Intro and Commercial Revolution
The overall well-being of society, commonly modeled as the sum (or a social-welfare function over) individuals’ utilities. Policy evaluation often compares changes in this aggregate under alternative allocations.
Aggregate Social Welfare
A pre-classical doctrine holding that national wealth is enhanced by accumulating specie via trade surpluses, promoting exports and restricting imports through state monopolies and protection.
Mercantilism
A development model in which surplus labor from a low-productivity traditional sector migrates to a modern sector at a fixed real wage until surplus labor is exhausted, after which wages rise and structural transformation proceeds.
Lewis Hypothesis
Because comparative advantage comes from factor endowments, countries export goods that intensively use their relatively abundant factors and import goods that intensively use their scarce factors (e.g., a capital-rich country exports capital-intensive goods and imports labor/labor-intensive goods).
Hecksher-Ohlin Trade Theorem
a country can produce a good using fewer inputs than another vs. a country produces a good at lower opportunity cost (producing what it is most suited to); gains from trade follow the second format.
absolute vs. comparative advantage
variables are determined outside a model and taken as given (e.g., technology in basic models) vs. variables are determined within the model by agents’ choices and market interactions.
Exogenous vs. endogenous factors
Returns exceeding the minimum required to keep a factor in its current use (e.g., scarcity rents, monopoly rents). Rent-seeking refers to resources spent to obtain or protect such rents without creating new value.
rents
In agrarian economies, land abundance plus labor scarcity creates incentives for elites to establish coercive labor institutions (e.g., serfdom) to resolve labor supply constraints. Return to enslaving a population rises with the land-labor ratio.
Domar Hypothesis
extraction of raw materials (agriculture, mining) vs. manufacturing and processing. vs. services; higher stages typically embody more value added and human capital.
Primary vs. secondary vs. tertiary production
The 1815–1914 period of relatively low great-power conflict and falling trade costs, associated with British hegemony (naval dominance and legal-institutional arrangements) that facilitated global commerce.
Pax Brittanica
A government’s or agent’s ability to bind future actions so promises are believed; in economics, supported by institutions (e.g., independent courts) that make policies time-consistent and reduce hold-up risk.
Credible Commitment
existing firms with established market positions vs. potential or new competitors. Entry conditions determine market structure, innovation, and long-run efficiency.
Incumbents vs. new entrants
crops export staples (e.g., sugar) that historically exhibit scale economies and plantation organization vs. crops (e.g., wheat) that are more amenable to smallholder production—differences that shape factor demands and market structure.
Tropical vs. Temperate
demand an industry creates for its inputs upstream. vs. cost or quality effects an industry has on downstream users; strong linkages propagate shocks and learning across sectors.
Backward vs. forward linkages
Based on HO model, tells us who will support trade. In capital-rich countries, capitalists win and labor loses (high skill workers + capital owners are pro-trade; low skill workers are protectionist). In capital-scarce countries, capitalists prefer protection, labor prefers free trade.
Stolper-Samuelson
A country’s initial supplies of productive factors (e.g., land, labor, capital, natural resources) that shape comparative advantage and determines what goods they are going to produce.
Endowments
The relative price of a country’s exports in units of its imports. An improvement in ToT allows more imports per unit of exports, holding volumes constant.
Terms of Trade
Average costs fall as output increases due to fixed-cost spreading, specialization, or network effects; internal to the firm or external to the industry.
Economies of scale
Primary inputs—commonly labor, capital, and land—combined by technology to produce goods and services; their remuneration is wages, returns to capital, and rents, respectively.
Factors of production
British tariffs/restrictions on grain imports (early 19th c.) that protected domestic landowners; repeal in 1846 reduced food prices and shifted income toward industrial interests and consumers.
Corn Laws
The way policies or shocks change the income/wealth of different groups (by factor ownership, sector, or skill), independent of aggregate efficiency.
Distributional effects
A good that is nonrival (one person’s use does not reduce another’s) and nonexcludable (costly to prevent use), e.g., national defense; markets often undersupply the good due to free-riding.
Public Good
The smallest output level at which long-run average cost is minimized; when this is high relative to market size it supports concentrated market structures.
Minimum Efficient scale
Costs or benefits of an action borne by third parties not priced in the market (negative or positive); lead to inefficiency absent corrective policies (taxes, subsidies, regulation).
Externalities
A monetary system fixing a currency’s value to a specified quantity of gold, with free convertibility; constrains monetary policy and links countries via gold flows.
Gold Standard