- R -

R&D Research and development.
Race to the bottom The idea that, if one country provides a competitive advantage to its firms by lax regulation (of the environment, for example), then competing firms in other countries will demand even weaker regulation by their governments, and regulation will be reduced to minimal levels everywhere.
Radical political economy See political economy.
Ramsey growth model A growth model in which savings is determined endogenously to be optimal, in contrast to the Solow Model in which the savings propensity is a parameter.
RAND Corporation A nonprofit think tank that "develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous." Its name, always capitalized, was a contraction of "research and development."
Random variable An economic or statistical variable that takes on multiple (or a continuum of) values, each with some probability that is specified by a probability distribution (or probability density function).
Random walk Characterizing the behavior of a random variable that is, essentially, equally likely to rise as to fall at each step. Since in an efficient market, the price of an asset such as a currency already embodies all available information, that price should follow a random walk.
Ranking See country ranking.
Rapprochement In international relations, an improvement in relations between two countries that have previously been less than cordial.
Ratchet effect The implication for a variable that (like a ratchet) can move one direction but not the other. Thus if wages or prices are inflexible downward but not upward, then fluctuations in the economy will only cause them, intermittently, to rise but never fall.
Rate of inflation Inflation rate.
Rate of interest Interest rate.
Rate of return The percentage of an asset's value that the owner of the asset earns, usually per year.
Rate of time preference The rate at which a consumer discounts consumption in the future compared to the present. See time preference.
Ratification The approval by a country's governing body of an international agreement that has been negotiated, such as a trade agreement.
Ration 1. In the presence of excess demand (for a good, etc.), to allocate among demanders by some means other than the price they are willing to pay.
2. The quantity of a rationed good allocated to one demander.
Ration foreign exchange To ration access to scarce foreign currency under a pegged exchange rate with an over-valued currency. Usually done by means of import licensing. See exchange control.
Rational agent Most economic models assume that agents are rational, meaning that they do the best they can, given the constraints they face, to maximize their own well-being.
Rational expectations In forming opinion about future events, the use of all available information to assess the probabilities of the possible states of the world. More simply, expectations that are as correct as is possible with available information.
Raw material A good that has not been transformed by production; a primary product.
Ray A straight line drawn from the origin of a diagram. In the Heckscher-Ohlin Model, two rays are used to define a diversification cone.
RCA Revealed comparative advantage.
RCEP Regional Comprehensive Economic Partnership.
Re-allocation A change in allocation, such as of factors of production across industries: e.g., a rise in the relative price of the capital-intensive good causes re-allocation of factors into the capital-intensive sector.
Re-export The export without further processing or transformation of a good that has been imported. See entrepôt trade.
Reaction curve The graph of a reaction function.
Reaction function The function specifying the choice of a strategic variable by one economic agent as a function of the choice of another agent. Most familiar: specifying output choices of firms in a Cournot duopoly.
Real 1. Expressed in terms of the amounts of goods and services that something is worth at market prices.
2. Adjusted for inflation.
3. Referring only to real economic variables as opposed to nominal, or monetary ones, as in real models.
4. Referring to physical units as opposed to financial, as in real capital.
5. Used with "appreciation" or "depreciation," refers to the real exchange rate. Thus a real appreciation means that the nominal value of a country's currency has increased by more than its relative price level may have decreased, so that the prices of its goods relative to foreign goods have risen.
6. The name of one unit of the Brazilian currency. One real (Pronounced "ray-all") equals 100 centavos.
Real appreciation An increase in a country's price level relative to that of its trading partners, when measured in a common currency. Thus an appreciation of its real exchange rate or, equivalently, an appreciation of its nominal exchange rate that exceeds the difference between the foreign and domestic rates of inflation.
Real balances The amount of money held by the public, adjusted for inflation. An early debate in Keynesian economics concerned whether a rise in real balances would stimulate consumption.
Real business cycle theory A theory of the business cycle based on random fluctuations in aggregate productivity in a fully employed economy.
Real capital Physical assets, such as plant and equipment, as opposed to financial capital.
Real depreciation A decrease in a country's price level relative to that of its trading partners, when measured in a common currency. Thus a depreciation of its real exchange rate or, equivalently, a depreciation of its nominal exchange rate that exceeds the difference between the domestic and foreign rates of inflation.
Real effective exchange rate The effective exchange rate adjusted for the rates of inflation in each country.
Real exchange rate 1. The nominal exchange rate adjusted for inflation. Unlike other real variables, this adjustment must account for prices in two currencies. If the nominal exchange rate is E, the domestic-currency price of foreign currency, then the real exchange rate is: R = EP*/P, with P the price of domestic goods and P* the price of foreign goods.
2. The real price of foreign goods; i.e., the quantity of domestic goods needed to purchase a unit of foreign goods. Equals the reciprocal of the terms of trade. Equivalent to definition 1.
3. The relative price of traded goods in terms of nontraded goods.
Real GDP The real counterpart to nominal GDP, obtained by valuing output in a given year at prices from another year, called the base year.
Real interest rate The nominal interest rate adjusted for inflation, to get the percentage yield an asset holder receives in terms of goods and services. Equals the nominal interest rate minus the rate of inflation.
Real model An economic model without money. Most general equilibrium models of trade are real models. This includes the Ricardian Model, the Heckscher-Ohlin Model, and the models of the New Trade Theory.
Real money balances The real value of the amount of money held by a person, household, or firm, or the amount in circulation in the economy.
Real national income National income adjusted for inflation.
Real terms Same as real. A "wage expressed in real terms" is just the real wage.
Real trade A shorthand term for most of the theory of international trade, which consists largely of real models. Contrasts with international finance.
Real wage 1. The wage of labor -- or more generally the price of any factor -- relative to an appropriate price index for the goods and services that the worker (or factor owner) consumes.
2. The nominal wage adjusted for inflation.
Rebalancing 1. The process of moving both surplus and deficit countries closer to current account balance, thus solving the perceived problem of global imbalance. Likely to require exchange-rate adjustment, but more essential are changes in spending relative to income in both surplus and deficit countries.
2. In trade negotiations in agriculture, the shifting of import protection from one product to another in combination with a cut in overall subsidies.
Recession A significant decline in economic activity. In the U.S., recession is approximately defined as two successive quarters of falling GDP, as judged by NBER. A recession in one country may be caused by, or may itself cause, recession in another country with which it trades. See recovery.
Reciprocal Applied to an agreement, especially a trade agreement, this means that both (or all) parties to the agreement make concessions to the other(s). Thus each might lower tariffs against the other's exports.
Reciprocal demand The concept that, in international trade, it is not just supply and demand that interact, but demand and demand. That is, a trading equilibrium has one country's demand for another's products (and willingness to pay for them with its own) matching the other country's demands for the products of the first.
Reciprocal demand curve An offer curve. So called to emphasize that a country exports in order, reciprocally, to get imports in return.
Reciprocal dumping The sale by firms from two countries into each others' markets for prices below they charge at home. So called because both firms' exports meet the price-discrimination definition of dumping. Brander and Krugman (1983) coined the term and showed it happening in an international duopoly with transport costs.
Reciprocal trade agreement Agreement between two countries to open their markets to each other's exports, usually by each reducing tariffs. Early trade rounds under the GATT consisted mostly of reciprocal trade agreements, extended to other contracting parties by the MFN requirement.
Reciprocal Trade Agreements Act of 1934 US legislation in 1934 in which Congress delegated the setting of tariffs to the President, who was then authorized to negotiate reciprocal trade agreements.
Reciprocity A principle that underlies GATT negotiations, that countries exchange comparable concessions.
Reciprocity Conditions In the H-O Model production structure, the equality in small changes of: a) the effect of any factor endowment on output of any good and b) the effect of that good's price of on that factor's price. That is, the matrices of Rybczynski derivatives and Stolper-Samuelson derivatives are the same. Also called Samuelson's reciprocity conditions, from Samuelson (1953).
Recovery A recovery from a recession is said to begin in the quarter when GDP first moves back up. Note that the recession is considered over, even though GDP is still below it prior peak and may remain so for some time if the recovery is slow. Those suffering from the recession will not view it as over.
Recycling petrodollars The use made by oil exporters of the dollars that they earn for their oil, especially when the price of oil rises. As the name petrodollars suggests, many are invested in dollar-denominated assets that may in turn be the basis for lending to oil importers.
Red box A category of subsidies that is forbidden under WTO rules. Presumably equivalent to prohibited subsidies. See box.
Red tape The bureaucratic inconvenience one must suffer (forms to be filled out and approved, etc.) in order to get action by an organization. Most often, the action is just permission to do something, and the organization is an agency of government. When the action is importing, red tape becomes a nontariff barrier.
Redbacks Slang for the Chinese currency, yuan or renminbi, especially when accessed outside of China by issuing dim sum bonds.
Redistributed tariff revenue Refers to a common modeling assumption that tariff revenue is given to consumers (not in proportion to what they paid by importing) to be spent like any other income. Since in general equilibrium the effects of a tariff depend on how the revenue is spent, this is a useful neutral assumption.
Redistribution A policy that taxes some individuals and uses the proceeds to pay transfers to others.
Reduced form The system of equations that results when an economic model is solved, with each endogenous variable expressed as a function of only exogenous variables.
Redundant tariff A tariff that, if changed, will not change the quantity of imports, either because the tariff is prohibitive, or because some other policy such as a quota or an embargo is limiting quantity.
Reference price See minimum price system.
Reflation Expansionary monetary or fiscal policy.
Regional aid A subsidy directed at a geographic region within a country to assist its development. Such subsidies are non-actionable under WTO rules.
Regional Comprehensive Economic Partnership A proposed free trade agreement between the 10 countries of ASEAN and the 6 countries with which ASEAN had bilateral FTAs, as of 2013 when negotiations began.
Regional integration The formation of closer economic linkages among countries that are geographically near each other, especially by forming preferential trade agreements.
Regional policy In a trade context, this usually refers to a regional aid.
Regional trade Trade among countries that are geographically close together, especially on the same continent.
Regional trade agreement 1. A preferential trade agreement among countries that are geographically close together.
2. As used by the WTO, any preferential trade agreement among countries regardless of their locations.
Regionalism The formation or proliferation of preferential trading arrangements.
Registered exports and imports If a country regulates what can be traded, then "registered" means legal. In contrast, unregistered exports and imports are smuggled in some fashion.
Regressand In a linear regression model, the dependent -- or left-hand-side -- variable. That is, the one being explained. Contrasts with regressor. "Regressand" is used much less frequently than "regressor."
Regression analysis The statistical technique of finding a straight line that approximates the information in a group of data points. Used throughout empirical economics, including in both international trade and finance.
Regression model See linear regression model.
Regressor In a linear regression model, an independent -- or right-hand-side -- variable. That is, one of the variables that is being used to explain another. Contrasts with regressand.
Regulation Any government effort to influence the performance of the economy or the behavior of economic agents, especially firms, within it. Conflicts sometimes arise between domestic regulations and international commerce or commitments.
Reinsurance The insurance that is sold to companies that sell insurance to the public, thus protecting them, in turn, from major losses due especially to major disasters such as hurricanes and floods.
Related specificity Under customs law, the rule that if a good falls into two or more tariff classifications, that which describes the good most specifically should be applied.
Relative demand The ratio of the demand for one good to the demand for another, most useful in representing general equilibrium in a two-good economy, where relative price adjusts to equate relative supply and relative demand.
Relative factor abundance Factor abundance, in ratio form, compared across countries. Thus country A is abundant in capital relative to labor, compared to country B, if KA/LA > KB/LB, where KI, LI, I=A,B are capital and labor endowments. But see also the price definition.
Relative factor intensity Factor intensity, in ratio form, compared across industries. Thus industry X is intensive in capital relative to labor, compared to industry Y, if KX/LX > KY/LY, where KI, LI, I=X,Y are capital and labor employed in industries X and Y when they face the same factor prices.
Relative factor prices The ratio of the price of one factor to the price of another. In a two-factor model with constant returns to scale, this alone determines the ratio of factors employed in a sector.
Relative price The price of one thing (usually a good) in terms of another; i.e., the ratio of two prices. The relative price of good X in terms of good Y is pX / pY.
Relative supply The ratio of the supply of one good to the supply of another, most useful in representing general equilibrium in a two-good economy, where relative price adjusts to equate relative supply and relative demand.
Remedy In a trade dispute in the WTO or other forum, the measure recommended by the dispute settlement panel to resolve the dispute, usually a measure that will bring the offending country into compliance with WTO (or other) rules.
Remission See duty remission.
Remittance Payment from one country to another that is not payment for any thing (goods, services, assets, the use of capital, etc.). Examples are charitable contributions, gifts to family members, and government aid.
Remuneration Payment in return for services rendered.
Renminbi The name of the currency of the People's Republic of China, the principal unit of which is the yuan. The word renminbi means "people's currency."
Rent 1. Economic rent: The premium that the owner of a resource receives over and above its opportunity cost.
2. The payment to the owner of land or other property in return for its use.
Rent seeking The using up of real resources in an effort to secure the rights to economic rents that arise from government policies. In international economics the term usually refers to efforts to obtain quota rents. Term introduced by Krueger 1974. [Origin]
Rental price The payment per unit time for the services of a unit of a factor of production, such as land or capital.
Rentier A person whose gets income mainly from rent on land or, more broadly, from assets rather than labor. (Pronounced "Ron Tee Yay".)
Reparations Payment or other compensation provided by a government to a group of people or to another country to compensate for loss or damage that it has caused. Internationally, reparations have been paid after a war by the losers to the winners, most notably by Germany after World War I.
Repatriation To return something, especially money or profit, to the country of its owner or its origin.
Repo Repurchase agreement.
Reporters without Borders An NGO promoting journalistic freedom and freedom of expression and information more generally. Produces the World Press Freedom Index.
Reporting currency The currency in which a firm reports its accounts, which may be different from its functional currency.
Repurchase agreement An agreement to sell a security for a specified price and to buy it back later at another specified price. A repo is essentially a secured loan, secured by the security.
Request/offer approach A method of trade negotiation in which one country requests a concession of another, which responds with an offer. Contrasts with the formula approach.
Reschedule To renegotiate the terms of a loan, reducing payments by extending them over time and/or forgiving a portion of the principal. Debt rescheduling has been a primary means of dealing with international debt crises.
Research and development The use of resources for the deliberate attempt to discover new information and ways of doing things, together with the application of that information in inventing new products or processes.
Reserve asset Any asset that is used as international reserves, including a national currency, precious metal such as gold, or SDRs.
Reserve currency A currency that is used as international reserves, often because it is an intervention currency. See also seigniorage.
Reserve ratio The ratio of a commercial bank's reserves to its deposits.
Reserve requirement The level of the reserve ratio that a commercial bank is required by government or the central bank to maintain or exceed.
Reserves 1. International reserves of a government or central bank.
2. Amounts held by commerical banks in their vaults or on deposit with the central bank as backing for deposits.
Reshoring The reversal of offshoring. The term began use in about 2011, as firms brought back to the US some activities that they had moved abroad. Among the incentives were: rising wages abroad, dollar depreciation, falling US energy prices, and concerns about the reliability of international supply chains.
Resource 1. An input to be used in an activity, especially production.
2. A natural resource.
Resource allocation Sometimes said to be the fundamental problem of economics: how to allocate an economy's resources (including its land, labor, natural resources, etc.) to the various purposes to which they could be put.
Resource Curse The idea that countries with abundant natural resources may be made worse off by their presence. Reasons for the resource curse include that resources attract exploitation by foreigners, corruption among domestic residents, violence to control the resources, Dutch disease, and lost incentives to pursue alternatives.
Rest of world In a model or in a display of data that include one or more countries specifically, row=rest of world is used to represent collectively all of the other countries of the world (or all other countries for which data are available).
Restraint of trade Actions by a firm to limit competition, such as price fixing and establishing entry barriers. Unlike most of the other uses of the word "trade" in this glossary, this one refers to exchanges among firms or between them and consumers, not international trade.
Restricted trade Trade that is restrained in some fashion by tariffs, transport costs, or NTBs.
Restriction on trade See trade restriction.
Restrictive business practice Action by a firm or group of firms to restrict entry by other firms, that is, to prevent other firms from selling their product or operating in their market. This is a restraint of competition and would normally be illegal under competition policy.
Restructure To alter the terms of repayment of a debt, usually by extending repayment over a longer period of time, perhaps at a lower interest rate.
Results-based trade policy The use of trade policies targeted to specific indicators of economic performance. For example, in the early 1990s, the U.S. insisted on achieving specified market shares in trade with Japan. A form of managed trade.
Reswitching In balanced growth, the use of one set of techniques at both a high and low interest rate, but a different set of techniques at an interest rate in between. Such reswitching is argued to undermine the legitimacy of the concept of an aggregate capital stock.
Retained earnings The portion of a corporation's profit that it does not pay in taxes and does not distribute to its shareholders. This is an important source of financing for investment.
Retaliation 1. The use of an increased trade barrier in response to another country increasing its trade barrier, either as a way of undoing the adverse effects of the latter's action or of punishing it.
2. The formal procedure permitted under the GATT whereby a country may raise discriminatory tariffs above bound levels against a GATT member that has been found by a panel to have violated GATT rules and not provided compensation.
Retrospective analysis Ex post analysis.
Return The amount that is earned by someone who holds an asset, usually expressed as a percentage of what it cost to acquire the asset. The return includes interest or dividends, plus capital gains and losses, the latter due to both changes in the price of the asset and, for international holdings, changes in exchange rates.
Return to capital Same as the rental price of capital. Since capital can only be measured in monetary units, the rental price is, say, dollars per dollar's worth of capital per unit time, and it therefore has the form of a rate of return like an interest rate.
Returns to scale Same as increasing returns to scale.
Revaluation 1. A re-assessment of what something is worth, especially an upward re-assessment.
2. Of an exchange rate, opposite of a devaluation. Thus, an appreciation.
Revealed comparative advantage Balassa's (1965) measure of relative export performance by country and industry, defined as its share of world exports of a good divided by its share of total world exports. The Balassa Index for country i good j is RCAij = 100(Xij /Xwj)/(Xit /Xwt) where Xab is exports by country a (w=world) of good b (t=total for all goods).
Revealed market access A measure of the extent to which a country's exports are able to penetrate another country's market, relative to other countries' exports. It may be constructed directly from trade data or based on residuals from an estimated gravity equation.
Revealed preference The use of the value of expenditure to "reveal" the preference of a consumer or group of consumers for the bundle of goods they purchase compared to other bundles of equal or smaller value. Used by Samuelson (1939) and Ohyama (1972), especially, to examine the gains from trade.
Revenue Referring to a tariff, the money collected by the government. Equals the size of the tariff times the quantity of imports. An analysis of the effects of a tariff needs to account for the revenue, and in a general equilibrium model it must specify whether and how the revenue is spent.
Revenue argument for a tariff The use of a tariff to raise revenue for the government. Many other kinds of tax cause smaller distortions and are therefore preferable to tariffs for this purpose. However, a tariff is one of the easiest taxes to collect, and it is therefore common in the early stages of a country's development.
Revenue deficit 1. In general use, this seems to be essentially the same as a budget deficit, but with attention given to the low level of revenue rather than to the high level of expenditure.
2. More precisely, this means a larger deficit (or smaller surplus) than had been budgeted for.
Revenue function A function representing the maximum revenue attainable in an economy, given a price vector P, factor endowment vector V, and technology set F of feasible outputs X given V: R(P,V) = maxX{PX | XF(V). Useful for representing both quantities supplied and prices of factors by its partial derivatives.
Revenue-maximizing output The level of output (and sales) that brings in the largest revenue to a firm, as opposed to the (usually smaller) output that brings in the largest profit.
Revenue-maximizing tariff The level of tariff that brings in the largest revenue to a government, as opposed to the (usually smaller) optimal tariff.
Revenue seeking The use of real resources in an effort to secure a share of the disposition of tariff revenues. Term due to Bhagwati and Srinivasan 1980.
Reversal 1. See factor intensity reversal.
2. See demand reversal.
Reverse consensus The requirement, in the WTO DSM, of a consensus to reject a panel report, rather than to accept it as was required under the GATT. Reverse consensus essentially achieves automaticity, and was offset to some extent by the creation of the Appellate Body.
Reverse countertrade A form of countertrade in which the contract requires the importer to export goods of value equal to some percentage of the imports.
Reverse engineering The process of learning how a product is made by taking it apart and examining it.
RHS Right-hand side, usually referring to what appears to the right of the equal sign in an equation, and therefore usually the portion of the equation that explains the dependent variable on the left-hand side.
Ricardian Model The classic model of international trade introduced by David Ricardo to explain the pattern of trade and the gains from trade in terms of comparative advantage. It assumes perfect competition and a single factor of production, labor, with constant requirements of labor per unit of output that differ across countries.
Ricardo point On the world PPF of a two-country, 2-good Ricardian Model, the point at which each country is specialized in production of a different good; the kink of the world PPF.
Ricardo-Viner Model A specific factors model with one specific factor per industry and one mobile factor. Named after two of many who used this standard model of trade prior to the H-O Model. It extends the simple Ricardian Model by allowing the marginal product of labor to fall with output. It was revived by Jones (1971), Samuelson (1971), then merged with H-O by Mayer (1974), Mussa (1974), and Neary (1978).
Ring of Fire The countries on the periphery of Europe that are encumbered with high debt and that became subject to debt crisis starting in 2010. Term due to Bill Gross of investment firm PIMCO.
Rio Summit The United Nations Conference on Environment and Development, held 3-14 June 1992 in Rio de Janeiro, Brazil. 172 governments participated, including 108 heads of state, and reached agreement on Agenda 21. Also called the Earth Summit.
Risk 1. Uncertainty associated with a transaction or an asset.
2. The probability of loss. Differs from definition 1 because "uncertainty" includes probability of gain as well as loss. In international transactions, especially export, forms of risk include commercial risk and political risk.
Risk aversion Desire to avoid uncertainty. Risk aversion is usually quantified by the mathematical expected value of gain that one is willing to forego in order to get greater certainty.
Risk premium 1. The higher expected return (in the sense of mathematical expected value) that an uncertain asset must pay in order for risk averse investors to be willing to hold it.
2. The difference between the interest rate on a risky asset and that on a safe one.
3. In exchange markets the difference between the forward rate and the expected future spot rate.
Risk spreading The holding of a diversified portfolio.
Risk-free rate The interest rate on a riskless, or safe, asset, usually taken to be a short-term U.S. government security.
RMB Renminbi
Rodrik Trilemma See Trilemma of the World Economy
Roll-up The principle, often applied in rules of origin, that intermediate inputs, if they qualify as domestic in spite of partial imported content, count as 100% domestic in products that use them as inputs. Also called absorption. Contrasts with tracing.
Rollback 1. The phasing out of measures that are not consistent with an agreement.
2. In the Uruguay Round, the agreement to remove all GATT-inconsistent trade-restricting and trade-distorting measures by the time negotiations were completed. See standstill.
ROO Rule of origin.
Round See trade round.
ROW Rest of world
RTA Regional trade agreement
Rule of law A legal system in which rules are clear, well-understood, and fairly enforced, including property rights and enforcement of contracts.
Rule of origin A rule included in an FTA specifying when a good will be regarded as produced within the FTA, so as to cross between members without tariff. Typical ROOs are based on percentage of value added or on changes in tariff heading.
Rules-based trade policy Institutional arrangements in which national trade policies are governed by internationally agreed-upon rules, as in the GATT and WTO.
Run on a currency The short-term capital outflows that occur when a pegged exchange rate regime is thought to be running out of reserves and is thus expected (and therefore forced) to devalue.
Rybczynski derivative The effect of a small change in a single factor endowment on the output of a good.
Rybczynski Theorem The property of the H-O Model that, at constant prices, an increase in the endowment of one factor increases the output of the industry that uses that factor intensively and reduces the output of the other (or some other) industry. Due to Rybczynski (1955). Illustrated with Edgeworth production box. See figure.