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Haircut The loss of asset value for a creditor when a debtor defaults and then renegotiates downward the value of the loan. Sizable haircuts have been often been experienced by international lenders as the result of debt and financial crises.
Handicraft method An approach to quantifying the price effects of a nontariff measure by comparing the prices of goods that are affected by the NTM with prices of goods that are not affected. The term was coined by Ferrantino (2006).
Handmaiden of growth The metaphor proposed by Kravis (1970) as more accurate than engine of growth to capture the role that trade plays in facilitating economic growth, which he argued was due mainly to "internal factors" with trade providing only an "added stimulus."
Harberger-Laursen-Metzler Effect The conjecture or result that a terms of trade deterioration will cause a decrease in savings due to the decrease in real income, and therefore that a real depreciation will cause an increase in real expenditure. Due to Harberger (1950) and Laursen and Metzler (1950).
Harberger triangle The triangular area, or areas, in a supply and demand diagram that measures the net welfare loss, or dead-weight loss due to a market distortion or policy, such as a tariff.
Hard currency A currency that is widely accepted around the world, usually because it is the currency of a country with a large and stable market. Examples today include the U.S. dollar and the euro.
Hard peg A pegged exchange rate with a credible commitment never to change the par value, thus subordinating monetary policy to the needs of the exchange market and denying access to devaluation as a policy tool. In practice, the effects of a hard peg are achieved only through a currency board or by adopting another country's currency, e.g. dollarization.
Harkin bill The Child Labor Deterrence Act, introduced into the US Senate by Iowa Senator Tom Harkin several times from 1992 through 1999 but never passed into law.
Harmful externality Negative externality.
Harmonization 1. The changing of government regulations and practices, as a result of an international agreement, to make those of different countries the same or more compatible.
2. In the case of tariffs, this means making tariff rates more similar across industries and/or across countries.
Harmonized System An international system for classifying goods in international trade and for specifying the tariffs on those goods. It was adopted at the beginning of 1989, replacing the previously used schedules in over 50 countries, including the Brussels Tariff Nomenclature.
Harrod-Balassa-Samuelson Effect The Balassa-Samuelson Effect.
Harrod neutral A particular specification of technological change or technological difference that is labor augmenting.
Hat algebra The Jones (1965) technique for comparative static analysis in trade models. By totally differentiating a model in the logarithms of its variables, a linear system is obtained relating small proportional changes (denoted by carats (^), or "hats") in terms of various elasticities and shares. (The published article used *, not ^, because of typographical constraints.)
Havana Charter The charter for the never-implemented International Trade Organization. The draft was completed at a conference in Havana, Cuba, in 1948.
HDI Human Development Index
Head-Ries index An inverse measure of trade costs between two countries, i, j, defined as [XijXji/XiiXjj]1/2, where Xij is exports from i to j and Xii is sales by country i to itself. Used by Head and Ries (2001) and named by Eaton et al. (2011).
Headcount index A common measure of poverty, defined as the percentage of the population living below the poverty line.
Headline inflation The rate of inflation that attempts to include everything that contributes to the cost of living. Contrasts with core inflation, which excludes prices of food and energy.
Headquarters services The activities of a firm that typically occur at its main location and that contribute in a broad sense to its productivity at all of its locations and plants. These may include management, accounting, marketing, and R&D.
Heavily indebted poor countries The name given to those poor countries with large debts, the target of initiatives to forgive that debt as a means of assisting development.
Heckscher-Ohlin Core Propositions See core propositions.
Heckscher-Ohlin Model A model of international trade in which comparative advantage derives from differences in relative factor endowments across countries and differences in relative factor intensities across industries. Sometimes refers only to the textbook or 2x2x2 model, but more generally includes models with any numbers of factors, goods, and countries. Model was originally formulated by Heckscher (1919), fleshed out by Ohlin (1933), and refined by Samuelson (1948, 1949, 1953).
Heckscher-Ohlin-Samuelson Model Usually synonymous with the Heckscher-Ohlin Model, although sometimes the term is used to distinguish the more formalized, mathematical version that Samuelson used from the more general but less well-defined conceptual treatment of Heckscher and Ohlin.
Heckscher-Ohlin Theorem The proposition of the Heckscher-Ohlin Model that countries will have comparative advantage in, and therefore export, the goods that use relatively intensively their relatively abundant factors.
Heckscher-Ohlin-Vanek Model The Heckscher-Ohlin Model for the case of identical techniques of production (due either to FPE or Leontief technologies), used to derive the strong prediction about the factor content of trade known as the Heckscher-Ohlin-Vanek Theorem.
Heckscher-Ohlin-Vanek Theorem The prediction of the H-O-V Model that a country's net factor content of trade equals its own factor endowment minus its world-expenditure share of the world factor endowment. That is, for country i, Fi = Vi – siVW, where Fi is the factor content of its trade, Vi,VW its and the world's factor endowments, and si its share of world expenditure. Due to Vanek (1968).
Hedge To offset risk. In the foreign exchange market, hedgers use the forward market to cover a transaction or open position and thereby reduce exchange risk. The term applies most commonly to trade.
Hedonic pricing The use of statistical techniques such as regression analysis to determine, from the prices of goods with different measurable characteristics, the prices that are associated with those characteristics. The latter can then be used to construct what the comparable price of a good would be from its characteristics.
Helms-Burton Act A United States law enacted in 1996 that penalized companies for doing business in Cuba. Since the law applied to non-U.S. companies as well as U.S. companies, other governments objected.
Herfindahl index A standard measure of industry concentration, defined as the sum of the squares of the market shares (in percentages) of the firms in the industry.
Heterogeneous Not all the same. Not homogeneous.
Heterogeneous firm model An economic model in which firms in an industry are not all the same, as for example a Melitz model.
HIC High Income Country
Hicks-Kaldor improvement Potential Pareto improvement
Hicks-neutral Said of a technological change or technological difference if production functions differ by scaling of output only: F2(V)=λF1(V), where F1(·) and F2(·) are the production functions being compared, V is a vector of factor inputs, and λ>0 is a constant.
Hicksian composite unit-value isoquant For given constant-returns-to-scale technologies for two or more goods and given prices of those goods, this is the convex hull of the unit value isoquants of those goods. It thus represents the most efficient ways of allocating factors so as to produce one unit of value by producing one or more of the goods.
Hicksian surplus See Marshallian surplus.
High beta economy An economy that is volatile, usually in terms of movements in its GDP and usually because of high exposure to international markets through international trade and/or capital flows.
High dimension 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.
High Income Country The top income group in the World Bank's classification of countries by GNI per capita, calculated by the Atlas Method. Based on July 2010 data, these were countries with incomes of $12,276 or more. Other groups are Low Income Countries and Middle Income Countries.
High powered money Same as monetary base, in the sense of currency plus commercial bank reserves.
High technology This is a rather vague term referring to products and industries that arise from recently developed technologies such as electronics, genetic engineering, nanotechnology, etc. The presumption often is that specialization in these industries generates greater economic welfare than more traditional industries.
High value-added Like high technology, this too is a vague term. If taken literally as an industry with a high proportion of value added, it would simply mean that it uses little in intermediate inputs, and thus is vertically integrated. But from the use of the term, that is surely not meant. Instead it seems to refer to a high ratio of price to labor input, so that it can support high wages and high profits.
HIPC Heavily indebted poor countries.
H-O Model Heckscher-Ohlin Model.
Holdup problem In the context of a potential mutually beneficial agreement, the disincentive for one party to invest in that agreement, due to the potential for the other party to extract such benefits, after the investment, as would leave the first party at a loss. Problem arises in many contexts, including international trade that requires, say, an exporter to bear an initial fixed cost.
Hollowing out The shrinking of the manufacturing sector that has sometimes been thought to result from international trade or outsourcing.
Home bias 1. A preference, by consumers or other demanders, for products produced in their own country compared to otherwise identical imports. This was proposed by Trefler (1995) as a possible explanation for the mystery of the missing trade.
2. A tendency for wealth holders to hold a disproportional part of their wealth in assets of their own country, rather than diversifying across assets of many countries as theory would predict.
Home bias puzzle The observation that assets owned by countries are far more concentrated in domestic assets than would seem to be optimal in order to reduce risk.
Home market effect The tendency in industries with increasing returns to scale for large countries to be net exporters. Due to Krugman (1980)
Homogeneous 1. Having the property that all constituent elements are the same, as a homogeneous good. Contrasts with heterogeneous.
2. Possessing a certain form of uniformity, as a homogeneous function.
Homogeneous function A function with the property that multiplying all arguments by a constant changes the value of the function by a monotonic function of that constant: FV)=g(λ)F(V), where F(·) is the homogeneous function, V is a vector of arguments, λ>0 is any constant, and g(·) is some strictly increasing positive function. Special cases include homogeneous of degree N and linearly homogeneous.
Homogeneous good A good all units of which are the same; a homogeneous product.
Homogeneous of degree 1 The same as linearly homogeneous and, for a production function, constant returns to scale. See homogeneous of degree N.
Homogeneous of degree N A homogeneous function where the monotonic function is the constant raised to the exponent N: FV)=λNF(V). For N>1, see increasing returns to scale; for N<1, see decreasing returns to scale.
Homogeneous of degree zero The property of a function that, if you scale all arguments by the same proportion, the value of the function does not change. See homogeneous of degree N. In the H-O Model, CRTS production functions imply that marginal products have this property, which is critical for FPE.
Homogeneous product The product of an industry in which the outputs of different firms are indistinguishable. Contrasts with differentiated product.
Homohypallagic Having a constant elasticity of substitution. One of the inventors 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 arguments is homothetic if all ratios of its first partial derivatives depend only on the ratios of the arguments, not their levels. For competitive consumers or producers optimizing subject to homothetic utility or production functions, this means that ratios of goods demanded depend only on relative prices, not on income or scale.
Homothetic demand Demand functions derived from homothetic preferences. The demand functions are not themselves literally homothetic.
Homothetic preferences Together with identical preferences, this assumption is used for many propositions in trade theory, in order to assure that consumers with different incomes but facing the same prices will demand goods in the same proportions.
Homothetic tastes Homothetic preferences.
Hong Kong Ministerial The 6th WTO ministerial meeting, held in Hong Kong, China, December 13-18, 2005. Intended to achieve significant progress in the negotiations for the Doha Round, it ended with only minimal progress but was nonetheless declared a success.
Horizontal discipline The use of a rule, as in the regulations of trade policies under the GATT or GATS, that applies across the board to all sectors of the economy.
Horizontal FDI Foreign direct investment by a firm to establish manufacturing facilities in multiple countries, all producing essentially the same thing but for their respective domestic or nearby markets. Contrasts with vertical FDI.
Horizontal integration Production of different varieties of the same product, or different products at the same level of processing, within a single firm. This may, but need not, take place in subsidiaries in different countries.
Horizontal intraindustry trade Intraindustry trade in which the exports and imports are differentiated by characteristics other than quality, or (less commonly) are at the same stage of processing. Contrasts with vertical IIT.
Horizontal mechanism A procedure for dealing with NTBs that has been proposed by the EU as part of the Doha Round negotiations, solving problems between member countries by using an expert panel to advise parties and seek mutually agreed but non-binding solutions.
Horizontal reduction In trade negotiations, a cut in all tariffs by the same percentage. See linear cut.
Hormone dispute See beef hormone case.
HOS Model Heckscher-Ohlin-Samuelson Model.
Host country The country into which a foreign direct investment is made.
Hostage effect One reason why a firm might choose to acquire less than 100% of a foreign firm that it buys, in spite of the extra administrative cost of managing shared ownership: it gives the seller a stake in the acquired firm, and thus incentive to behave and communicate helpfully.
HOT Heckscher-Ohlin Theorem.
Hot money Holdings of very liquid assets, which may be sold or cashed on short notice and then removed from a country, often in response to expectations of devaluation or other financial crisis.
Housing bubble A bubble in the prices of housing. Especially the bubble that occurred leading up to the Global Financial Crisis of 2008, which was caused by the decline of house prices especially in the US and Europe.
HOV Model Heckscher-Ohlin-Vanek Model.
HS Harmonized System
Hub and spoke integration A pattern of economic integration in which one country (the "hub") forms preferential trading arrangements with two or more other countries (the "spokes") that do not form such arrangements with each other.
Human capital 1. The stock of knowledge and skill, embodied in an individual as a result of education, training, and experience, that makes him or her more productive.
2. The stock of knowledge and skill embodied in the population of an economy.
Human capital density The amount of human capital per unit land area in a country.
Human Development Index An index produced by UNDP for 169 countries (as of July 2011) to measure three aspects of human development: life expectancy and health; knowledge; and standard of living.
Human rights The conditions and expectations to which every person, by virtue of his or her existence as a human being, is entitled.
Hyperinflation Inflation at a very high and rising rate. Defined by Cagan (1956) to be over 50%.
Hysteresis 1. The failure of an economic variable to return to its initial equilibrium after a temporary shock. For example, an industry or trade flow might disappear due to an exchange rate change, then not reappear after the change is reversed.
2. A time lag between a cause and an effect. (Though this seems to be the more standard dictionary definition, economists seem to prefer definition 1.)