Deardorff's Glossary of International Economics

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SA8000 A system of international labor standards and mechanisms for compliance and certification overseen by the nonprofit Social Accountability International with participation by corporations, unions, and NGOs.
Safeguard protection Import protection provided under the Safeguards Clause.
Safeguards Clause Article XIX of the GATT that permits countries to restrict imports if they cause injury. Restrictions must be for a limited time and nondiscriminatory. See escape clause.
SAI Social Accountability International
Samueson-Stolper See Stolper-Samuelson Theorem.
Sanction 1. To approve or give permission for an action, as when an international organization sanctions the use of particular economic policies.
2. A coercive measure used by a nation or group of nations against another as a penalty for violating international law or international norms. Usually plural: sanctions.
Sanitary and phytosanitary regulations Government standards to protect health, of humans, plants, and animals. SPS measures are subject to rules in the WTO to prevent them from acting as NTBs.
SAP Structural adjustment program.
Satisficing Seeking or achieving a satisfactory outcome, rather than the best possible. Contrasts with the optimizing behavior usually assumed in economics and trade theory. Alternative models based on satisficing are spreading within economics, but not yet much in international.
Saving The excess of income or revenue over expenditure for current use (as opposed to investment, which is expenditure for future use).
Say's Law The proposition that "supply creates its own demand." The idea is clearest in a barter economy, where the act of supplying one thing is, intrinsically, the act of demanding something else. Named for Jean Baptiste Say, although he never stated it in this form.
Scale economies Increasing returns to scale.
Scarce Available in small supply; opposite of abundant. Usually meaningful only in relative terms, compared to demand and/or to supply at another place or time. See factor abundance, factor scarcity.
Scarce factor The factor in a country's endowment with which it is least well endowed, relative to other factors, compared to other countries. May be defined by quantity or by price.
Scarcity rent An economic rent that is due to something being scarce.
Schedule 1. A list. See tariff schedule.
2. A graph of a list of data; thus also a curve. See demand schedule.
Schengen Agreement An agreement (later, convention) signed in 1985 to remove all frontier controls and permit free movement of persons between the participating countries. In 1999 it was incorporated into the European Union. As of 2007, there were 15 participants: all EU15 countries except Ireland and the U.K., plus Iceland and Norway.
Scientific tariff A made-to-measure tariff.
Scitovszky indifference curve An indifference curve for a group of individuals representing the minimum needed to keep all of them at given levels of utility. A well-behaved family of such indifference curves is defined holding utilities of all but one individual constant and varying only the one. These are useful in discussing the gains from trade. Due to Scitovszky (1942).
Screwdriver plant A factory that only assembles a product, from parts that were produced elsewhere. When FDI consists only of screwdriver plants, the host country often objects that it employes only low-skilled workers and/or that it provides no technology transfer.
SDR Special Drawing Right
SDRM Sovereign Debt Restructuring Mechanism
Seasonal quota A restriction on the quantity of imports of a good for a specified period of the year.
Seasonal tariff A tariff that is levied at different rates at different times of the year, usually on agricultural products, being highest at the time of the domestic harvest.
Seattle Ministerial The ministerial meeting of the WTO that was held in Seattle, November 30 - December 3, 1999. It attracted a large group of protesters and ended without agreement among the participating countries.
SEC United States Securities and Exchange Commission
Second best Refers to what is the optimal policy when the true optimum (the first best) is unavailable due to constraints on policy choice. The Theory of Second Best says that a policy that would be optimal without such constraints (such as a zero tariff in a small country) may not be second-best optimal if other policies are constrained. See Lipsey and Lancaster (1956).
Second-best argument for protection 1. Any argument for protection that can be countered by pointing to a different and less distortionary policy that would achieve the same desired result at lower economic cost.
2. An argument for protection to partially correct an existing distortion in the economy when the first-best policy for that purpose is not available. For example, if domestic production generates a positive externality and a production subsidy to internalize it is not available, then a tariff may be second-best optimal.
Second theorem of welfare economics The proposition of welfare economics that any Pareto optimal allocation can be attained by a competitive general equilibrium.
Secondary sector The portion of an economy producing manufactured products, in contrast to the primary sector and the tertiary sector.
Secondary tariffs Any charges imposed on imports in addition to the statutory tariff, such as an import surcharge.
Section 201 The escape clause of the U.S. Trade Act of 1974.
Section 301 The provision of U.S. trade law that permits private parties to seek redress through the U.S. government if their commercial interests have been harmed by illegal or unfair actions of foreign governments.
Section 421 The special safeguards provision of US law that was agreed to by China as part of its accession to the WTO. It is similar to Section 201, except that its injury requirement is weaker.
Sector A portion of the economy producing a particular category of goods or services, as the agricultural sector, the banking sector, etc.
Sectoral composition The relative sizes of the various sectors of an economy. Trade tends to change the sectoral composition, as export sectors expand and import competing sectors contract.
Securities Stocks, bonds, and other tradable financial assets.
Securities and Exchange Commission The United States SEC is the unit of the US government that regulates markets for investment, most importantly the various stock markets located in the US.
Segmented markets The situation in which two or more markets for the same product are separated such that buyers in one market cannot buy in the other, thus permitting each market to sustain a different price. Models of international oligopoly often assume this.
Seigniorage The difference between what money can buy and its cost of production. Therefore, seigniorage is the benefit that a government or other monetary authority derives from the ability to create money. In international exchange, if one country's money is willingly held by another, the first country derives these seigniorage benefits. This is the case of a reserve currency.
Selective Applied to a trade policy, this means one that affects only some countries, not all, in contrast to MFN policy. Selectivity is an important concern in the use of safeguards, which countries often would prefer to make selective but are required by GATT Article XIX to be nondiscriminatory.
Self correcting A problem that cures itself if allowed to do so. Thus, for example, a payments imbalance can cause its own elimination through the specie flow mechanism. Likewise, a recession will, eventually, be eliminated by the deflation that it causes.
Self-sufficiency Provision by one's self of all of one's own needs. In international trade this means either not trading at all (autarky), or importing only non-necessities.
Self-sufficiency argument for protection The view that a country is better off providing for its own needs than depending on imports. It may be based on fear that war or foreign governments will interrupt imports. This is a second-best argument, since many policies could provide for that contingency without sacrificing all the gains from trade.
Sell short See short
Sensitive In trade negotiations and agreements, countries often identify lists of particular sensitive products or sensitive sectors that they regard as especially vulnerable to import competition and that they wish to exempt from trade liberalization.
Sequential game A game with multiple stages, played one after the other.
Serious injury The injury requirement of the escape clause, understood to be more stringent than material injury but otherwise apparently not rigorously defined.
Service 1. A product that is not embodied in a physical good and that typically effects some change in another product, person, or institution. Contrasts with good. Trade in services is the subject of the GATS.
2. To make the scheduled payments on a debt, usually including both interest and amounts towards repayment of the principal. See debt service.
Service barrier Barrier to trade in a service, such as a limit on the functions of a foreign-owned service provider.
SEZ Special economic zone.
Shadow exchange rate 1. The shadow price of foreign exchange.
2. What the market exchange rate would be in the absence of various market imperfections.
Shadow price The implicit value or cost associated with a constraint. That is, the increased value that will be achieved by relaxing the constraint by one unit. When foreign exchange is rationed, the shadow price of foreign exchange becomes the relevant exchange rate for making decisions.
Shallow integration Reduction or elimination of tariffs, quotas, and other barriers to trade in goods at the border, such as trade-limiting customs procedures. Contrasts with deep integration.
Shelf life The length of time that a good can be stored while still remaining useful enough to sell. Important for both perishable goods and goods that may become obsolete for reasons of technology or fashion. Relevant for international trade when, for example, customs procedures cause delays.
Shift and share analysis A tool for decomposing changes over time in economic magnitudes into those that hold various shares constant versus shifts in those shares. Applied to international trade, it is constant market share analysis.
Shift parameter A parameter that determines only the position of a function, but not its slope or shape, usually by simply increasing the value of the function. For example, in the consumption function C=C0+cY, C0 and c are both parameters, but C0 is a shift parameter that can be useful for analyzing a change in the desire to consume.
Shock 1. An unexpected change.
2. Any change in an exogenous variable (although strictly speaking, models often fail to deal adequately with the complications of an exogenous change being expected).
Shock therapy One strategy for moving from a centrally controlled economy to a market economy, consisting of a sudden removal of all government controls and rapid privatization.
Short 1. Used with "sell" or "sale," this means that the seller does not currently have the thing being sold, but intends to acquire it on the market prior to making delivery.
2. Used by itself as a verb, it means to sell short, as "to short a currency," meaning to sell it forward in anticipation that its value on the spot market will fall.
Short run Referring to a short time horizon, usually one in which some aspects of behavior that would vary over a longer time do not have time to do so. In trade models, it usually means that the employment of some factors of production is fixed. Contrasts with long run.
Short-term 1. Happening within the short run, or within a matter of months.
2. In the case of bonds or capital flows, this refers to financial assets with a maturity of less than one year.
Short-term capital flow A capital flow that is short-term; of interest because such capital flows are likely to be very liquid and therefore easily reversed and sources of instability in exchange markets.
Short term interest rate 1.The interest rate on any financial instrument of short maturity.
2.Denoted STIR, a particular financial instrument that is a futures contract on a short term interest rate, often a 3-month interest rate in any of a variety of currencies.
Shrimp-Turtle Case A case filed in the WTO against the United States for restricting imports of shrimp from countries whose shrimp were caught by means that endangered sea turtles. The WTO ruled against the U.S., enraging many environmentalists.
Shuttle trade The trade accomplished by individuals and groups traveling to other countries, buying goods, and bringing them home, often in their luggage, to resell. An important source of imports for Russia in the 1990s, some people traveling abroad several times a month for this purpose.
Siegel's paradox The observation by Siegel (1972) that the if the forward rate is an unbiased predictor of the spot rate from the perspective of one currency, then it must be a biased predictor from the perspective of the other currency. It follows that profitable speculation will always be possible for risk-neutral speculators somewhere.
Silver standard A monetary system in which the value of a currency is defined in terms of silver. If two currencies are both on a silver standard, then the exchange rate between them is approximately determined by their two prices in terms of silver.
Singapore Issues The issues on which it was agreed to form working groups at the Singapore Ministerial: trade and investment, competition policy, transparency in government procurement, and trade facilitation.
Singapore Ministerial The first ministerial meeting of the WTO, held in Singapore in December 9-13, 1996. It did not attempt to launch a round of trade negotiations, but it agreed to form working groups on several Singapore Issues.
Single European Act Treaty, signed in Luxembourg and The Hague and entering into force 1 July 1987, completing the Single Market. See Europe 1992.
Single global currency A proposal that the world should share a single currency, managed by a single international central bank.
Single Market Removal of the remaining barriers among the countries of the European Union, permitting the free movement of goods, persons, services, and capital; also known as Europe 1992.
Single undertaking A term, in trade negotiations, for requiring participants to accept or reject the outcome of multiple negotiations in a single package, rather than selecting among them.
SITC Standard International Trade Classification
Skill The abilities acquired by workers through education, training, and experience that permit them to be more productive. Essentially the same as human capital.
Skill-biased A technological change or technological difference that is biased in favor of using more skilled labor, compared to some definition of neutrality.
Skill intensive Describing an industry or sector of the economy that relies relatively heavily on inputs of skilled labor, usually relative to unskilled labor, compared to other industries or sectors. See factor intensity.
Skilled labor Labor with a high level of skill or human capital. Identified empirically as labor earning a high wage, with a high level of education, or in an occupational category associated with these; sometimes crudely proxied as nonproduction workers.
Slicing up the value chain Term for fragmentation used by Krugman (1996).
Slump A decline in performance, either of a firm as a slump in sales or profits, or of a country as a slump in output or employment.
SMAC function An acronym for the CES function based on the names of the four authors who introduced it in Arrow et al. (1961).
Small country assumption The assumption in an economic model that a country is too small to affect world prices, incomes, or interest rates.
Small open economy An economy that is small enough compared to the world markets in which it participates that (as a good approximation) its policies do not alter world prices or incomes. The country is thus a price taker in world markets. The term is normally applied to a country as a whole, although it is sometimes used in the context of only a single product.
Smoot-Hawley Tariff The Tariff Act of 1930, this raised average U.S. tariffs on dutiable imports to 53% and provoked retaliation by other countries.
Smuggle To take a good across a national border illegally. If the good itself is legal, the purpose is usually to avoid paying a tariff or to circumvent some other trade barrier.
Snake An arrangement in which currencies were pegged to each other but left free to float as a group against the U.S. dollar. Named for the graph that the limits of variation of a currency would follow over time.
Snake in the Tunnel An arrangement used briefly in Europe after the collapse of the Bretton Woods System in which European currencies were permitted to vary ±1% against each other (the snake but ±2.25% against the dollar (the tunnel).
Social Accountability International A U.S.-based nonprofit organization that develops and implements the SA8000 international workplace standards.
Social benefit The benefit to society as a whole from an event, action, or policy change. Includes externalities and deducts any benefits that are transfers from others, in contrast to private benefit.
Social capital The networks of relationships among persons, firms, and institutions in a society, together with associated norms of behavior, trust, cooperation, etc., that enable a society to function effectively.
Social clause A provision in an international trade agreement that would link trade liberalization and labor standards. A social clause has been discussed but not adopted in the WTO. The implementation of GSP by both the EU and the US does include a social clause.
Social cost The cost to society as a whole from an event, action, or policy change. Includes negative externalities and does not count costs that are transfers to others, in contrast to private cost.
Social dumping Export of a good from a country with weak or poorly enforced labor standards, reflecting the idea that the exporter has costs that are artificially lower than its competitors in higher-standards countries, constituting an unfair advantage in international trade.
Social indifference curve A curve showing the combinations of goods that, when available to a country, yield the same level of social welfare.
Social welfare function A function mapping allocations of goods to the individuals in an economy to a level of welfare for the economy as a whole. If it depends only on the levels of utility of the individuals rather than separately on the allocations, then it is a Bergsonian social welfare function.
Socialism An economic system in which some of the individual needs of the population are provided by government. Since this is true of almost all societies, most would define as socialist only a countries where the level of this government provision exceeds some threshold, and many disagree on what that threshold should be.
SOE 1. State-owned enterprise.
2. Small open economy.
Soft budget constraint This characterizes an economic entity, usually a firm, that is likely to receive government support if it gets into financial difficulty. Common in current and former state owned enterprises in economies in transition, this undermines their incentive to perform productively and efficiently. Due to Kornai (1979).
Soft currency A currency that is not widely accepted in exchange for other currencies, in contrast to a hard currency.
Soft landing Avoidance of economic hardship, in the form of inflation and/or especially recession, as a period of rapid economic growth comes to an end.
Soft peg A pegged exchange rate without a strong commitment by the central bank to allow the money supply to vary as necessary to maintain it. A soft peg is particularly subject to speculative attack, and therefore is unlikely to be sustainable.
Softwood lumber dispute A trade dispute between the U.S. and Canada that has extended over many years. Canada's forest land is mostly owned by provincial governments, which charge a "stumpage fee" for lumber companies to harvest trees. The U.S. claims that this fee is too low and constitutes an illegal subsidy.
Sole importing agency An entity, either private or government, that has been granted by government the exclusive right to import certain goods.
Solow model The neoclassical growth model. Also called the Solow-Swan Model.
Solow neutral A particular specification of technological change or technological difference that is capital augmenting.
Solow residual A measure of technological progress equal to the difference between the rate of growth of output and the weighted average of the rates of growth of capital and labor, with factor income shares as weights. Due to Solow (1957). Also called the growth of total factor productivity. Used to compare sources of growth across countries.
Sound money A currency that is responsibly managed so as to avoid excessive inflation.
Source country See FDI.
Sovereign Debt Restructuring Mechanism A framework proposed by the IMF for permitting countries facing financial crises to restructure their debts in an orderly manner and minimally disruptive manner, analogous to bankruptcy for a private debtor.
Sovereign spread The spread on the debt of a sovereign government, and thus a measure of the riskiness of lending to it and the cost to it of borrowing.
Sovereign wealth fund Assets held by a government denominated in foreign currencies and in excess of those needed as international reserves. Normally these have been accumulated as a result of a sustained current account surplus.
Sovereignty A country or region's power and ability to rule itself and manage its own affairs. Some feel that memberships in international organizations such as the WTO are a threat to their sovereignty.
Spaghetti bowl Term frequently used by Bhagwati for the tangle of relationships created by multiple overlapping preferential trading arrangements.
Spatial arbitrage Arbitrage on price differences in different locations.
Special and differential treatment The GATT principle that developing countries be accorded special privileges, exempting them from some requirements of developed countries. It also permits tariff preferences among developing countries and by developed countries in favor of developing countries, as under the GSP.
Special Drawing Right Originally intended within the IMF as a sort of international money for use among central banks pegging their exchange rates, the SDR is a transferable right to acquire another country's currency. Defined in terms of a basket of currencies, today it mainly plays the role of a unit of international account.
Special economic zone These exist in several countries, including especially China, and their characteristics vary. Typically they are regions designated for economic development oriented toward inward FDI and exports, both fostered by special policy incentives that may include being an EPZ.
Special entry procedure An administrative procedure that is required as a condition of entry for an imported good, such as transport by the importing country's national fleet, or entry through a specific port or customs station.
Special product Same as sensitive product.
Special safeguard As part of the Agreement on Agriculture of the WTO, a special provision for providing safeguard protection to specified agricultural products that had been subject to tariffication.
Specialization 1. Producing more than you need of some things, and less of others, hence "specializing" in the first. In international trade, this is just the opposite of self-sufficiency.
2. Doing less than everything, as when a country produces fewer different goods than it consumes. In a 2x2 trade model, this means a country produces just one good. With many goods and countries, it means a country has some goods that it does not (and cannot competitively) produce. Also may be called complete specialization.
Specie Coins, normally including only those made of precious metal.
Specie flow mechanism Under the gold standard, the mechanism by which international payments would adjust. A country with high inflation would export less, import more, and thus lose specie, i.e., gold. With the money supply fixed to the quantity of gold, the resulting monetary contraction would reduce prices. Due to David Hume.
Specific commitment Under the GATS, the identification of a category of services in which a country will apply national treatment and assure market access for foreign service providers.
Specific factor A factor of production that is unable to move into or out of an industry. The term is used to describe factors that would not be of any use in other industries and also -- more loosely -- factors that could be used elsewhere but do not, in the short run, have the time or resources needed to move. See specific factors model. The term seems to come from Haberler (1937).
Specific factors model A model in which some or all factors are specific factors. The most common version is the Ricardo-Viner Model, with one specific factor (often capital or land) in each industry plus another factor (often labor) that is mobile between them. But an extreme form of the model, the Cairnes-Haberler Model, has all factors specific.
Specific tariff A tariff specified as an amount of currency per unit of the good.
Specificity The property that a policy measure applies to one or a group of enterprises or industries, as opposed to all industries.
Specificity rule The principle that the optimal policy for correcting a distortion is one that deals most directly, or specifically, with that distortion.
Speculation The purchase or sale of an asset (or acquisition otherwise of an open position) in hopes that its price will rise or fall respectively, in order to make a profit. See destabilizing speculation and stabilizing speculation.
Speculative attack In any asset market, the surge in sales of the asset that occurs when investors expect its price to fall. A common phenomenon in the exchange market, especially under an adjustable pegged exchange rate.
Speculator Anyone who engages in speculation. May include those who transfer their assets into different forms (or currencies) in order to avoid a prospective capital loss.
Spence-Dixit-Stiglitz Probably the more accurate identifier for what is often called the Dixit-Stiglitz function, since Spence (1976) preceded Dixit and Stiglitz (1977).
Spillover A positive externality. The term is often used to refer to the transmission of an advanced technology from a foreign-owned firm (thus FDI) to domestic firms.
Splintering Another term for fragmentation. Used by Bhagwati (1984).
Spoke See hub and spoke integration.
Sporadic dumping Intermittent dumping.
Spot On the spot market.
Spot market A market for exchange (of currencies, in the case of the exchange market) in the present (as opposed to a forward or futures market in which the exchange takes place in the future).
Spot rate The exchange rate on the spot market. Also called the spot exchange rate.
Spread 1. The difference between the price one must pay to buy something, such as a currency, and the price one receives for selling it.
2. The difference between the interest rate on a bond and the risk free rate; thus the risk premium on the bond.
SPS Sanitary and phytosanitary
SST Stolper-Samuelson Theorem
Stability and Growth Pact The 1997 agreement among the countries participating in the EMU to coordinate their fiscal policies in a way that would limit budget deficits and debt.
Stabilization policy The use of monetary and fiscal policies to stabilize GDP, aggregate employment, and prices.
Stabilize To reduce the size of fluctuations in an economic variable over time. Examples include stabilizing exchange rates by exchange market intervention; stabilizing the price of a commodity by operation of a buffer stock; and stabilizing GDP by macroeconomic stabilization policy.
Stabilizing speculation Speculation that decreases the movements of the price in the market where the speculation occurs. See destabilizing speculation. Friedman (1953) provided a classic argument that speculation on a floating exchange rate would be stabilizing.
Stable 1. Of an equilibrium, that the dynamic adjustment away from equilibrium converges to the equilibrium.
2. Of an economic variable, not subject to large or erratic fluctuations.
Stackelberg equilibrium A game theoretic equilibrium in which one player acts as a leader and another as a follower, the leader setting strategy taking account of the follower's optimal response. Contrasts with Nash equilibrium in which both players take the other's strategy as given.
Stagflation The combination of high or increasing inflation with high or increasing unemployment (stagnation). Said to be due to Iain Macleod, who later would become Britain's Chancellor of the Exchequer, in a speech to Parliament in 1965.
Stamp fee See para tariff.
Stand-by agreement A lending facility in the IMF established in 1952 for financing short-term payments difficulties.
Standard Rule and/or procedure specifying characteristics that must be met for a product to be sold in a country's domestic market, typically to protect health and safety. When a standard puts foreign producers at a disadvantage, it may constitute an NTB.
Standard deviation A common measure of the dispersion of a random variable or of a sample of data. Defined as the square root of the variance.
Standard error A common measure of the uncertainty associated with a numerical estimate, equal to the standard deviation of the associated error. In a regression analysis, standard errors are often reported with (or below) the coefficient estimates. As a rough rule of thumb, one can be 95% confident that the true coefficient is within ±2 standard errors of the estimate.
Standard International Trade Classification A classification system for traded goods that is used as the basis for recording and reporting data on exports and imports, and that is maintained by the United Nations Statistics Division.
Standard of living Usually refers to a country's per capita income, but sometimes takes account also of additional conditions that matter for a person's or household's wellbeing, such as leisure or the quality of the environment.
Standard trade model There is probably no agreement as to what should be considered the "standard" trade model. But Krugman and Obstfeld (1991), which has been widely used through many editions, gives this name to a model with perfect competition, a curved PPF, and consumer preferences that an be represented by community indifference curves. It therefore includes the H-O Model and specific factors model as special cases.
Standstill 1. A commitment to refrain from introducing new measures that are not consistent with an agreement.
2. In the Uruguay Round, the agreement not to introduce new GATT-inconsistent trade-restricting and trade-distorting measures during the negotiations. See rollback.
Staple theory of economic growth A theory of growth based on production and export of "staples" -- which seems, in this context, to mean raw materials. The theory was designed for understanding the early history of Canada, and is said to be most relevant for economies with an abundance of open land. See Watkins (1963).
State bank A bank owned by government, other than the central bank, and performing the same functions as a commercial bank. State banks are often directed by their governments to provide credit to activities or persons favored by the government.
State-owned enterprise A firm owned by government. Relations between SOEs and private firms on international markets raise special problems for GATT, since SOEs may not respond normally to market forces and their actions may reflect government policies.
State trading enterprise An entity of government that is responsible for exporting and/or importing specified products. See marketing board.
Static comparative advantage The normal concept of comparative advantage, as opposed to dynamic comparative advantage.
Static gains from trade The economic benefits from trade that arise in static models, including the efficiency gains from exploiting comparative advantage, the reduced costs from scale economies, reduction in distortion from imperfect competition, and increased product variety. Contrasts with dynamic gains from trade.
Static model An economic model that has no explicit time dimension. A static model abstracts from the process by which an equilibrium or an optimum might be reached only over time, as well as from the dependence of the variables in the model itself on a changing past or future. Contrasts with dynamic model.
Statistical tax See para tariff.
Statistically significant 1. Said of an estimated parameter if it is sufficiently different from zero, relative to an estimate of its probability distribution, that the probability of the actual parameter being zero is below some small threshold, such as 5%.
2. An estimate that is more than twice, in absolute value, its standard error.
Status quo The current situation. A preference for the status quo means a reluctance to change.
Steady state A type of equilibrium, especially in a neoclassical growth model, in which those variables that are not constant grow over time at a constant and common rate.
Stepping stone See stumbling bloc.
Sterilize To use offsetting open market operations to prevent an act of exchange market intervention from changing the monetary base. With sterilization, any purchase of foreign exchange is accompanied by an equal-value sale of domestic bonds, and vice versa.
Sterling British money, particularly the British pound, a formal name for which is the pound sterling.
Sterling Area The group of countries that either used the British pound as their currency or pegged their currencies to the British pound. Most were current or former colonies of the United Kingdom. The sterling area ceased to be meaningful in the 1970s when countries largely switched to floating exchange rates.
Sticky price model A model in which one or more prices are assumed not to change when the markets in which they apply move out of equilibrium. Internationally, this can result in a violation of the law of one price.
STIR Short term interest rate
Stochastic Random; arising from a process that generates different values each with some probability. Contrasts with deterministic.
Stock 1. A share in the ownership of a corporation.
2. A stock, or stock variable, is an economic magnitude that describes a quantity that exists at a point in time. Examples include a country's international reserves, a consumer's wealth, and a country's labor force. Contrasts with a flow.
Stockpiling The storage of something in order to have it available in the future if the need for it increases. In international economics, stockpiling occurs for speculative purposes; by governments to provide for national security; and by central banks managing international reserves.
Stolper-Samuelson derivative In general equilibrium, the effect of a small change in the price of a single good on the price of a factor of production.
Stolper-Samuelson Theorem 1. The proposition of the Heckscher-Ohlin Model that a rise in the relative price of a good raises the real wage of the factor used intensively in that industry and lowers the real wage of the other factor.
2. The further proposition (requiring addition assumptions) that protection raises the real wage of a country's scarce factor and lowers the real wage of its abundant factor. Due to Stolper and Samuelson (1941).
Store of value One of three basic properties of money: the ability to retain value over time, and therefore be useful for those who wish to sell something now and not spend he proceeds until later.
Straight-line PPF The PPF that arises in the Ricardian Model, or in the HO Model if the two sectors have the same factor intensity. It is a downward sloping straight line with, therefore, a constant marginal rate of transformation.
Strategic industry argument for a tariff The view that an industry serves a special "strategic" purpose in an economy and needs to be protected by a tariff to prevent it from disappearing. Views of what constitutes a strategic purpose are often vague and contradictory.
Strategic trade policy The use of trade policies, including tariffs, subsidies, and even export subsidies, in a context of imperfect competition and/or increasing returns to scale to alter the outcome of international competition in a country's favor, usually by allowing its firms to capture a larger share of industry profits. The seminal contribution was Brander and Spencer (1981).
Strategic trade policy argument for a tariff In an example of strategic trade policy, the use of a tariff to extract monopoly profits from a foreign monopolist, or to shift profit from foreign to domestic competitors in an international oligopoly. The monopoly case seems to have originated with Katrak (1977), but the classic treatment of the larger issue is Brander and Spencer (1984).
Strategic variable An economic variable that is chosen with regard to, and sometimes with a view to influencing, economic behavior by someone else. Most frequently refers to the choice of firms in an oligopoly.
Strategy In game theory, a set of actions and contingent actions for the several stages of a sequential game, that is, a plan of action for each stage contingent on the outcome of preceeding stages.
Structural adjustment The reallocation of resources (labor and capital) among sectors of the economy in response to changing economic circumstances, including trading conditions, or changes in policy.
Structural adjustment program The list of budgetary and policy changes required by the IMF and World Bank in order for a developing country to qualify for a loan. This "conditionality" typically includes reducing barriers to trade and capital flows, tax increases, and cuts in government spending.
Structural Impediments Initiative A 1990 agreement between the United States and Japan to reduce their bilateral trade imbalance. Among other commitments, the U.S. promised to reduce its budget deficit and encourage saving, while Japan promised to increase spending and facilitate entry of new businesses.
Structural unemployment Unemployment that results from a mismatch between supply and demand for workers. That is, workers who cannot find jobs, not because there are no jobs, but because they are not qualified for the jobs that are available.
Structure of protection The pattern of protection across sectors of an economy: which sectors are highly protected and which not, perhaps in terms of effective protection, or - even better - in terms of their expansion and contraction that would occur if all protection were removed.
Stumbling bloc The term that Bhagwati (1991) used, together with building bloc(k) or stepping stone, to address whether PTAs help move the world toward or away from multilateral free trade. Also stumbling block.
Stylized fact Something that is has been observed to be true, or close to true, sufficiently often and in enough different contexts that an economic theory should be consistent with it. Those who present a set of stylized facts typically do not attempt to support them with data, but simply list them so as to motivate their theoretical analysis.
Subcontracting Delegation by one firm of a portion of its production process, under contract, to another firm, including in another country. A form of fragmentation.
Subgame A portion of a game that is itself a game.
Subgame perfect Said of a Nash equilibrium if the portions of the strategies of that equilibrium that pertain to each subgame are also Nash for their subgame. This is a useful refinement of Nash equilibrium in that it rules out strategies that are not credible for subgames.
Subsidiary A firm that is owned and ultimately controlled by another firm. Thus a multinational corporation has a parent in once country and one or more subsidiaries in others.
Subsidy A payment by government, perhaps implicit, to the private sector in return for some activity that it wants to reward, encourage, or assist. Under WTO rules, subsidies may be prohibited, actionable, or non-actionable.
Subsidy equivalent The size of the direct cash subsidy that would have the same effect on behavior -- usually production but sometimes consumption -- as some other policy. See producer subsidy equivalent.
Subsistence economy An economy composed mostly of subsistence farmers.
Subsistence farmer 1. Literally, a farmer who produces mostly only for the consumption of the farmer's own household.
2. The term also seems to be used for farmers who grow a crop to sell, but whose income from doing so barely allows them to survive. When trade or trade policy is said to hurt subsistence farmers, it must be under this definition.
Substitute One good is a substitute for another if an increase in demand for one (or a fall in its price) causes a decrease in demand for the other.
Substitute in production One good is a substitute for another in production if an increase in output of one (or a rise in its price) causes a decrease in output of the other.
Substitution effect That portion of the effect of price on quantity demanded that reflects the changed tradeoff between the good and other alternatives. Contrasts with income effect.
Sunk cost A cost that has already been incurred and cannot be reversed, which therefore cannot be avoided by current or future action. Sunk costs should therefore be irrelevant to current decisions.
Sunset clause A provision within a piece of legislation providing for its expiration on a specified date unless it is deliberately renewed.
Sunset industry argument The argument, in contrast to the infant industry argument, that a mature industry should be provided protection, either to help it restore its competitiveness, or to cushion its exit from the economy.
Super 301 A U.S. law authorizing USTR to identify the most significant unfair trade practices confronting U.S. exports and to seek to eliminate them. In contrast to Section 301, this does not require a private party to initiate the action.
Superior good A good the demand for which is income elastic.
Supernatural trading bloc A trading bloc among countries that are natural trading partners but that, because its tariff preferences are too extreme or transport costs with the outside world are too low, reduces world welfare. Due to Frankel (1997).
Supply 1. The act of offering a product for sale.
2. The quantity offered for sale.
3. The quantities offered for sale at various prices; the supply curve.
Supply chain The sequence of steps, often done in different firms and/or locations, needed to produce a final good from primary factors, starting with processing of raw materials, continuing with production of perhaps a series of intermediate inputs, and ending with final assembly and distribution.
Supply curve The graph of quantity supplied as a function of price, normally upward sloping, straight or curved, and drawn with quantity on the horizontal axis and price on the vertical axis. Supply curves for exports and for foreign exchange usually have the same qualitative properties as supply curves for labor, being potentially backward bending.
Supply elasticity The elasticity of a supply function, usually with respect to price.
Supply function The mathematical function explaining the quantity supplied in terms of its various determinants, including price; thus the algebraic representation of the supply curve.
Supply price The price at which a given quantity is supplied; the supply curve viewed from the perspective of price as a function of quantity.
Supply shock A shock on the supply side of a market. Thus an unexpected shift, up or down, in the supply curve.
Supply side Anything that contributes to supply, as opposed to demand, in a market or, especially, in the aggregate economy; aggregate supply.
Supply side constraint This typically refers to any of a list of reasons why a developing country may find it hard to exploit its comparative advantage if there is trade liberalization. The list includes inadequate infrastructure, low productivity, and lack of information about markets. Some reflect legitimate needs for trade facilitation, but others are just excuses for protectionism.
Support price The price guaranteed by a government price support program. Typically it requires that the government buy the product at that price. If the market clearing price is lower, this raises the price to that level and causes the government to acquire the resulting excess supply.
Supranational Transcending nations, especially through organizations that encompass more than one nation, such as the European Union
Surplus In the balance of payments, or in any category of international transactions within it, the surplus is the sum of credits minus the sum of debits. Also called simply the "balance" for that category. Thus the balance of trade is the same as the surplus on trade, or the trade surplus, and similarly for merchandise trade, current account, and capital account.
Sustainable development Economic development that is achieved without undermining the incomes, resources, or environment of future generations.
Swan diagram A diagram illustrating the conflict between internal balance and external balance as they respond to its fiscal deficit and its costs relative to the world (and thus its exchange rate.) Due to Swan (1955).
Swap 1. In exchange markets, this is a simultaneous sale of a currency on the spot market together with a purchase of the same amount on the forward market. By combining these two transactions into a single one, transactions costs may be reduced.
2. An arrangement between central banks whereby they each agree to lend their currency to the other.
Swap rate The difference between the spot and forward exchange rates. Thus the price of a swap.
Sweatshop A manufacturing workplace that treats its workers inhumanely, paying low wages, imposing harsh and unsafe working conditions, and demanding levels of performance that are harmful to the workers.
Swiss formula A formula devised during the Tokyo Round for reducing tariffs in a manner that would harmonize them. The formula is tnew=(toldM)/(told+M), where the t's are the new and old tariffs, in percent, and M is a number that turns out to be the maximum possible new tariff. Somebody, presumably Swiss, was very clever!