be the case with a floating exchange rate and no capital flows. This is a standard assumption in real models of international trade, which exclude financial assets.
Balassa index See revealed comparative advantage.
Balassa-Samuelson Effect The hypothesis that increase in productivity of tradables relative to nontradables, if more than abroad, will cause appreciation of the real exchange rate and thus the Penn Effect. Due to Balassa (1964) and Samuelson (1964); also Harrod (1933), and thus called the Harrod-Balassa-Samuelson Effect.
Baldwin envelope The consumption possibility frontier for a large country, constructed as the envelope formed by moving the foreign offer curve along the country's transformation curve. Due to Baldwin (1948).
Baltic countries Estonia, Latvia, and Lithuania
Baltic Dry Index An index of the rates charged for chartering large ships that transport coal, iron ore, and grain. It is regarded as a useful indicator of the current level of world trade.
Banana war A trade dispute between the EU and the U.S. over EU preferences for bananas from former colonies. On behalf of U.S.-owned companies exporting bananas from South America and the Caribbean, the U.S. complained to the WTO, which ruled in favor of the U.S.
Bancor The international currency proposed by Keynes for use as the basis for the international monetary system that was being constructed at the end of World War II. Instead, the Bretton Woods System that emerged was based on the U.S. dollar. See also new bancor.
Bank for International Settlements An international organization that acts as a bank for central banks, fostering cooperation among them and with other agencies.
Bank rate The interest rate charged by a central bank to commercial banks for very short term loans; the discount rate.
Bankruptcy The legal process that a person or firm goes through if they are unable to pay their debts. The process seeks an orderly sharing of the losses by creditors and a chance to start fresh, usually after some delay, for the debtor. No such process exists for national governments or countries, exacerbating the problems of debt crisis and financial crisis.
Banque Ouest Africaine de Developpement The West African Development Bank, BOAD serves as a development bank for Bénin, Burkina, Côte d'Ivoire, Guinée Bissau, Mali, Niger, Sénégal, and Togo.
Barcelona Process The Euro-Mediterranean Partnership.
Barrier 1. Any impediment to the international movement of goods, services, capital, or other factors of production. Most commonly a trade barrier.
2. An entry barrier.
Barro misery index See misery index.
Barter The exchange of goods for goods, without using money. One of several forms of countertrade.
Barter economy An economic model of international trade in which goods are exchanged for goods without the existence of money. Most theoretical trade models take this form in order to abstract from macroeconomic and monetary considerations.
Base money Monetary base.
Barter terms of trade Can refer to either the net barter terms of trade or the gross barter terms of trade, which are equal under balanced trade. Term was introduced by Taussing (1927).
Base year The year used as the basis for comparison by a price index such as the CPI. The index for any year is the average of prices for that year compared to the base year; e.g., 110 means that prices are 10% higher than in the base year. The base year is also the year whose prices are used to value something in real terms or after adjusting for inflation.
Basel Capital Accord Also known at Basel I, this was an agreement in 1988 by the Basel Committee of central bankers to measure the credit risk of commercial banks and set minimum standards for bank capital in order to reduce the likelihood of international repercussions due to bank failures.
Basel I The Basel Capital Accord
Basel II A substantially revised set of standards for capital adequacy of banks, with an agreed text first issued in June 2004.
Basic balance One of the more frequently used measures of the balance of payments surplus or deficit under pegged exchange rates, the basic balance was equal to the current account balance plus the balance of long-term capital flows.
Basic import price See minimum price system.
Basic needs See living wage.
Basis point One one-hundredth of a percentage point. Small changes in interest rates are commonly measured in basis points.
Basket See currency basket.
Bastable's test One of two conditions needed for infant industry protection to be welfare-improving, this requires that the protected industry be able to pay back an amount equal to the national losses during the period of protection. See also Mill's test.
BEA Bureau of Economic Analysis
Beachhead effect The idea that if costs of entering a market, such as through exports, become sunk costs, then a temporary change in market conditions such as an exchange rate can cause a lasting change in trade patterns. As one explanation for hysteresis in international trade, this was named by Baldwin (1988).
Beef hormone case A trade dispute that began in 1989 when the EC banned imports of beef from cows that had been injected with growth hormones, arguing that the health effects of these hormones were suspect. The U.S. eventually complained under the WTO in 1996, arguing the absence of scientific evidence of any harm, and in 1997 the WTO panel agreed with the U.S.
Beggar thy neighbor For a country to use a policy for its own benefit that harms other countries. Examples are optimal tariffs and, in a recession, tariffs and/or devaluation to create employment.
Behind the border barriers This refers to a variety of nontariff barriers that operate inside countries rather than at the border, but that nonetheless can restrict trade. Examples include technical barriers to trade, labeling requirements, and sanitary and phytosanitary regulations.
Bell Trade Act Enacted by the US Congress in 1946, this specified economic conditions for Philippine independence from the US, including the exchange rate, access to resources, and trade barriers. Some of this was revised in the Laurel-Langley Agreement.
Below the line See above the line.
Benefit-cost analysis Same as cost-benefit analysis.
Benelux 1. A word referring to a grouping of the three countries, Belgium, Netherlands, and Luxembourg. Claimed by The Economist (May 3, 2008) to have been coined in August 1946 by its Belgian correspondent.
2. The economic union of the three Benelux countries, initially a customs union, later an economic union, and now part of the European Union.
Benign neglect Refers to doing nothing about a problem, in the hope that it will not be serious or will be solved by others. Said to be U.S. policy toward its balance of payments deficit in the late 1960s, based on other countries' need for dollar reserves.
Bergsonian social welfare function A social welfare function that takes as arguments only the levels of utility of the individuals in society. Due to Bergson (1938) as interpreted by Samuelson (1981). Also called a Bergson-Samuelson social welfare function.
Berne Convention The Berne Convention for the Protection of Literary and Artistic Works requires that signatory countries provide national treatment in the protection of copyrights. See also the Universal Copyright Convention.
Bertrand competition The assumption, sometimes assumed to be made by firms in an oligopoly, that other firms hold their prices constant as they themselves change behavior. Contrasts with Cournot competition. Both are used in models of international oligopoly, but Cournot competition is used more often.
Better Factories Cambodia A program of the International Labor Organization initiated in 2001 to improve working conditions in the garment factories of Cambodia producing for export. It grew out of a trade agreement between Cambodia and the United States, in which the US promised to permit greater imports from Cambodia in return for improved working conditions.
Bias 1. Bias of technology, either change or difference, refers to a shift towards or away from use of a factor. The exact meaning depends on the definition of neutral used to define absence of bias. Factor bias matters for the effects of technological progress on trade and welfare.
2. Bias of a trade regime refers to whether the structure of protection favors importables or exportables, based on comparing their effective rates of protection. If these are equal, the trade regime is said to be neutral.
3. Bias of growth refers to economic growth through factor accumulation and/or technological progress and whether if favors one sector or another. Growth is said to be export biased if the export sector expands faster than the rest of the economy, import biased if the import-competing sector does so.
Biased growth See bias.
Bickerdike-Robinson-
Metzler Condition
In the elasticities approach to analyzing effects of exchange rates, the condition for a depreciation to have a positive effect on the trade balance: [ηX ηM (1 + εX + εM) – εX εM (1 – ηX  –  ηM)] / [(εX + ηX)(εM + ηM)] > 0, where εI (ηI) is the supply (demand) elasticity of I=X,M exports and imports respectively. If supply elasticities are infinite, it reduces to the Marshall-Lerner Condition. Due to Bickerdike (1920), Robinson (1947), and Metzler (1948).
Bicycle Theory With regard to the process of multilateral trade liberalization, the theory that if it ceases to move forward (i.e., achieve further liberalization), then it will collapse (i.e., past liberalization will be reversed). The idea was suggested by Bergsten (1975) and named by him in Bergsten and Cline (1982, p. 71), if not before.
BID Banco Interamericano de Desarrollo (Spanish for Inter-American Development Bank)
Bid/ask spread The difference between the price that a buyer must pay on a market and the price that a seller will receive for the same thing. The difference covers the cost of, and provides profit for, the broker or other intermediary, such as a bank on the foreign exchange market.
Big Mac Index An index of PPP exchange rates based solely on the prices of the Big Mac sandwich in McDonald's restaurants around the world, published each spring by the Economist.
Bilateral Between two countries, in contrast to plurilateral and multilateral.
Bilateral agreement An agreement between two countries, as opposed to a multilateral agreement.
Bilateral aid Aid from a single donor country to a single recipient country, in contrast to multilateral aid.
Bilateral exchange rate The exchange rate between two countries' currencies, defined as the number of units of either currency needed to purchase one unit of the other.
Bilateral investment treaty An agreement between two countries on how their countries will deal with foreign direct investment between them. BITs typically give investors in the host country certain rights, so as to encourage investment.
Bilateral quota An import (or export) quota applied to trade with a single trading partner, specifying the amount of a good that can be imported from (exported to) that single country only.
Bilateral trade The trade between two countries; that is, the value or quantity of one country's exports to the other, or the sum of exports and imports between them.
Bilateral trade balance The value of a country's exports to a single other country, minus the value of its imports from that country. While data on bilateral trade imbalances are often reported, economists discount them as essentially meaningless, due to the potential for triangular trade.
Bilateral transfer A transfer payment from one country to another.
Bill of exchange Any document demanding payment.
Bill of lading The receipt given by a transportation company to an exporter when the former accepts goods for transport. It includes the contract specifying what transport service will be provided and the limits of liability.
Billion Prices Project A project at the Massachusetts Institute of Technology to collect prices from online retailers around the world so as to monitor inflation across countries and time.
Bimetallism The definition of the value of a currency in terms of two different metals -- usually gold and silver -- at the same time. That is, the issuer of the currency promises to exchange it for either a certain fixed amount of one metal or for a certain (different) amount of the other metal. System was used by most countries (except the U.K.) through most of the 19th century.
Binding 1. As an adjective, this refers to a restriction that is met exactly, and is therefore having an effect on behavior, in contrast to nonbinding.
2. As a noun, see tariff binding.
Binding overhang The extent to which a country's tariff binding exceeds its applied rate.
BIS Bank for International Settlements
BIT Bilateral investment treaty
Black market An illegal market, in which something is bought and sold outside of official government-sanctioned channels. Black markets tend to arise when a government tries to fix a price without itself providing all of the necessary supply or demand. Black markets in foreign exchange almost always exist when there are exchange controls.
Black Sea Economic Cooperation A group of eleven countries, formed in 1992, with the objective of fostering "interaction and harmony" among the members through political and economic cooperation.
Black Wednesday The day, September 16 1992, that the Bank of England was forced to withdraw from the Exchange Rate Mechanism because of speculation against the pound that drained its reserves. It is said that financier George Soros profited 1 billion pounds from the episode.
Blair House Accord An agreement on agricultural subsidies between US and EC negotiators in November 1992 that broke an impasse in the Uruguay Round negotiations.
Bloc See trading bloc.
Blockade A militarily enforced interference with a country's trade, usually by naval forces preventing access to its ports.
Blood diamonds Also called conflict diamonds these are diamonds the mining and marketing of which have been used to finance, or have otherwise contributed to, civil war. In an effort to undermine this market, the Kimberly Process requires participants to certify that shipments of diamonds are conflict free.
Blue box A special category of subsidies permitted under the WTO Agriculture Agreement, it includes payments that are linked to production but with provisions to limit production through production quotas or requirements to set aside land from production. See box.
BM Banco Mundial (Spanish for World Bank)
BOAD Banque Ouest Africaine de Developpement
Boeing-Airbus dispute A trade dispute between the US and EU, concerning subsidies that each alleges the other provides to its large aircraft manufacturer.
Bogor Goals The objectives agreed upon at a 1994 meeting of APEC leaders in Bogor, Indonesia. These included "free and open trade and investment by 2010 for industrialized economies and by 2020 for developing economies."
Bond A debt instrument, issued by a borrower and promising a specified stream of payments to the purchaser, usually regular interest payments plus a final repayment of principal. Bonds are exchanged on open markets including, in the absence of capital controls, internationally, providing a mechanism for international capital mobility.
Bond market The market for bonds, in which the prices of the bonds, and therefore the corresponding interest rates, are determined by the interaction of buyers and sellers.
Bonded warehouse See foreign trade zone.
Boom-bust cycle A pattern of performance over time in an economy or an industry that alternates between extremes of rapid growth (booms) and extremes of slow growth or decline (busts), as opposed to sustained steady growth. For an economy, this indicates an extreme form of the business cycle.
BOP Balance of payments.
Border effect A discontinuity that exists in prices or in quantities of trade at the border between countries. If the price of a good is higher on one side of a border than the other, this is a border effect. If a gravity equation includes a dummy for trade across a border and that dummy is significant, that also indicates a border effect.
Border measure Border protection
Border price The price of a good at a country's border.
Border protection 1. In the context of trade policy, this refers to policies such as tariffs and quotas that enhance profits and employment in a domestic industry, as opposed to other policies such as production subsidies that might have similar effects without restricting trade.
2. Measures to prevent unwanted entry across a nation's border of illegal or harmful goods or people.
Border tax adjustment Rebate of indirect taxes (taxes on other than direct income, such as a sales tax or VAT) on exported goods, and levying of them on imported goods. May distort trade when tax rates differ or when adjustment does not match the tax paid.
Borderless world The concept that national borders no longer matter, perhaps for some specified purpose.
Borrowing The amount that an entity, usually a country or its government, has borrowed. Thus often the (negative of) the net foreign asset position or the national debt.
BOT Balance of trade.
Bound rate See tariff binding.
Bound tariff See tariff binding.
Bounty Subsidy
Bovine Meat Agreement See International Bovine Meat Agreement.
Bowed Curved. "Bowed out" is used to describe a typical transformation curve, which is concave to the origin. In contrast, a transformation curve reflecting increasing returns to scale might be "bowed in" toward the origin.
Box Used with a color, a category of subsidies based on status in WTO: red=forbidden, amber or orange=go slow (i.e., reduce the subsidy), green=permitted, blue=subsidies tied to production limits. Terminology seems only to be used in agriculture, where in fact there is no red box.
Box diagram The Edgeworth Box.
Boycott To protest by refusing to purchase from someone, or otherwise do business with them. In international trade, a boycott most often takes the form of refusal to import a country's goods. A primary boycott limits trade with the target; a secondary boycott limits trade with those that trade with the target.
BP-Curve In the Mundell-Fleming model, the curve representing balance of payments equilibrium. It is normally upward sloping because an increase in income increases imports while an increase in the interest rate increases capital inflows. The curve is used under pegged exchange rates for effects on the balance of payments and under floating rates for effects on the exchange rate.
BPO Business process outsourcing
Brain drain The migration of skilled workers out of a country. First applied to the migration of British-trained scientists, physicians, and university teachers in the early 1960's, mostly to the United States.
Branch plant economy An economy that relies heavily on branch plants, i.e., production subsidiaries, of foreign companies, and therefore on foreign-owned capital and technology.
Brecher-Alejandro Proposition The proposition, proved in Brecher and Alejandro (1977), that foreign capital inflows with full repatriation must be immizerizing.
Bretton Woods A town in New Hampshire at which a July 1944 conference of 44 countries launched the IMF and the World Bank. These, along with the GATT/WTO became known as the Bretton Woods Institutions, and together they comprise the Bretton Woods System.
Bribe A payment made to person, often a government official such as a customs officer, to induce favorable treatment.
BRICs Acronym for four large low-income countries, Brazil, Russia, India, and China, that were growing rapidly in the early years of the 21st century. Term was coined by O'Neill (2001). Sometimes expanded to BRICIs to include Indonesia or BRICS to include South Africa.
Brixit Term used in the British press starting in June 2012 for the possible exit of Britain from the European Union. The term was devised as analogous to the term grexit.
Broker's fee The fee for a transaction charged by an intermediary in a market, such as a bank in a foreign-exchange transaction.
Brookings Institution A nonprofit, public-policy think tank located in Washington, D.C., Brookings resident and nonresident fellows do research and writing on a variety of public policy issues, including international economics. Politically, it is somewhat left-of-center, providing a home for US Democrats when not in government. Contrasts with the American Enterprise Institute.
Brown field investment FDI that involves the purchase of an existing plant or firm, rather then construction of a new plant. Contrasts with green field investment.
Brussels Tariff Nomenclature An international system of classification for goods that was once widely used for specifying tariffs. It was changed, in name only, to the CCCN in 1976 and later superseded by the Harmonized System of Tariff Nomenclature
BSEC Black Sea Economic Cooperation
BTN Brussels Tariff Nomenclature
BTT Barter terms of trade
Bubble A rise in the price of an asset based not on the current or prospective income that it provides but solely on expectations by market participants that the price will rise in the future. When those expectations cease, the bubble bursts and the price falls rapidly.
Bubble economy Term for an economy in which the presence of one or more bubbles in its asset markets is a dominant feature of its performance. Japan was said to be a bubble economy in the late 1980s.
Budget constraint 1. For an individual or household, the condition that income equals expenditure (in a static model), or that income minus expenditure equals the value of increased asset holdings (in a dynamic model).
2. For a country, the condition that the value of exports equals the value of imports or, if capital flows are permitted, that exports minus imports equals the net capital outflow. It is equivalent to income from production equaling expenditure on goods plus net acquisition of foreign assets.
3. The curve, usually a straight line, representing either of these conditions.
Budget deficit The negative of the budget surplus; thus the excess of expenditure over income.
Budget surplus Refers in general to an excess of income over expenditure, but usually refers specifically to the government budget, where it is the excess of tax revenue over expenditure (including transfer and interest payments).
Buffer stock A large quantity of a commodity held in storage to be used to stabilize the commodity's price. This is done by buying when the price is low and adding to the buffer stock, selling out of the buffer stock when the price is high, hoping to reduce the size of price fluctuations. See international commodity agreement.
Building bloc Or building block. See stumbling bloc.
Built-in Agenda Issues that were scheduled for continued negotiations within the WTO in the Uruguay Round agreement. In addition to reviewing the implementation of various agreements, these included negotiations for further liberalization in agriculture and services.
Built-in stabilizer Automatic stabilizer.
Bureau of Economic Analysis The government agency within the United States Department of Commerce that collects macroeconomic data, especially the National Income and Product Accounts, as well as data on balance of payments and international investment.
Burst In the case of a price bubble, the usually sudden reversal of a price from rising over time to falling.
Business 1. A firm.
2. The activities engaged in by firms.
Business cycle The pattern followed by macroeconomic variables, such as GDP and unemployment that rise and fall irregularly over time, relative to trend. Cyclical movements of large countries cause similar movements in their trading partners, inexplicably under real business cycle theory and thus called the trade comovement puzzle.
Business Cycle Dating Committee See National Bureau of Economic Research.
Business process outsourcing The outsourcing and/or offshoring of business processes, such as the back office functions such as accounting, human resource management, etc.
Business Roundtable An organization of CEOs of major US corporations. It pursues a number of initiatives, including facilitating international trade and investment agreements and enforcing US rights under existing agreements.
Buy American Act U.S. legislation, from 1933, requiring that government purchases give preference to domestic producers unless imports are at least a specified percentage cheaper. This is an example of a government procurement NTB that was partially given up under the Tokyo Round.
Buyback See debt buyback
Buyback arrangement A form of countertrade in which a foreign seller of plant, equipment, or technology is required to purchase part of the resulting production.
Byrd Amendment A US law enacted in 2000 requiring that revenues from anti-dumping duties and countervailing duties be given to the US domestic producers who had filed the cases. This was subject of a trade dispute in the WTO and ruled to be not compatible with WTO rules.