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P4 Trans-Pacific Strategic Economic Partnership Agreement.
Pacific Rim A collective term for the countries that border on the Pacific Ocean.
Panel A three-person committee assembled by the WTO to hear evidence in disputes between members, as part of the WTO dispute settlement mechanism. Panels are also used to settle disputes under NAFTA.
Panel data Data on an economic variable that include both multiple economic units and multiple time periods, thus displaying both cross sectional variation and time series variation.
Panel report The finding of a WTO dispute settlement mechanism panel.
Par 1. Equality. See at par.
2. Official value. See par value.
Par value The central value of a pegged exchange rate, around which the actual rate is permitted to fluctuate within set bounds.
Para-tariff A charge on an imported good instead of, or in addition to, a tariff.
Paradox As used in economics, it seems to mean something unexpected, rather than the more extreme normal meaning of something seemingly impossible. Some paradoxes are just theoretical results that go against what one thinks of as normal. Others, like the Leontief paradox, are empirical findings that seem to contradict theoretical predictions.
Paradox of Plenty Resource Curse
Parallel economy Black market
Parallel import Trade that is made possible when the owner of intellectual property causes the same product to be sold in different countries for different prices. If someone else imports the low-price good into the high-price country, that is a parallel import. Thus, one example of gray market trade.
Parameter A constant that helps to determine the shape and position of a functional relationship, such as an exponent in a Cobb-Douglas function or the marginal propensity to import in a linear import function.
Parent In a firm that has one or more subsidiaries, especially a multinational corporation, the portion of the firm that owns and ultimately controls the others.
Pareto criterion The criterion that for change in an economy to be viewed as socially beneficial it should be Pareto improving.
Pareto efficient Same as Pareto optimal.
Pareto improving Making no one worse off and making at least one person better off.
Pareto optimal Having the property that no Pareto improving change is possible.
Paris Club A group of 19 creditor countries that meets regularly but informally in Paris to seek ways of helping debtor countries to manage their debts through coordinated rescheduling and other means.
Paris Convention The Paris Convention for the Protection of Industrial Property is a treaty administered by WIPO concerning industrial property such as patents, trademarks, and appellations of origin.
Parity 1. Equality. Same as par. See also interest parity and purchasing power parity.
2. Official value, or par value.
Parsimonious Stingy. Although in normal language, this has a negative connotation, when applied to a model or an explanation in economics it tends to be positive, meaning that it relies on as simple a structure as possible.
Partial Favoring one person or side over another; not impartial.
Partial equilibrium Equality of supply and demand in only a subset of an economy's markets -- usually just one -- taking variables from other markets as given. Partial equilibrium models are appropriate for products that constitute only a negligibly small part of the economy. They are used routinely (not always appropriately) for analysis of trade policies in single industries. Contrasts with general equilibrium.
Participation rate The fraction of a country's working-age population that is employed or seeking employment.
Pass-through The extent to which an exchange rate change is reflected in the prices of imported goods. With full pass-through, a currency depreciation, which increases the price of foreign currency, would increase the prices of imported goods by the same amount, and vice versa. With no pass-through, prices of imports remain constant. See pricing to market.
Patent The legal right to the proceeds from, and control over the use of, an invented product or process, granted for a fixed period of time, usually 20 years. Patent is one form of intellectual property that is a subject of the TRIPS agreement.
Patent Cooperation Treaty A treaty administered by WIPO providing a unified procedure for filing patent applications in participating countries.
Path dependent The property that destination depends on the route traveled. That is, if the equilibrium that will ultimately be reached by a system depends on the values of variables that occur away from equilibrium, then the equilibrium is path dependent.
Patriotism argument for protection The view that one is helping one's country by buying domestically produced goods instead of imports. In a nondistorted economy, this is not correct, since the country can do better producing where it has a comparative advantage rather than using scarce resources where it does not.
Pattern of specialization The particular goods that a country produces and those it does not.
Pattern of trade See trade pattern.
Pauper labor argument The view that a country loses by importing from another country that has low wages, presumably by lowering wages at home. This view ignores the fact that low wages are due to low productivity, and that the high-wage home country, with high productivity, will have comparative advantage in some products and will gain from trade.
Payment at sight Written as one of the terms of payment in a letter of credit, this means that the payment will be made immediately when the completion of the trade is documented, as opposed to after some specified delay.
Payments deficit Balance of payments deficit.
Payments imbalance Imbalance in the balance of payments, normally including both current and capital accounts.
Peak The point in the business cycle when an economic expansion reaches its highest point before turning down. Contrasts with trough.
Peg 1. To maintain a pegged exchange rate; thus to set a currency's value within a narrow range.
2. The par value of a pegged exchange rate.
3. The regime of a pegged exchange rate.
Pegged exchange rate A regime in which the government or central bank announces an official (par value) of its currency and then maintains the actual market rate within a narrow band above and below that by means of exchange market intervention.
Penn Effect The finding, through the Penn World Table, that average prices are lower, and real incomes therefore higher, in developing countries than would be found by converting developed-country prices at nominal exchange rates. This was subsequently explained as the Balassa-Samuelson Effect.
Penn World Table The database of the Center for International Comparisons at the University of Pennsylvania, which "provides purchasing power parity and national income accounts converted to international prices." Useful for many purposes, especially for comparing real values across countries.
Per capita Per person.
Per capita income Income per person, usually measured as GDP divided by population.
Per capita output The value of an economy's output per person, GDP divided by population and thus the same as per capita income.
Percentage point A one percent increment. For example, a two percentage point increase in a growth rate that was previously 5% would be an increase to 7% (which might alternatively be correctly, though less commonly, called a 40% increase in the growth rate, since 7 is 40% higher than 5).
Perfect capital mobility 1. The absence of any barriers to international capital movements.
2. The requirement that, in equilibrium, rates of return on capital (interest rates) must be the same in different countries.
Perfect competition An idealized market structure in which there are large numbers of both buyers and sellers, all of them small, so that they act as price takers. Perfect competition also assumes homogeneous products, free entry and exit, and complete information. Most international trade theory prior to the New Trade Theory assumed perfect competition.
Perfect foresight Exact knowledge of the future. Under perfect foresight, for example, the forward rate would exactly equal the spot rate that later prevails when the forward contract matures.
Perfect substitute A good that is regarded by its demanders as identical to another good, so that the elasticity of substitution between them is infinite.
Perfectly competitive Refers to an economic agent (firm or consumer), group of agents (industry), model, or analysis that is characterized by perfect competition. Contrasts with imperfectly competitive.
Perfectly elastic Refers to a supply or demand curve with a price elasticity of infinity, implying that the supply or demand curve as usually drawn is horizontal. A small open economy faces perfectly elastic demand for its exports and supply of its imports, and a foreign offer curve that is a straight line from the origin.
Perfectly inelastic Having zero elasticity with respect to some variable, often income, price, or both. Thus completely insensitive to changes in this variable.
Perfectly mobile capital Perfect capital mobility.
Performance requirement 1. A requirement that an importer or exporter must achieve some level of performance, in terms of exporting, domestic content, etc., in order to obtain an import or export license.
2. A requirement by the host country of FDI that the investor must do certain things, such as exporting, employing, or purchasing certain amounts.
Performance target In the international economic context, this is likely to refer to one of several targets specified by the IMF as a condition for a loan to a developing country.
Peril point The point beyond which tariff reduction in an industry would cause it serious injury. The U.S. Tariff Commission was required to determine peril points for U.S. industries as a constraint on negotiations in early GATT Rounds.
Periphery This is something that is on the edge. It therefore is used to refer to countries that are located far from the center of the world's economic activity.
Permanent normal trading relations The granting of permanent MFN status to a country that is not a member of the WTO. It is "normal" in the sense that most countries are WTO members and therefore have MFN status (or better) automatically.
Permit A license issued by government granting permission to engage in some activity, such as to export, import, or invest.
Personal income Income received by persons (as opposed to firms and government). It differs from national income by excluding income earned but not received (e.g., corporate retained earnings) and including income received but not earned (e.g., government transfer payments).
Peso Crisis The massive devaluation of the Mexican currency, the peso, at the end of 1994, and the associated strains and hardships in the Mexican economy. Tequila Crisis.
Peso problem 1. The need for a country with a past history of high inflation to have a higher interest rate than other countries, to compensate bond holders for the expectation of depreciation. The term seems first to have appeared in print in Krasker (1980), motivated by experience before the 1976 Mexican peso devaluation.
2. More generally, a peso problem refers to the need for an asset to pay a high return to compensate for a perceived small probability of a large decline in value.
Peterson Institute for International Economics "A private, nonprofit, nonpartisan research institution devoted to the study of international economic policy." Founded in 1981 as Institute for International Economics by C. Fred Bergsten, it was renamed the Peter G. Peterson Institute for International Economics in 2006.
Petition A request for administered protection.
Petrodollar Refers to the profits made by oil exporting countries when the price rose during the 1970s, and their preference for holding these profits in U.S. dollar-denominated assets, either in the U.S. or in Europe as Eurodollars. A portion of these were in turn lent by banks to oil-importing developing countries that used them to buy oil.
Phantom GDP The portion of real GDP, or of an increase in real GDP, that occurs when domestic producers switch to lower cost imported inputs. Although it represents a valid gain from trade, it does not represent real output produced within the domestic economy, but may be treated as such in statistics.
Phare Programme A program of the European Union providing financial assistance to countries of Central and Eastern Europe prior to their accession to the EU.
Phillips curve An inverse relationship between inflation and unemployment observed by Phillips (1958) and thought to describe an achievable tradeoff between the two macroeconomic ills. It was later found that the true relationship also depends on expectations of inflation in a way that prevents the unemployment rate from differing permanently from the NAIRU.
Physical capital The same as "capital," without any adjective, in the sense of plant and equipment. The word "physical" is used only for clarity, to distinguish it from human capital and financial capital.
Physiocrat One of a school of French thinkers who developed a system of economics prior to Adam Smith and the foundation of modern economics. Founded by François Quesnay, they believed that all wealth is derived from the land and that commerce and industry were sterile. They advocated both free trade and taxing only the land.
Phytosanitary Pertaining to the health of plants, especially freedom from pests and pathogens. See sanitary and phytosanitary regulations.
Piecemeal tariff reform The reduction of only one tariff (or a subset of tariffs) by a country that has additional tariffs on other products.
Pigouvian 1. Based on the ideas and writings of Arthur Cecil Pigou(1877-1959).
2. When used with tax-cum-subsidy, it means that the policy is set equal to the size of a negative (if tax) or positive (if subsidy) externality, as prescribed by Pigou (1920). Such a policy is the first best way to dealing with an externality, in contrast to a tariff, which is only second best.
PIGS 1. Acronym for the four poorest -- and, as it happens, Mediterranean -- countries of the EU15: Portugal, Italy, Greece, and Spain.
2. Also used for the four countries subject to debt crisis starting in 2010: Portugal, Ireland, Greece, and Spain. Also sometimes including both Ireland and Italy, as PIIGS.
PIIE Peterson Institute for International Economics
Platform See export platform.
Plaza Accord An agreement reached in 1985 among the central banks of France, Germany, Japan, US, and UK to bring down the value of the U.S. dollar, which had appreciated substantially since 1980. By the time of the Louvre Accord, two years later, the dollar had fallen 30%.
Plurilateral Among several countries -- more than two, which would be bilateral, but not a great many or all, which would be multilateral.
Plurilateral agreement The plurilateral agreements of the WTO contrast with the larger multilateral agreements in that the former are signed by only those member countries that choose to do so, while all members are party to the multilateral agreements.
PNTR Permanent normal trading relations
PNUD Programa de Naciones Unidas para el Desarrollo (Spanish for United Nations Development Programme)
Point elasticity See elasticity
Policy A deliberate act of government that in some way alters or influences the society or economy outside the government. Includes, but is not limited to, taxation, regulation, expenditures, and legal requirements and prohibitions, including in each case those which affect international transactions.
Policy instrument A particular type of policy that can be used in varying degrees or intensities. The context is usually one of trying to achieve several objectives with two or more policy instruments.
Policy space The freedom of a developing country to use policies as needed to promote development. Concern about policy space arose as developing countries began to be constrained by international agreements such as those in the WTO.
Policy tool Policy instrument
Polish plumbers Shorthand for migrant workers from Central and Eastern Europe into Western Europe, after the enlargement of the European Union from 15 to 25 members. Said to have caused unemployment of workers in France and the U.K.
Political economy 1. Early name for the discipline of economics.
2. A field within economics encompassing several alternatives to neoclassical economics, including Marxist economics. Also called radical political economy.
3. A field within economics that concerns the interactions between political processes and economic variables, especially economic policies.
Political economy of protection The study of reasons, especially political ones, that countries choose to use protection. Includes models of voting, lobbying, and campaign contributions as these lead policy makers to erect tariffs.
Political risk The risk in an international transaction -- export, import, or FDI -- that a government or military will intervene, preventing or altering the terms of the transaction. Contrasts with commercial risk.
Political Trilemma of the World Economy See Trilemma of the World Economy
Pollution haven A country that, because of its weak or poorly enforced environmental regulations, attracts industries that pollute the environment.
Pooled equilibrium An equilibrium in which two or more different types of agents behave in the same way and therefore cannot be distinguished.
Port The facility at which ships dock and transfer cargo and passengers to and from land.
Porter's Diamond The four determinants of competitive advantage of nations, as identified by Porter (1990): factor conditions; demand conditions; related and supporting industries; and firm strategy, structure, and rivalry.
Portfolio The entirety of the financial assets (and usually also liabilities) that an economic agent or group of agents owns.
Portfolio approach An approach to explaining exchange rates that stresses their role in changing the proportions of different currency-denominated assets in portfolios. The exchange rate adjusts to equate these proportions to desired levels.
Portfolio balance effect The effect that sterilized exchange market intervention may have on the exchange rate by altering the composition of portfolios and inducing exchange-rate adjustment so as to match desired to actual holdings.
Portfolio capital Financial assets, including stocks, bonds, deposits, and currencies.
Portfolio decision An economic agent's choice as to how much of various assets (or sometimes liabilities) to hold. The choice to hold a higher proportion of assets denominated in foreign currency, for example, is a portfolio decision.
Portfolio diversification See diversified portfolio.
Portfolio flow The sale or purchase of financial assets across countries.
Portfolio investment The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.
Positive Refers to "what is," in contrast to normative which involves value judgments as to "what ought to be." The word is not, in this use, the opposite of either "negative" or "harmful."
Positive externality A beneficial externality; that is, a beneficial effect of one economic agent's actions on another. Considered a distortion because the first agent has inadequate incentive to act. Examples are the attractiveness of well-kept farms for the tourism industry (a production externality) and reduced contagion of disease due to vaccines (a consumption externality).
Positive list In an international agreement, a list of those items, entities, products, etc., to which the agreement will apply, with no commitment to apply the agreement to anything else. Contrasts with negative list.
Positive sum game A game in which the payoffs to the players may add up to more than zero, so that it may be possible for all players to gain. Contrasts with zero sum game. Due to the gains from trade, trade and trade policy may be thought of as positive sum games.
Post See ex post.
Potential Pareto improvement A change that could become Pareto improving if it were accompanied by suitable redistribution. A move to free trade, although it is likely to hurt some people if done alone, is beneficial under the Kaldor-Hicks criterion because it is a potential Pareto improvement. Also called a Kaldor improvement, a Kaldor-Hicks improvement, or a Hicks-Kaldor improvement.
Poverty datum line Same as poverty line.
Poverty line The level of annual income below which a household is defined to be living in poverty. This is defined differently by different governments and institutions and, in spite of the great importance of its intent, is not in fact as meaningful as one might wish.
Poverty Reduction and Growth Facility The IMF's low-interest lending facility for poor countries, established in 1999 and intended to be more favorable to reducing poverty and promoting growth than previous policies. Replaced in 2009 with the Extended Credit Facility.
PPF Production possibility frontier
PPP Purchasing power parity
PPP exchange rate Purchasing power parity exchange rate
PPP method Use of a purchasing power parity exchange rate to convert one country's nominal values (usually of GDP) to another country's currency, so as to compare them. Contrasts with the Atlas method.
Pre-shipment inspection Certification of the value, quality, and/or identity of traded goods done in the exporting country by specialized agencies or firms on behalf of the importing country. Traditionally used as a means to prevent over- or under-invoicing, it is now being used also as a security measure.
Prebisch-Singer Hypothesis The idea that the prices of primary products relative to manufactures would decline over the long term, and therefore that developing countries that were led by comparative advantage to specialize in them would find their prospects for development diminished. Due to Prebisch (1950) and Singer (1950).
Precautionary principle The view that when science has not yet determined whether a new product or process is safe or unsafe, policy should prohibit or restrict its use until it is known to be safe. Applied to trade, this has been used as the basis for prohibiting imports of GMOs, for example.
Predation The use of aggressive (i.e., low) pricing to put a competitor out of business, with the intent, once they are gone, of raising prices to gain monopoly profits.
Predatory dumping Dumping for the purpose of driving competitors out of business and then raising price. This is the one motivation for dumping that most economists agree would be undesirable, like predatory pricing (predation) in other contexts.
Predatory pricing Predation.
Preference for variety The increased utility that people experience when they have access to a larger number of differentiated product varieties. In reality this may reflect their ability to find products more closely suited to their own particular needs, but as modeled in the Dixit-Stiglitz utility function, they are better off consuming small quantities of each of a larger number of products.
Preference margin Margin of preference
Preference set The set of vectors of goods or other economic magnitudes that are preferred by an economic decision maker (e.g., consumer) to a given one.
Preferences 1. In trade policy, this refers to special advantages, such as lower-than-MFN tariffs, accorded to another country's exports, usually in order to promote that country's development. See GSP.
2. In trade theory, this refers to the attitudes of consumers toward different goods, as represented by a utility function. Some propositions in trade theory use the assumption of identical and/or homothetic preferences.
Preferential duty Preferential tariff.
Preferential tariff A tariff lower than the MFN tariff, levied against imports from a country that is being given favored treatment, as in a preferential trading arrangement or under the GSP.
Preferential Trading Arrangement 1. A group of countries that levy lower (or zero) tariffs against imports from members than outsiders. Includes FTAs, customs unions, and common markets. Encouragement to use this term instead of the more misleading FTA has come from Jagdish Bhagwati, as in Bhagwati and Panagariya (1996).
2. Frankel (1997) uses PTA for an arrangement where internal tariffs are reduced but not zero, reserving FTA for a trading bloc with zero internal tariffs.
Preliminary With reference to a tariff or other trade barrier applied as a result of administered protection, this refers to a barrier imposed part way through the administrative process, as opposed to the definitive barrier that is imposed when the administrative process is complete.
Premium 1. The excess of one price over another.
2. Forward premium
Present value The value today of a stream of payments and/or receipts over time in the future and/or the past, converted to the present using an interest rate. If Xt is the amount in period t and r the interest rate, then present value at time t=0 is V = Σt (Xt)/(1+r)t.
Presidential trade authority Informal name for trade promotion authority or fast track.
Preston Curve The relationship between a country's life expectancy and its real per capita income. Named after Preston (1975).
PRGF Poverty Reduction and Growth Facility
Price ceiling A government-imposed upper limit on the price that may be charged for a product. If that limit is binding, it implies a situation of excess demand and shortage.
Price competition Competition among firms by reducing price, as opposed to by changing characteristics of the product.
Price control Intervention by a government to set the price in a market or limit its movement, thus attempting to override the market mechanism.
Price definition A method of defining relative factor abundance based on ratios of factor prices in autarky: Compared to country B, country A is abundant in factor X relative to factor Y iff wXA/wYA < wXB/wYB, where wIJ is the autarky price of factor I in country J, I=X,Y, J=A,B. This is also known as the "Ohlin definition," since it is the one used by Ohlin (1933).
Price differentiation Price discrimination
Price discrimination The sale by a firm to buyers at two different prices. When this occurs internationally and the lower price is charged for export, it is regarded as dumping.
Price elastic Having a price elasticity greater than one (in absolute value).
Price elasticity The elasticity of supply or demand with respect to price.
Price fixing An agreement among competing firms on the prices that they will charge, presumably to keep prices higher than they otherwise would be. See cartel.
Price floor A government-imposed lower limit on the price that may be charged for a product. If that limit is binding, it implies a situation of excess supply, which the government may need to purchase itself to keep price from falling.
Price index A measure of the average prices of a group of goods relative to a base year. A typical price index for a vector of quantities q and prices pb, pg in the base and given years respectively would be I = 100Σpgq / Σpbq.
Price inelastic Having a price elasticity of less than one (in absolute value).
Price level The overall level of prices in a country, as usually measured empirically by a price index, but often captured in theoretical models by a single variable.
Price line A straight line representing the combinations of variables, usually two goods, that cost the same at some given prices. The slope of a price line measures relative prices, and changes in prices can therefore be represented by changing the slope of, or rotating, a price line. A steeper line means a higher relative price of the good measured on the horizontal axis.
Price mechanism Same as market mechanism.
Price rigidity Failure of a price to move to clear the market. Reasons include costs of changing prices, contracts, and regulations.
Price specie flow mechanism Same as specie flow mechanism.
Price stabilization 1. Intervention in a market in order to reduce fluctuations in price. This has sometimes been attempted by means of a buffer stock in markets for primary products.
2. The use of macroeconomic policies to reduce inflation.
Price support Government action to increase the price of a product, usually by buying it. May be associated with a price floor.
Price system Same as market mechanism.
Price taker An economic entity that is too small relative to a market to affect its price, and that therefore must take that price as given in making its own decisions. Applies to all buyers and sellers in markets that are perfectly competitive. Applies also to a country if it is a small open economy.
Price undertaking A commitment by an exporting firm to raise its price in an importing-country market, as a means of settling an anti-dumping suit and preventing an anti-dumping duty.
Price-cost margin The amount by which the price of a product exceeds its cost.
Pricing to market The practice of an exporting firm holding fixed (or not fully adjusting) the price it charges in the export market when its cost or exchange rate changes. See pass-through. Seminal treatment was Krugman (1987).
Primary boycott See boycott.
Primary budget surplus The primary budget surplus (or deficit) of a government is the surplus excluding interest payments on its outstanding debt.
Primary commodity Primary product
Primary environment See functional currency.
Primary factor An input that exists as a stock providing services that contribute to production. The stock is not used up in production, although it may deteriorate with use, providing a smaller flow of services later. The major primary factors are labor, capital, human capital (or skilled labor), land, and sometimes natural resources.
Primary input Same as primary factor.
Primary product A good that has not been processed and is therefore in its natural state, specifically products of agriculture, forestry, fishing, and mining.
Primary sector The portion of an economy producing primary products, in contrast to the secondary sector and the tertiary sector.
Primary surplus The government budget surplus, not including net interest payments on the government debt.
Prime rate The interest rate that a country's largest banks announce for loans to their best customers. In practice, their most creditworthy customers get a rate lower than this.
Priming the pump An expansionary monetary or fiscal policy that is intended to get people spending again so that the economy will then expand on its own.
Principal 1. The initial amount of a loan, thus not including interest.
2. The person or other entity on whose behalf an agent acts, in the Principal-agent theory.
Principal-agent theory The theory of interaction between an agent and the principal for whom they act, the point being to structure incentives so that the agent will act to benefit the principal. Can be used, for example, to analyze government as agent for society, or international institutions as agents for governments.
Principal supplier The country that has the largest share of imports of a good into a particular importing country, among those exporters subject to MFN tariffs. It is customary in tariff negotiations, and to some extent mandated by WTO rules, that countries negotiate with their principal suppliers.
Prior deposit An import deposit that must be made before importing, often at the time an import license is granted.
Prisoners' dilemma A strategic interaction in which two players both gain individually by not cooperating, but leading to a Nash equilibrium in which both are worse off than if they cooperated. Important especially for explaining why countries may choose protection even though all lose as a result. See tariff-and-retaliation game.
Private benefit The benefit to an individual economic agent, such as a consumer or firm, from an event, action, or policy change. Contrasts with social benefit.
Private cost The cost to an individual economic agent, such as a consumer or firm, from an event, action, or policy change. Contrasts with social cost.
Privatization The conversion of a government-owned enterprise to private ownership.
Pro-competitive effect One source of gains from trade: the fact that it forces domestic producers, which may be limited in number and therefore imperfectly competitive, into competition with foreign firms. The resulting increase in competition improves efficiency and therefore welfare.
Probability density For a continuous random variable, a function whose integral over any set is the probability of the variable being in that set.
Probability distribution A specification of the probabilities for each possible value of a random variable.
Procedural protectionism The use of cumbersome legal procedures to restrain trade, as when imports that will ultimately be permitted must first go through costly or time-consuming certification processes.
Process protection Use of a trade barrier on imports of a good based on how it is produced, rather than its physical, observable characteristics. Examples would include banning imports of tuna based on how they were caught (endangering dolphins) or apparel based on labor conditions where it was produced. Not permitted under GATT or WTO rules.
Processed good A good that has been transformed in some way by a production activity, in contrast to a raw material.
Procurement See government procurement.
Procurement officer A government official responsible for purchasing goods and services and for deciding among alternative suppliers.
Procyclical Varying with the business cycle, being high when national income is high or rising and vice versa. Contrasts with counter-cyclical.
Producer presence Mode 3 of 4 modes of supply of a traded service in which the producer establishes a presence in the buyer's country by FDI and/or permanent relocation of workers.
Producer subsidy equivalent 1. Producer support estimate.
2. This ought logically to measure the extent to which existing policies serve to subsidize producers, defined as the ad valorem subsidy that, if paid directly to producers per unit of production, would lead to the same level of output as existing policies.
Producer support estimate Introduced by the OECD to quantify support in agriculture, it measures "transfers from consumers and taxpayers to agricultural producers as a result of measures [of] support," expressed as a percentage of gross farm receipts. Also called producer subsidy equivalent. See also CSE.
Producer surplus The difference between the revenue of producers and production cost, measured as the area above the supply (or marginal cost) curve and below price, extending from the vertical axis out to the quantity supplied, and net of fixed cost and losses at low output. If input prices are constant, this is profit; if not, it includes gains to input suppliers, such as labor. Normally useful only as the change in producer surplus.
Product A good or service that is produced.
Product cycle The life cycle of a new product, which first can be produced only in the country where it was developed, then as it becomes standardized and more familiar, can be produced in other countries and exported back to where it started. Due to Vernon (1966), in his product cycle model.
Product differentiation See differentiated product.
Product exhaustion The payment of all of the value of what a firm produces to the factors of production that produced it. If factors are paid the value of their marginal products and if production functions are linearly homogeneous, then Euler's theorem implies product exhaustion.
Product life cycle See product cycle.
Product market The market for a good or a produced service. As distinct from factor market.
Product mix diagram A diagram introduced by Hausmann et al. (2007) relating the per capita incomes associated with countries' exports to their actual per capita incomes. The former is derived by first identifying a per capita income with each traded product, the RCA-weighted per capita incomes of countries that export it. These are then weighted by a country's exports.
Product price equalization The equalization of the price of a homogeneous good (or perhaps service, though that is less likely) across countries as a result of free trade. Full product price equalization can be expected, other than by accident, only if all trade costs are zero.
Production deflection In the context of a free trade area, the shifting of production to the member country with a lower tariff on an imported input.
Production externality An externality arising from production.
Production factor Factor of production.
Production frontier Production possibility frontier.
Production function A function that specifies the output in an industry for all combinations of inputs.
Production possibilities schedule A table reporting various combinations of outputs that are possible for an economy, given its technology and factor endowments. Thus the data on which the production possibility frontier is based.
Production possibility curve See production possibility frontier.
Production possibility frontier A diagram showing the maximum output possible of one good for various outputs of another (or several others), given technology and factor endowments. Also called a transformation curve or production possibility curve.
Production possibility set The set of all technically feasible combinations of inputs and outputs, representing the technology of a firm, industry, or country.
Production sharing A term for fragmentation used by Johnson and Noguera (2012).
Production worker A worker directly engaged in production. In empirical studies of skilled and unskilled labor, data on production workers are often taken to represent unskilled labor.
Productive efficiency The production of maximum output from a given set of inputs, thus reaching the production possibility frontier. Just one aspect of achieving economic efficiency.
Productivity Output per unit input, usually measured either by labor productivity or by total factor productivity.
Productivity effect One source of gains from trade: As explained in a Melitz Model, trade permits more productive firms within an industry to expand for export, and least efficient firms to shut down. This raises the average productivity of the industry, lowering costs and raising welfare.
Productivity of labor See labor productivity.
Profit 1. The net gain from an activity.
2. For a firm: revenue minus cost.
Profit maximizing The level of a variable or behavior that maximizes the profit of a firm.
Profit remittance In a multinational corporation, the return of part of the profit earned by a subsidiary in one country to the parent in another.
Profit shifting 1. The manipulation of costs and revenues within an MNC across taxing jurisdictions (countries) so as to record profits where they will be taxed at the lowest rate. See transfer pricing.
2. The use of government policies to alter the outcome of international oligopolistic competition so as to increase the profits of domestic firms at the expense of foreign firms. This is a key element of strategic trade policy.
Progressive income tax An income tax in which the marginal and/or average tax rate rises with income, so that high-income taxpayers pay a larger fraction of income than low-income tax payers.
Prohibited subsidy A subsidy that is forbidden under the rules of the WTO. These include subsidies that are specifically designed to distort international trade, such as export subsidies or subsidies that require use of domestic rather than imported inputs.
Prohibition Denial of the right to import or export, applying to particular products and/or particular countries. Includes embargo.
Prohibitive tariff A tariff that reduces imports to zero.
Project LINK A research consortium established in 1968 to link together several national econometric models to produce a macroeconometric model of the world economy. Today the project includes models of 78 countries.
Promotion The use of policy, especially a subsidy to encourage an activity, such as production in an industry. See export promotion.
Propensity The extent to which an economic agent is inclined to use income for a particular purpose, such as the (marginal or average) propensity to import, or propensity to consume, measured as the fraction of income (or of a change in income, if marginal) devoted to the activity.
Property rights The legally defined and enforced rules of ownership, specifying who has the right to buy, sell, and use anything, especially a piece of land and whatever may be situated on, above, and below it. Well established property rights are essential to a successful economic system.
Property tax A tax on owned land and housing.
Prospective analysis Ex ante analysis.
Protection 1. Without any adjective, or as "import protection," this refers to restriction of imports by means of tariffs and/or NTBs, and thereby intended to insulate domestic producers from competition with imported goods.
2. As "IP protection," or "intellectual property protection," this refers to enforcement of intellectual property rights by granting patents, copyrights, and trademarks and by prosecuting those who violate them.
Protectionism Advocacy of protection. The word has a negative connotation, and few advocates of protection in particular situations will acknowledge being protectionists.
Protective tariff An import tariff with the avowed purpose of providing protection. Since all tariffs, if they have any effect at all, do provide protection, this common expression is really a redundant tautology.
Protocol of accession Legal document specifying the procedures for a country to join an international agreement or organization, including the rights and responsibilities that accompany such accession.
Protocol of Provisional Application The device that allowed the initial signatories of the GATT to accept it in spite of existing policies that it prohibited: the grandfather clause. Intended to be temporary, it continued to apply until replaced in 1995 by the WTO.
Provision In the context of international economics, a provision is likely to mean a portion of an agreement, such as the investment provisions of NAFTA or the balance of payments provisions of the GATT. In that context, it is less precise than article.
PSE Producer support estimate or producer subsidy equivalent.
PTA Preferential Trading Arrangement
Public debt The amount that has been borrowed by a government.
Public finance A general term encompassing both the spending by government and the methods used to pay for that spending, especially taxation and borrowing.
Public good A good that is provided for users collectively, the use by one not precluding use of the same units of the good by others.
Public procurement Government procurement.
Pump priming Priming the pump.
Punitive tariff A high tariff the purpose of which is to inflict harm on a foreign exporter as punishment for some previous behavior.
Punta del Este Declaration The ministerial declaration adopted at the GATT ministerial in 1986 launching the Uruguay Round.
Purchasing power The amount of goods that money will buy, usually measured (inversely) by the CPI.
Purchasing power parity 1. The equality of the prices of a bundle of goods (usually the CPI) in two countries when valued at the prevailing exchange rate. Term was introduced by Cassel (1918) and today is sometimes called absolute PPP.
2. The equality of the rates of change over time in the prices of a bundle of goods in two countries when valued at the prevailing exchange rate. Called relative PPP. Implies that the rate of depreciation of a currency must equal the difference between its inflation rate and the inflation rate in the currency to which it is being compared.
Purchasing power parity exchange rate An exchange rate, R, calculated to yield absolute purchasing power parity. Useful for making comparisons of real values (wages, GDP) across countries with different currencies. Since absolute purchasing power parity theory is rarely correct, this contrasts with the nominal exchange rate, E. Calculated as R = EP*/P, where E is domestic currency per unit of foreign, P is the domestic price level, and P* is the foreign price level.
Purchasing power parity puzzle The fact that divergence of exchange rates from purchasing power parity lasts for a long time, often years. See Rogoff (1996).
Purchasing power parity theory A theory of the exchange rate that the rate will adjust to achieve purchasing power parity, in either its absolute or its relative form.
Pure competition Same as perfect competition.
Pure exchange economy A theoretical economy in which goods are not produced, but exist as endowments, and are then traded among consumers.
Pure monopoly A market structure in which the single seller has essentially no competition from producers of close substitutes or from potential entrants. The difference from a simple monopoly is not clear cut.
Put A put option.
Put option A financial contract that permits (but does not require) the buyer of the option to sell a commodity or financial instrument (perhaps a currency) to the seller of the option at a specified time and price.