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Facilitating payment A facilitating (or facilitation) payment is payment for "routine governmental action," such as providing normal services. It is, in fact, a bribe, but a small one that does not induce illegal or exceptional behavior. Making such a payment abroad is legal for U.S. firms under the Foreign Corrupt Practices Act, but not for U.K. or German firms, and it is also illegal in many countries where payments are made.
Factor 1. Primary factor.
2. Sometimes refers to any input to production.
3. Anything that helps to cause something, as a "contributing factor."
Factor abundance The abundance or scarcity of a primary factor of production. Because, in the short run at least, the supplies of primary factors are more or less fixed, this can be taken as given for determining much about a country's trade and other economic variables. Fundamental to the H-O Model.
Factor accumulation An increase in the quantity of a factor, usually capital or sometimes human capital.
Factor augmenting Said of a technological change or technological difference if production functions differ by scaling of a factor input only: F2(V1,V2)=F1V1,V2), where F1(·) and F2(·) are the production functions being compared, V1 is the factor being augmented, V2 is a vector of all other factor inputs, and λ is a constant.
Factor bias See bias.
Factor content The amounts of primary factors used in the production of a good or service, or in a vector of quantities of goods and services, such as the factor content of trade or the factor content of consumption. Can be either direct or direct-plus-indirect. With F factors, G goods, and A={afg} the FxG matrix of factor f per unit output of good g, the factor content of a G-vector X of trade or consumption is AX.
Factor content pattern of trade The trade pattern of a country or the world, focusing on factor content of the goods and services that are traded, as opposed to the commodity pattern of trade.
Factor cost The cost of the factors used in production. The term is used especially when the value of economic activity in a sector or an economy can be measured or valued either at "factor cost," adding up payments to factors, or at "market value or market price," adding up revenues from goods sold.
Factor cost advantage A comparative advantage of a country, or a competitive advantage of a firm or national industry, that derives from low factor cost, as opposed, for example, to a superior technology.
Factor endowment The quantity of a primary factor present in a country. See endowment.
Factor income The total earnings of a factor, thus its factor price times the quantity of factor service that it provides.
Factor intensity The relative importance of one factor versus others in production in an industry, usually compared across industries. Most commonly defined by ratios of factor quantities employed at common factor prices, but sometimes by factor shares or by marginal rates of substitution between factors.
Factor intensity reversal A property of the technologies for two industries whose ordering of relative factor intensities differs at different factor prices. One may be relatively capital intensive at high relative wages and labor intensive at low relative wages. Some propositions of the Heckscher-Ohlin Model require the absence of FIRs.
Factor intensity uniformity The absence of factor intensity reversals.
Factor market The market for a factor of production, such as labor or capital, in which supply and demand interact to determine the equilibrium price of the factor.
Factor mobility The degree to which a factor of production, such as labor or capital, is able to move, either among industries or among countries, in response to differences in its factor price, thus tending to eliminate such differences.
Factor movement Usually means international factor movement.
Factor of production Factor (definition 1).
Factor payment The amount paid to a factor for its service in production.
Factor price The price paid for the services of a unit of a primary factor of production per unit time. Includes the wage or salary of labor and the rental prices of land and capital. Does not normally refer to the price of acquiring ownership of the factor itself, which might be called the "purchase price."
Factor price equalization The tendency for trade to cause factor prices in different countries to become identical. Ohlin (1933) argued that trade would bring factor prices closer together. Samuelson (1948, 1949) showed formally the circumstances under which they would actually become equal.
Factor Price Equalization Theorem One of the major theoretical results of the Heckscher-Ohlin Model with at least as many goods as factors: free and frictionless trade will cause FPE between two countries if they have identical, linearly homogeneous technologies and their factor endowments are in the same diversification cone.
Factor price frontier A curve in factor space showing the minimum combinations of factor prices consistent with absence of profit in producing one or more goods, given their prices. Since, with perfect competition, profit implies disequilibrium, this shows a lower bound on equilibrium factor prices.
Factor-price space A graph with factor prices on the axes.
Factor productivity 1. The productivity of a single factor may refer to either its marginal or its average product.
2. Total factor productivity.
Factor proportions 1. The ratios of factors employed in different industries. See factor intensities.
2. The ratios of factors with which different countries are endowed. See factor endowments.
Factor Proportions Model The Heckscher-Ohlin Model of trade.
Factor reversal See factor intensity reversal.
Factor-saving Biased in favor of using less of a particular factor.
Factor scarcity See factor abundance.
Factor service The contribution that a factor provides to the productive process, such as man-hours of labor, acre-months of land, etc.
Factor share The fraction of payments to value added in an industry that goes to a particular primary factor.
Factor space A graph in which the axes measure quantities of factors.
Factor-using Biased in favor of using more of a particular factor.
Factoral terms of trade Either single factoral terms of trade or double factoral terms of trade. Both terms were introduced by Viner (1937). [Origin]
Factoring See export factoring.
Factory Asia The network of cross-border supply chains that began to emerge in Asia in the 1960s centered on Japan, then Taiwan and South Korea, but that expanded dramatically with the opening of China.
Factory gate price Ex factory price.
Fair price 1. In the context of the Fair Trade Movement, a fair price is a price that, when paid to the individual producers of a product such as coffee or handicrafts, gives them access to a viable standard of living, including nutrition, health care, education, and cultural autonomy.
2. In anti-dumping cases, fair value.
Fair trade 1. In the context of the Fair Trade Movement, this is international trade in which producers are paid a fair price.
2. In the context of trade policy, this is trade that is not unfair -- that is, subsidized or dumped.
Fair Trade Federation An organization of businesses in North America that adhere to the principles of the Fair Trade Movement.
Fair Trade Movement A system overseen by several international NGOs: products of developing countries are purchased at a fair price from producers and sold with a fair trade label to consumers in developed countries. Other objectives include environmental sustainability, capacity building, and keeping prices to consumers low by bypassing more conventional intermediaries.
Fair value In anti-dumping cases, the value to which the export price is compared, which is either the price charged in the exporter's own domestic market or some measure of their cost, both adjusted to include any transportation cost and tariff needed to enter the importing country's market. See dumping.
Fairness argument for protection The view that it is unfair to make domestic firms compete with foreign firms that have an advantage, due to either low wages or foreign government policies. This misinterprets economic activity as a game that one must win, rather than as a way to use limited resources to satisfy human needs. See level playing field.
Fairtrade International An international NGO promoting fair trade.
Fama coefficient See Fama regression.
Fama puzzle The forward premium puzzle.
Fama regression A regression of the future spot exchange rate minus the current spot rate on the forward premium, the estimated coefficient of which is sometimes called the Fama coefficient. Due to Fama (1984).
FAO Food and Agriculture Organization of the United Nations
Farm subsidy Payments by governments to farmers. These may be in return for producing, as when government buys a crop at a higher-than-market price; for not producing, as when it pays to leave land fallow; or for neither, as when payments are for income maintenance or environmental purposes.
FAS Same as FOB but without the cost of loading onto a ship. Stands for "free alongside ship."
FASB Financial Accounting Standards Board
Fast track A procedure sometimes adopted by the U.S. Congress, at the President's request, committing to simple majority vote on trade agreements without amendment. In turn, the President adheres to a specified timetable. Introduced in the Trade Act of 1974. Now called trade promotion authority.
FATCA Foreign Account Tax Compliance Act
FATS Foreign Affiliates Trade in Services
Favorable balance of trade An excess of exports over imports, so that the balance of trade is positive. This view, that a positive trade balance is good for the country, harks back to mercantilist views, and ignores that the country is currently deprived of consuming part of what it produces.
Favorable exchange rate A special exchange rate, different from the market or official rate, provided by government on a transaction as an indirect way of providing a subsidy.
FCA Free carrier
FCPE Formerly centrally planned economy
FDI Foreign Direct Investment
FDI inflow Property located within the domestic country acquired by a foreign owner.
FDI outflow Property acquired abroad by a domestic owner.
FDI spillover See spillover.
Fear of floating The resistance by many countries that have officially floating exchange rates to allowing their currencies to move as much as the market would require. Term used by Calvo and Reinhart (2002).
Fed The Federal Reserve System of the United States.
Federal budget deficit The budget deficit of the federal (i.e., national, in a country composed of states) government.
Federal funds rate The interest rate on very short-term loans from one commercial bank to another in the United States. This rate is used as a target for monetary policy by the Fed.
Federal Reserve Economic Data A large online database of US and international time series data maintained by the St. Louis branch of the Federal Reserve System,
Federal Reserve System The central bank of the United States.
Feenstra ratio The adjustment derived by Feenstra (1994) to augment the standard import price index to capture the benefits of greater variety. It was named by Arkolakis et al. (2008) and defined by them as F = { [ (ΣΩ'vi'Ω'∩Ωvi') / (ΣΩviΩ'∩Ωvi) ] }−1/(σ−1), where vi are imports of product i, Ω is the set of products imported, both with primes for the given year, and σ is the elasticity of substitution among products in the CES utility function.
FEER Fundamental equilibrium exchange rate
Feldstein-Horioka puzzle The finding by Feldstein and Horioka (1980) that levels of savings and investment are highly correlated across countries, suggesting that international capital mobility is less than many had previously thought.
Fiat money A money whose usefulness results, not from any intrinsic value or guarantee that it can be converted into gold or another currency, but only from a government's order (fiat) that it must be accepted as a means of payment.
Fifty Years Is Enough 50 Years Is Enough.
FII 1. Foreign institutional investor.
2. Foreign institutional investment.
Fill rate See quota fill rate.
Final good A good that requires no further processing or transformation to be ready for use by consumers, investors, or government. Contrasts with intermediate good.
Final trade barrier See definitive.
Financial Relating to financial assets or financial markets.
Financial account This is the term used in the balance of payments statistics, since sometime in the 1990s, for what used to be called the "capital account." See capital account, the "common" definition 2.
Financial Accounting Standards Board The private-sector organization that sets accounting standards for the United States, the Generally Accepted Accounting Principles.
Financial asset An asset whose value arises not from its physical embodiment (as would a building or a piece of land or capital equipment) but from a contractual relationship: stocks, bonds, bank deposits, currency, etc.
Financial capital The value of financial assets, as opposed to real assets such as buildings and capital equipment.
Financial crisis A loss of confidence in a country's currency or other financial assets causing international investors to withdraw their funds from the country.
Financial flow Any and all of the transactions in the financial account of the balance of payments, most importantly international borrowing and lending and acquisition across borders of financial and real assets.
Financial instrument A document, real or virtual, having legal force and embodying or conveying monetary value.
Financial integration Financial market integration
Financial intermediary An institution that provides indirect means for funds from those who wish to save or lend to be channeled to those who wish to invest or borrow. Examples include banks and other depository institutions, mutual funds, and some government programs.
Financial market A market for a financial instrument, in which buyers and sellers find each other and create or exchange financial assets. Sometimes these are organized in a particular place and/or institution, but often they exist more broadly through communication among dispersed buyers and sellers, including banks, over long distances.
Financial market integration Freedom of participants in the financial markets of two countries to transact on markets in both countries, thereby causing returns on comparable assets in the two countries to be equalized through arbitrage.
Financial panic A sudden loss of confidence in a financial system, causing widespread attempts to sell stocks and bonds and withdraw funds from banks, often stimulated by a large financial entity (speculator, bank, etc.) making a large loss and defaulting on commitments.
Financial stability The avoidance of financial crisis.
Financial Stability Board "An international body that monitors and makes recommendations about the global financial system." Its members include central banks, ministries of finance, and financial agencies of many countries, plus international financial institutions, and international standard-setting bodies.
Financial system The complex of institutions, including especially banks and their government and international regulators, that facilitate payments and link lenders with borrowers and investors with assets. Increasingly, separate national financial systems have become integrated to form a global financial system.
Financial transaction Most transactions -- e.g., purchases and sales of goods or property -- have a financial component: payment. However, this term usually means a transaction that is only financial, such as the act of borrowing, depositing funds in a bank account, purchasing a contract on a forward market, etc.
Financial transparency This, according to the SEC, means "timely, meaningful and reliable disclosures about a company's financial performance." It is a crucial requirement for informed investment in companies. It is also necessary for exposing, and therefore preventing, bribery and other forms of corruption.
Finger-Kreinin index A measure of export similarity between two countries, introduced by Finger and Kreinin (1979). With Xi(c,m) = the share of commodity i in country (or region) c's exports to market m, similarity between exports of countries a and b to market m is S(ab,m) = {Σi min [Xi(a,m),Xi(b,m)]}100 = 100{1−[Σi|Xi(a,m)−Xi(b,m)|]/2}.
FIR Factor intensity reversal.
Firm An organization, possibly as small as a single person or as large as many thousands, that produces a good and/or provides a service that it sells to the public, the government, or other firms, using the proceeds to cover its costs. Also a business, a company, or an enterprise.
First best See second best.
First degree homogeneous Homogeneous of degree 1.
First globalization An early period of globalization that occurred in the late 19th century, after innovations in land and sea transportation, and that ended with the start of World War I in 1914.
First mover advantage The advantage that a firm or country may derive from being the first to enter a market, or from being the first to use a new technology, advertising technique, etc.
First order condition One of the mathematical necessary conditions for maximization, used routinely in solving economic models. Typically, it consists of setting equal to zero the derivative of the function being maximized (or its Lagrangian) with respect to a variable that can be controlled.
First theorem of welfare economics The proposition of welfare economics that a perfectly competitive general equilibrium is Pareto optimal. A corollary is that free trade is Pareto optimal among countries.
First world 1. See third world for use of the term during the Cold War.
2. Today this refers of high-income countries, as in first world problems that are the minor problems that can afflict only those of high incomes.
Fiscal aggregate Fiscal aggregates are the total revenues, and total expenditures, of a government.
Fiscal controversy See fiscal question.
Fiscal crisis This occurs when a unit of government runs a fiscal deficit and is unable to borrow to finance it. For a national government this is most likely due to a large accumulated debt together with doubts about its ability or willingness to service that debt.
Fiscal deficit A deficit in the government budget of a country. Thus the budget deficit.
Fiscal discipline Management of the government budget so as to avoid excessive fiscal deficits. Thus restraint of government spending and/or willingness to tax.
Fiscal drag The dampening effect on aggregate demand that occurs when an expanding economy creates additional tax revenues, especially under a progressive income tax. Thus an example of an automatic stabilizer.
Fiscal policy Any macroeconomic policy involving the levels of government purchases, transfers, or taxes, usually implicitly focused on domestic goods, residents, or firms.
Fiscal question Also called the fiscal controversy, the debate in Britain in 1903-4 as to whether it should depart from its practice of free trade in order to be able to provide tariff preferences to members of the British Commonwealth.
Fiscal stimulus A tax cut and/or an increase in government spending. So called because it tends to increase aggregate demand and therefore the level of economic activity in the short run.
Fiscal union A form of integration among countries in which they share and coordinate fiscal policies to some degree. They share tax revenues to some extent, so that some countries need not finance all of their own spending themselves. They may also borrow jointly, issuing bonds as a group rather than individually.
Fisher effect The theory that 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. Due to Fisher (1930).
Fisher Equation The equation relating the nominal interest rate, n, to the real interest rate, r, and the rate of inflation, i, in effect defining r: (1+n)=(1+r)(1+i). It is the nominal return needed to yield an inflation-adjusted real return of r. If r and i are small fractions, nr+i. Due to Fisher (1930).
Fisher price index In order to avoid the opposite biases of the Laspeyre and Paache price indices, Irving Fisher suggested using their geometric average: I Fisher = 100[(Σpgqb / Σpbqb)(Σpgqg / Σpbqg)]1/2, where pb, pg are prices in the base and given years respectively. This is sometimes, not uniquely, called the ideal price index.
Fixed cost The cost that a firm bears if it produces at all and that is independent of its output. The presence of a fixed cost tends to imply increasing returns to scale. Contrasts with variable cost.
Fixed exchange rate Usually synonymous with a pegged exchange rate. Although "fixed" seems to imply less likelihood of change, in practice countries seldom if ever achieve a truly fixed rate.
Fixed factor A factor of production the quantity of which cannot be changed. This is usually the case only in the short run.
Fixed trade cost A trade cost that is incurred for any quantity of trade at all, and that does not rise with that quantity. May exist for exports or for imports, and for any trade regardless of origin/destination or separately for each origin/destination. Contrasts with variable trade cost.
FLAR Fondo Latinoamericano de Reservas.
Flexible exchange rate Same as floating exchange rate.
Flexible price model Most microeconomic models and models of international trade assume that prices adjust flexibly so as to achieve equilibrium in all markets. In contrast, some macroeconomic models assume that some prices are sticky.
Floating exchange rate A regime in which a country's exchange rate is allowed to fluctuate freely and be determined without intervention in the exchange market by the government or central bank.
Floor See price floor.
Flow A flow, or flow variable, is an economic magnitude describing behavior that occurs over time and is therefore meaningful only relative to the unit of time. Examples are the value of exports (dollars per year), demand for foreign exchange (euros per day), and migration (persons per month). Contrasts with a stock.
Fluctuate To move up and down.
Fluctuating exchange rate Same as flexible or floating exchange rate.
Flying Geese The Flying Geese model (or paradigm) of economic development depicts changing patterns of comparative advantage and trade over time, as developing countries follow more advanced countries from which they acquire technologies through trade and investment. [Origin]
FMI Fondo Monetario Internacional (Spanish for International Monetary Fund)
FOB The price of a traded good excluding transport cost. Standing for "free on board," it is used only as (lower case) initials, f.o.b. It is the price after loading on a ship but before shipping, thus not including transportation, insurance, and other costs to get from one country to another. Contrasts with CIF and FAS.
FOC First order condition.
FOGS Negotiations In the Uruguay Round, this portion of the negotiations dealt with the Functioning of the GATT System and resulted ultimately in the formation of the WTO and its dispute settlement mechanism.
Fondo Latinoamericano de Reservas A cooperative arrangement among eight countries of Latin America in which they share international reserves and coordinate exchange market intervention. Similar to the Chiang Mai Initiative.
Food and Agriculture Organization of the United Nations A UN body whose purpose is to "defeat hunger" throughout the world mostly by sharing information and expertise.
Food security 1. The reliable availability of a sufficient quantity and quality of nutritious food for a population.
2. As used by some NGOs, the term also requires that localities or regions be self sufficient, in apparent ignorance of the impossibility of combining this with the first definition.
Footloose factor A factor that can move easily across national borders, in contrast to one that, due to inclination or constraints, cannot. Footloose factors are sometimes thought to have an advantage in a globalized economy.
Footloose industry An industry that is not tied to any particular location or country, and can relocate across national borders in response to changing economic conditions and incentives. Many manufacturing industries seem to have this characteristic.
Forced labor Labor that is compelled to work, subject to physical punishment if it does not.
Foreign Account Tax Compliance Act A US 2010 law meant to deter U.S. taxpayers with foreign accounts from avoiding US tax. It requires foreign financial institutions to report information to the US government.
Foreign Affiliates Trade in Services Exports and imports of services by domestically located affiliates of foreign firms.
Foreign aid Aid provided by one country to another.
Foreign asset position The amount of assets that residents of a country own abroad. Also used to mean the net foreign asset position.
Foreign Corrupt Practices Act U.S. law, enacted 1977, that prohibits U.S. firms from bribing foreign officials to obtain or retain business. The law permits, however, facilitating payments.
Foreign debt The amount a country owes to foreigners. More precisely, the negative of the net foreign asset position.
Foreign direct investment Acquisition or construction of physical capital by a firm from one (source) country in another (host) country. The term sometimes refers to the flow per unit time, sometimes to the accumulated stock.
Foreign exchange Foreign currency; any currency other than a country's own.
Foreign exchange market The exchange market.
Foreign exchange market intervention Exchange market intervention.
Foreign exchange rate The exchange rate.
Foreign exchange reserves International reserves
Foreign exchange risk Exchange risk.
Foreign institutional investor An institutional investor based in another country. Some countries place upper limits on the share of a domestic company that an FII can own.
Foreign institutional investment 1. Investment by a foreign institutional investor.
2. International portfolio investment, in contrast to foreign direct investment.
Foreign investment argument for protection The use of protection to attract FDI from abroad. It does work, since much FDI has been motivated by firms trying to get behind a tariff wall to sell their products. In an otherwise nondistorted economy, however, the cost in terms of more expensive goods is higher than the benefit from additional capital.
Foreign portfolio investment Portfolio investment across national borders and/or across currencies.
Foreign repercussion The feedback effect on a domestic economy when its macroeconomic changes cause large enough changes abroad for those in turn to cause further changes at home. Most commonly, a rise in income stimulates imports, causing an expansion abroad that in turn raises demand for the home country's exports.
Foreign reserves International reserves
Foreign reserves crisis The financial crisis that results from (or causes) a central bank coming close to running out of international reserves.
Foreign Sales Corporation Refers to a provision of the U.S. tax code that grants income-tax rebates to American exporters if they form what may be a largely artificial foreign subsidiary called an FSC. 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 sector This term is used in many ways, including the following:
1. The portion of an economy or an economic model that includes exports and imports, and perhaps other international transactions.
2. The portion of an economy that is owned by foreigners.
3. The rest of the world, outside of the country being considered.
4. In the accounts of a country, those portions involving international transactions.
Foreign trade Trade (definition #3)
Foreign trade deficit Trade deficit
Foreign trade zone An area within a country where imported goods can be stored or processed without being subject to import duty. Also called a free zone, free port, or bonded warehouse. Usually smaller than a free trade zone.
Forex A common short-hand or abbreviation for foreign exchange, often used to refers to foreign exchange markets.
Forfaiting The purchase of an exporter's receivables -- the amounts owed by importers to whom goods have already been delivered -- at a discount by a specialized financing firm or a department of a bank. Similar to export factoring. Both are methods of trade finance.
Former Yugoslav Republic of Macedonia The name used for the portion of Yugoslavia that had been called Macedonia until the dispute with Greece over the name was tentatively resolved in 2018. If approved by referendum and ratification (the latter in both countries), it will now be called the Republic of North Macedonia.
Formula approach A procedure for organizing multilateral trade negotiations using a formula for tariff reductions (such as the Swiss Formula) as a starting point. Contrasts with the request/offer approach.
Forum shopping Taking advantage of differences among international agreements to pursue a trade complaint under the agreement that is most favorable to one's case. For example, members of NAFTA may choose whether to file a complaint within NAFTA or within the WTO.
Forward On the forward market.
Forward contract A binding commitment to buy or sell currency on a forward market.
Forward curve In a forward market, the pattern of forward rates, or forward premia, over various time horizons.
Forward discount Opposite of forward premium.
Forward exchange premium Forward premium
Forward exchange rate Forward rate
Forward freight agreement A contract used by shippers and ship owners to hedge against the volatility of ocean freight rates, as reported on the Baltic Exchange. I am unsure whether it is more like a forward contract or more like an option.
Forward integration Acquisition by a firm of a larger part of its distribution chain, moving it closer to selling directly to its ultimate customers.
Forward linkage The provision by one firm or industry of produced inputs to another firm or industry.
Forward market A market for exchange of currencies in the future. Participants in a forward market enter 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. Contrasts with futures markets, which remain in place for several specific calendar dates.
Forward premium The difference between a forward exchange rate and the spot exchange rate, expressed as an annualized percentage return on buying foreign currency spot and selling it forward.
Forward premium puzzle The Fama Puzzle, based on the Fama regression, that the forward premium systematically under-predicts the change in the spot rate, and sometimes is actually negatively correlated with it. This is a puzzle, since it suggests an unexploited profitable arbitrage opportunity.
Forward price In any forward market, the price of the item being traded for delivery at a future date; in exchange markets, the forward rate.
Forward rate Also called the forward exchange rate, this is the exchange rate on a forward market transaction.
Forwarder Freight forwarder
Four-firm concentration ratio See concentration ratio.
Four Freedoms The four freedoms aspired to by the European Union to complete its internal market: the freedom of movement of goods, services, capital, and labor.
Four Tigers The four Asian economies that were the first to show rapid economic development after the success of Japan: Hong Kong, South Korea, Singapore, and Taiwan. Also Four Dragons.
FPE Factor price equalization.
Fragile States Index An index provided by Fund for Peace of countries' vulnerability to disruptive change based on twelve indicators, both qualitative and quantitative, in four categories: cohesion, economic, political, and social.
Fragmentation The splitting of production processes into separate parts that can be done in different locations, including in different countries. One of many terms for the same phenomenon, this particular one (which I seem to favor) originated with Jones and Kierzkowski (1990). [Origin]
Frankenschock The action by the Swiss central bank to suddenly stop pegging its currency to the euro. For three years it had pledged to keep the Swiss franc at 1.20 SFr/€, but on January 15, 2015, it let the currency appreciate, which it did by 30% instantly. The size, and surprise, of the change was a shock to financial markets.
Fraser Institute A Canadian think tank whose mission is "to improve the quality of life for Canadians, their families, and future generations by studying, measuring, and broadly communicating the effects of government policies, entrepreneurship, and choice on their well-being."
Fréchet distribution The probability distribution of a continuous random variable with the following cdf: F(x) = exp{−[β/(x−γ)]α} where α is the shape parameter, β is the scale parameter, and γ is the location parameter. Introduced to international trade theory by Eaton and Kortom (2002), who chose it for its properties as an "extreme value distribution."
Fred Federal Reserve Economic Data
Free and Open Indo-Pacific A strategy that seems first to have been put forward by Japan in 2016 and then adopted by President Trump in 2018. Its meaning is ambiguous but seems to be intended as a counterweight to China's Belt and Road Initiative.
Free at frontier Refers to the value of an imported product at the moment that it falls under the customs jurisdiction of the importing country. Does not include any customs duty. [Unclear, to me, how this differs from c.i.f..]
Free capital markets This is not a standard term, but it seems to be used, variously, for: the absence of government regulation of international capital flows; the absence of government or central bank intervention in exchange markets; and the absence of interference by IFIs in national financial and development policies.
Free carrier A term, abbreviated FCA, denoting that a good for export to a buyer is to be delivered to a carrier specified by the buyer.
Free enterprise A system in which economic agents are free to own property and engage in commercial transactions. See laissez faire, economic freedom, .
Free entry The assumption that new firms are permitted to enter an industry and can do so costlessly. Together with free exit, it implies that profit must be zero in equilibrium.
Free exit The assumption that firms are permitted to leave an industry and can do so costlessly. See free entry.
Free-floating exchange rate Floating exchange rate. Contrasts with a managed float.
Free list A list of goods that a country has designated as able to be imported without being subject to tariff or import licensing.
Free market A market that is not interfered with by government constraints on transactions. Most would say, however, that a market that is subject to a modest and transparent tax can still be considered free.
Free on board See FOB.
Free port See foreign trade zone.
Free rider Someone who enjoys the benefits of a public good without bearing the cost. An example, in trade policy, is that trade liberalization benefits the majority of consumers without their lobbying for it. This may tip policy in the direction of protection, for which there are fewer free riders.
Free trade A situation in which there are no artificial barriers to trade, such as tariffs and NTBs. Usually used, often only implicitly, with frictionless trade, so that it implies that there are no barriers to trade of any kind. For a traded homogeneous product, it follows that domestic and world price must be equal.
Free trade agreement A negotiated treaty among two or more countries to form a free trade area.
Free trade area A group of countries that adopt free trade (zero tariffs and no other policy restrictions) on trade among themselves, 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 A preferential trading arrangement that was, at one time, being negotiated among most of the countries (all but Cuba) of the western hemisphere. It never came into being.
Free Trade Area of the Asia-Pacific A Chinese initiative to form a free trade area among a large number of countries of Asia and the Pacific.
Free trade association Free Trade Area.
Free trade zone A geographic area of a country into and out of which goods pass to and from world markets without going through customs or paying tariffs. Tariffs apply only when goods pass from the zone into or out of the country. Usually larger than a foreign trade zone.
Free zone See foreign trade zone.
Freedom House A bipartisan non-governmental organization dedicated to fighting totalitarianism and promoting freedom and democracy around the world. It produces the Freedom in the World ranking.
Freedom in the World A ranking of countries by "freedom status," which combines political rights and civil liberties.
Freight forwarder A firm that arranges shipment, including contracting with the carrier and handling associated documentation.
Frequency The speed of the up and down movements of a fluctuating economic variable; that is, the number of times per unit of time that the variable completes a cycle of up and down movement. See destabilizing speculation.
Frequency ratio A measure of the presence of nontariff barriers, defined as the percentage of a country's tariff lines that are subject to one or a group of NTBs. Contrasts with coverage ratio and tariff equivalent.
Frictional unemployment Unemployment of people who are changing jobs, careers, or locations.
Frictionless trade The absence of natural barriers to trade, such as transport costs.
Friedman rule The rule for the optimal conduct of monetary policy proposed by Friedman (1969), that it should generate a rate of deflation that makes the nominal interest rate equal to zero.
Friend See natural friend.
Friends and enemies version A weak version of the Stolper-Samuelson Theorem, involving natural friends and enemies, that holds with multiple goods and factors.
Frontier market Term used for countries that are poorer than emerging markets but whose economies are improving.
Froot-Rogoff effect The effect that the real exchange rate tends to appreciate with the level of government consumption, due to the fact that government spends disproportionately on domestic non-tradable goods and services. Due to Froot and Rogoff (1991).
FSB Financial Stability Board
FSC Foreign Sales Corporation
FTA Free trade area or free trade agreement
FTAA Free Trade Area of the Americas
FTAAP Free Trade Area of the Asia-Pacific
FTZ Free trade zone
Full cumulation In an FTA, full cumulation allows all stages of processing or transformation of a product to qualify under the rules of origin.
Functional currency The currency of the primary environment (usually a country) in which a firm generates most of its income and expenses. Contrasts with its reporting currency, which is sometimes different from the currency in which it reports its accounts.
Functional distribution of income How the income of an economy is divided among the owners of different factors of production, into wages, rents, etc.
Functioning of the GATT System See FOGS Negotiations.
Fund for Peace An independent non-profit NGO founded in the US in 1957 to develop "practical tools and approaches for reducing conflict," with a focus on "the nexus of human security and economic development." It produces the Fragile States Index.
Fundamental equilibrium exchange rate This seems to mean the same as equilibrium exchange rate. Adding "fundamental" does not seem to remove its ambiguity.
Futures contract A binding commitment to buy or sell a commidity or currency on a futures market.
Futures market A market for exchange (of currencies, in the case of the exchange market) in the future. Participants contract to exchange currencies, not today, but at a specified calendar date in the future, and at a price (exchange rate) that is agreed upon today. Markets are for several such unchanging calendar dates, unlike forward markets where dates measure from the moving present.
FYROM Former Yugoslav Republic of Macedonia