Global Economics

David Ricardo's principle that nations benefit from specializing in the production of goods for which they have the lowest opportunity cost, then trading with other countries. Even if one country is more efficient at producing everything, both nations gain from trade.

A comprehensive record of all economic transactions between residents of a country and the rest of the world over a given period. It comprises the current account (trade in goods and services, income, transfers), the capital account, and the financial account.

The price of one currency expressed in terms of another. Exchange rates can be floating (determined by market supply and demand), fixed (pegged to another currency), or managed (a hybrid where the central bank intervenes periodically).

An investment made by a firm or individual in one country into business interests in another country, typically involving establishing operations or acquiring tangible assets such as factories. FDI is distinguished from portfolio investment by the degree of control and long-term interest.

The total monetary value of all finished goods and services produced within a country's borders in a specific time period. GDP is the most widely used measure of a nation's economic output and is calculated using expenditure, income, or production approaches.

A trade deficit occurs when a country imports more goods and services than it exports; a trade surplus is the opposite. Persistent deficits may signal strong domestic demand or a lack of competitiveness, while surpluses can reflect high savings rates or export-oriented policies.

An economic theory that adjusts exchange rates so that an identical basket of goods in two countries costs the same. PPP is used to compare living standards and economic productivity across nations more accurately than nominal exchange rates alone.

Tariffs are taxes imposed on imported goods, raising their price to protect domestic industries. Non-tariff barriers include quotas, subsidies, regulatory standards, and administrative requirements that restrict or distort international trade.

The increasing integration and interdependence of national economies through cross-border flows of trade, investment, technology, information, and labor. Globalization has accelerated since the mid-twentieth century due to reductions in transportation costs, trade barriers, and communication costs.

Central bank actions—such as setting interest rates and managing the money supply—that have international spillover effects. In an open economy, raising interest rates can attract foreign capital and appreciate the domestic currency, affecting trade competitiveness and capital flows.