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OAS Organization of American States
Obligation What a member country of the WTO is required to do and not do. There are many obligations, including especially keeping tariffs at or below bound levels, using only approved trade barriers and doing so in a nondiscriminatory (MFN) way, and according national treatment to imported products.
OBM Obsolescing Bargain Model
Observer 1. In the WTO, a country that is not a member but that has been granted observer status. "With the exception of the Holy See, observers must start accession negotiations within five years of becoming observers."
2. Also in the WTO, a large number of intergovernmental organizations have observer status, enabling them to follow discussions on matters of direct interest to them.
Obsolescing Bargain Model A model of interaction between a multinational enterprise and a host country government, which initially reach a bargain that favors the MNE but where, over time as the MNE's fixed assets in the country increase, the bargaining power shifts to the government. Due to Vernon (1971).
OEA Organización de Estados Americanos (Spanish for Organization of American States)
OECD Organisation for Economic Co-operation and Development
OEEC Organisation for European Economic Co-operation
Offer curve A curve showing, for a two-good model, the quantity of one good that a country will export (or "offer") for each quantity of the other that it imports. Also called the reciprocal demand curve, it is convenient for representing both exports and imports in the same curve and can be used for analyzing tariffs and other changes.
Offer curve Diagram
A diagram that combines the offer curves of two countries (or one country and the rest of world) to determine equilibrium relative prices.
Office of Textiles and Apparel The part of the United States Commerce Department's International Trade Administration that deals with trade in textiles and apparel.
Official rate The par value of a pegged exchange rates.
Official reserve transactions Transactions by a central bank that cause changes in its official reserves. These are usually purchases or sales of its own currency in the exchange market in exchange for foreign currencies or other foreign-currency-denominated assets. In the balance of payments a purchase of its own currency is a credit (+) and a sale is a debit (−).
Official reserves The reserves of foreign-currency-denominated assets (and also gold and SDRs) that a central bank holds, sometimes as backing for its own currency, but usually only for the purpose of possible future exchange market intervention.
Official settlements balance One of several measures of the balance of payments surplus, this one equal to the change in official reserves minus the net increase in foreign official holdings of the country's assets.
Offset requirement As a condition for importing into a country, a requirement that foreign exporters purchase domestic products and/or invest in the importing country. A form of countertrade.
Offshoring Movement to a location in another country of some part of a firm's activity, usually a part of its production process or, frequently, various back office functions.
OFID OPEC Fund for International Development
Ohlin definition The price definition of factor abundance. In contrast to the quantity definition, the price definition incorporates differences in demands as well as supplies. Due to Ohlin (1933).
OIE World Organization for Animal Health
Oil shock A large increase in the relative international price of oil (petroleum). Oil is a sufficiently important input, both for energy and as a raw material, that its price is a major determinant of real incomes and levels of economic activity. Its price is subject to manipulation by governments, especially OPEC.
OIM French acronym of International Organization for Migration
OIT Organización Internacional del Trabajo (Spanish for International Labor Organization)
Okun's Law An approximate linear relationship between unemployment and real GDP, proposed by Arthur Okun: that for every percentage point drop in the unemployment rate, real GDP rises 3%.
OLI Paradigm A framework for analyzing the decision to engage in FDI, based on three kinds of advantage that FDI may provide in comparison to exports: Ownership, Location, and Internalization. Due to Dunning (1979).
Oligopoly A market structure in which there are a small number of sellers, at least some of whose individual decisions about price or quantity matter to the others.
Oligopsony A market structure in which there are a small number of buyers.
OLS Ordinary least squares
OMA Orderly Marketing Arrangement
OMC Organización Mundial de Comercio (Spanish for World Trade Organization)
OMI Open Markets Index
Omnibus Trade and Competitiveness Act of 1988 US trade legislation strengthening unilateral instruments such as Section 301 and authorizing participation in the Uruguay Round. "Omnibus" indicates that this was comprehensive trade legislation -- the first since World War II.
OMO Open market operation.
On-migration The further migration of a person to yet another country.
One cone equilibrium A free-trade equilibrium in the Heckscher-Ohlin Model in which prices are such that all goods can be produced within a single country, and there is only one diversification cone. This will arise if countries' factor endowments are sufficiently similar compared to factor intensities of industries. Contrasts with multi-cone equilibrium.
One-dollar-one-vote yardstick A characterization of the Kaldor-Hicks welfare criterion normally used in evaluating trade policies and more generally in cost-benefit analysis, based on a sum of monetary values including consumer and producer surplus.
One-way arbitrage The use, by a potential supplier or demander in a market, of a different market or markets to accomplish the same purpose, taking advantage of a discrepancy among their prices. With transaction costs, this enforces smaller price discrepancies than would be permitted by conventional arbitrage. Due to Deardorff (1979).
One-way option Refers to the situation of a speculator on an exchange market with a pegged exchange rate. If there is doubt about the viability of the peg, the speculator can sell the currency short knowing that there is only one direction (one way) that the currency is likely to move. Therefore there is little risk associated with such speculation.
ONU Organización de Naciones Unidas (Spanish for United Nations)
OPEC Organization of the Petroleum Exporting Countries
OPEC Fund for International Development A "multilateral financial facility to channel OPEC aid to developing countries."
Open currency position An open position.
Open economy An economy that permits transactions with the outside world, at least including trade of some goods. Contrasts with closed economy.
Open-economy multiplier The simple Keynesian multiplier for a small open economy. Equals 1/(s+m), where s is the marginal propensity to save and m is the marginal propensity to import.
Open market operation The sale or purchase of government bonds by a central bank, in exchange for domestic currency or central-bank deposits. This changes the monetary base and therefore the domestic money supply, contracting it with a bond sale and expanding it with a bond purchase.
Open markets Markets that are free of restrictions on who can buy and sell.
Open Markets Index A ranking of countries (75, in 2011) produced by the International Chamber of Commerce based on openness to international trade and investment.
Open position An obligation to take or make delivery of an asset or currency in the future without cover, that is, without a matching obligation in the other direction that protects from effects of change in the price of the asset or currency. Aside from simple ownership and debt, an open position can be acquired or avoided using the forward market.
Open regionalism Regional economic integration that is not discriminatory against outside countries; typically, a group of countries that agrees to reduce trade barriers on an MFN basis. Adopted as a fundamental principle, but not defined, by APEC in 1989. Bergsten (1997) offers five definitions, ranging from open membership to global liberalization and trade facilitation.
Openness The extent to which an economy is open to trade, and sometimes also to inflows and outflows of international investment.
Openness coefficient The coefficient on any variable measuring openness in a regression, often a regression explaining economic growth. Thus an estimate of the importance of openness for growth.
Openness index 1. Any measure of openness.
2. The ratio of a country's trade (exports plus imports) to its GDP.
OPIC Overseas Private Investment Corporation
Opportunity cost The cost of something in terms of opportunity foregone. The opportunity cost to a country of producing a unit more of a good, such as for export or to replace an import, is the quantity of some other good that could have been produced instead.
Optimal Best, by whatever criterion decisions are being made; thus yielding the highest level of utility, profit, economic welfare, or whatever objective is being pursued.
Optimal currency area The optimal grouping of regions or countries within which exchange rates should be held fixed. First defined (as "optimum currency areas") by Mundell (1961).
Optimal output 1. For a firm this usually means the output of the good that it produces that, when sold, maximizes profit.
2. For a country, this usually means the combination of different goods (and services) that it can produce that is worth the most at world prices, perhaps adjusted for any externalities.
Optimal tariff The level of a tariff that maximizes a country's welfare. In a nondistorted small open economy, the optimal tariff is zero. In a large country it is positive, due to its effect on the terms of trade.
Optimal tariff argument An argument in favor of levying a tariff in order to improve the terms of trade. The argument is valid only in a large country, and then only if other countries do not retaliate by raising tariffs themselves. Even then, this is a beggar thy neighbor policy, since it lowers welfare abroad. See Johnson (1954).
Optimal tax 1. Given a constraint of a minimum amount of revenue that a taxation must raise, a system of optimal taxes will minimize the distortion that they cause.
2. In the presence of an externality, the optimal tax (or subsidy) is that which will internalize its effects so that optimal decisions will be made.
Optimum 1. The best. Usually refers to a most preferred choice by consumers subject to a budget constraint, a profit maximizing choice by firms or industry subject to a technological constraint, or in general equilibrium, a complete allocation of factors and goods that in some sense maximizes welfare.
2. As an adjective, same as optimal.
Optimum optimorum The best of the best, or the global optimum. This term is used, when there are several allocations each of which is locally optimal, to refer to the best among these.
Optimum tariff Optimal tariff
Option A contract that permits one party to buy from (or sell to) the other party something at a prespecified price during a prespecified period of time, leaving the choice of whether to do this or not (whether to "exercise" the option) up to the first party, which buys the option. Options exist for many assets, including foreign exchange.
Orange box See amber box.
Orderly Marketing Arrangement An agreement among a group of exporting and importing countries to restrict the quantities traded of a good or group of goods. Since the impetus normally comes from the importers protecting their domestic industry, an OMA is effectively a multi-country VER.
Ordinary least squares The simplest and most common method of fitting a straight line to a sample of data: by minimizing the sum of the squares of the deviations of the data from the line.
Organisation for Economic Co-operation and Development An international organization of developed countries that "provides governments a setting in which to discuss, develop and perfect economic and social policy." As of August 2012, it had 34 member countries.
Organisation for European Economic Co-operation An international organization established in 1948 as the recipient institution of aid through the Marshall Plan. In 1961 it was replaced by the OECD.
Organization of American States An international organization of the countries of the Western Hemisphere, fostering cooperation among them and advancing their common interests. It has 35 member states, although the government of one of them, Cuba, is excluded from participating.
Organization of the Petroleum Exporting Countries A group of countries that includes many, but not all, of the largest exporters of oil. Its major purpose is to regulate the supply of petroleum and thereby to stabilize (often raise) its price. The international oil cartel. As of July 2011, it had 12 member countries.
Origin principle The principle in international taxation that value added taxes be kept only by the country where production takes place. Under the origin principle, value added taxes are not collected on imports and not rebated on exports. Contrasts with the destination principle.
Origin rule See rules of origin.
Original sin In the context of financial problems of developing and emerging economies, this refers to their difficulty in borrowing abroad in their own currencies. Since it is experienced even by well behaved countries, Eichengreen and Hausmann (1999) dubbed it "original sin" as being beyond their control.
OTEXA Office of Textiles and Apparel
Outflow See capital outflow.
Output The quantity of goods or services produced, in a given time period, by a firm, industry, or country.
Output augmenting Said of a technological change or technological difference if one production function produces a scalar multiple of the other. Also called Hicks neutral.
Output gap The amount by which a country's output, or GDP, falls short of what it could be given its available resources. A positive output gap is considered to exist when a country's unemployment rate is greater than the NAIRU.
Outsourcing 1. Performance outside a firm or plant of a production activity that was previously done inside.
2. Manufacture of inputs to a production process, or a part of a process, in another location, especially in another country.
3. Another term for fragmentation.
Outward FDI Foreign direct investment by a domestic firm establishing a facility abroad. Contrasts with inward FDI.
Outward oriented strategy Export promotion.
Over-invoicing The provision of an invoice that reports the price as higher than is actually being paid. This might be done by a multinational company on imported inputs from a subsidiary in order to shift profit to a lower-taxed jurisdiction.
Over-valued currency The situation of a currency whose value on the exchange market is higher than is believed to be sustainable. This may be due to a pegged or managed rate that is above the market-clearing rate, or, under a floating rate, it may be due to speculative capital inflows. Contrasts with under-valued currency.
Overdraft facility In the IMF, an arrangement permitting countries to draw more foreign currency from it than they have deposited. The right to do so is a Special Drawing Right and, when used, is transferred to the country whose currency is withdrawn.
Overhang See debt overhang and money overhang.
Overhead The costs of a firm that are not directly related to its output, usually interpreted in economic models as fixed costs.
Overseas Private Investment Corporation An agency of the US government that works with the private sector to facilitate the financing of investments in developing countries, with the aim of promoting economic development.
Overshooting See exchange rate overshooting.