Deardorff's Glossary of International Economics

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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.
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.
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.
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.
Para-tariff A charge on an imported good instead of, or in addition to, a tariff.
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 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.
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.
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 subject of the TRIPS agreement.
Path dependent The property that where you get to depends on how you got there. 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 Which goods a country produces and which it does not produce.
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.
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.
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 mobile capital Perfect capital mobility.
Performance requirement A requirement that an importer or exporter achieve some level of performance, in terms of exporting, domestic content, etc., in order to obtain an import or export license.
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.
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 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.
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.
Phytosanitary Pertaining to the health of plants. 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.
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, 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.
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.
Pollution haven A country that, because of its weak or poorly enforced environmental regulations, attracts industries that pollute the environment.
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 capital Financial assets, including stocks, bonds, deposits, and currencies.
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.
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.
PPF Production possibility frontier
PPP Purchasing power parity
PPP exchange rate Purchasing power parity exchange rate
Prebisch-Singer Hypothesis The idea that the relative prices of primary products 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.
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 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.
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 = St (Xt)/(1+r)t.
Preshipment 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.
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 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 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 = 100Spgq / Spbq.
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 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 in 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.
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 costs or exchange rate change. See pass-through. Seminal treatment was Krugman (1987).
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 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 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.
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.
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.
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.
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.
Producer presence A mode 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 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, 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).
Product differentiation See differentiated product.
Product life cycle See product cycle.
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 externality An externality arising from production.
Production factor Factor of production.
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 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.
Productivity Output per unit input, usually measured either by labor productivity or by total factor productivity.
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 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.
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.
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.
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.
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.
PSE Producer support estimate
PTA Preferential Trading Arrangement
Public good A good that is provided for users collectively, use by one not precluding use of the same units of the good by others.
Public procurement Government procurement.
Punitive tariff A high tariff the purpose of which is to inflict harm on a foreign exporter as punishment for some previous behavior.
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. 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 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.
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.