ESSE DEFINITIONS​

THE FINANCIAL CRISIS, COMPARISON WITH COVID AND OUTLOOK

FINANCIAL CRISIS: situation where financial assets suddenly lose a large part of
their value.

BANKING RUNS: when a large number of people panic and try to withdraw their
money from a bank all at once.

SELF-FULFILLING EXPECTATIONS: we all believe in something so we end up creating

it.

SELF-NEGLECTING: being in denial. Thinking something is not going to happen and

then it ends up happening.

MARKET RIGIDITIES: shock absorption capabilities

BLACK SWAN THEORY: surprise events, very unlikely but with huge repercussion.

INDUSTRIAL PRODUCTION INDEX: a business cycle indicator used to identify turning

points in economic development at an early stage and assess the future GDP
development . It is constructed using monthly changes in industry output.

WORLD RECESSION: large decline in global GDP growth rates.

PURCHASING MANAGERS INDEX: an index of the current direction of economic

trends in the manufacturing sector. It is constructed using monthly survey
responses and it captures whether market conditions are expanding (PMI>50) or
contracting (PMI<50).

GLOBALIZATION, PAST AND FUTURE

GLOBALIZATION: a process of growing integration and independence of nations,

characterized by the intensification of international links of all types (commercial,
financial, cultural, migratory…)

SLOWBALIZATION: Globalization happens but at a slower pace

GRAVITY MODEL: predicts bilateral trade flows between 2 units (countries,

regions…) based on their economic sizes (often GDP) and distance between them.

BORDER EFFECT: refers to asymmetries in trade patterns between cities and

regions of different countries and those that are located in the same country.

LIBERALIZATION: number 1 reason why globalization has increased. A process

initiated after World War 2, seeking World Peace through wealth sharing.

THE BRETTON WOODS AGREEMENT: negotiated in 1944 by delegates from 44

countries to help regulate and promote international trade by reducing foreign
exchange risk. The objective was to provide currency stabilization for trade and
financing. It called for the US dollar to be pegged to the value of gold at a fixed
exchange rate and all other currencies in the system to be pegged to the US dollar's
value. Central banks would maintain fixed exchange rates between their currencies
and the dollar and the United States would redeem U.S. dollars for gold on demand.

INTERNATIONAL MONETARY FUND (IMF): it was established to monitor exchange

rates and identify nations that needed global monetary support. Currently, it
provides loans to member countries experiencing actual or potential balance of
payments problems to help them rebuild their international reserves and establish
their currencies.

LOWER TARIFFS: The average tariff in manufacturers in the industrialized countries

was 40% at the end of World War 2. At the beginning of this century, they were as
low as 5%.

TRADE LIBERALIZATION: more freedom and technological advances have facilitated

economic integration and a lower cost of transactions among countries.

CAPITAL ACCOUNT: financial inflows in foreign direct investment (FDI), portfolio

flows (investments where the owner holds less than 10% of a company's shares), an
acquisition of assets in one country by residents of another.

LEAPFROGGING: One company that used to be at the bottom, because of technological

advances, is now a leading company and changes market structure. Because of technological
revolution/improvements, a company can “jump” from the back to be the market leader.

CULTURE: an integrated system of learned behavior patterns that are characteristic

of the members of any given society. It is not necessarily defined by national
borders, it can span more than one country or exist within regions or organizations.
Is multidimensional, consisting of a number of common elements that are
interdependent. It includes shared values, beliefs, customs, and behaviors. Shapes
how people perceive the world. Interact with each other, and make decisions.
Culture is learned, shared, and transmitted across generations. It can be passed
down from parents to children, by governments, social organizations, or other
groups such as schools, churches etcetera.
ACCULTURATION: process of adjusting and adapting to a different culture.

COMMUNICATION: language, nonverbal cues, and communication styles.

BUSINESS ETIQUETTE: meeting protocols, negotiation tactics, and gift giving.

DECISION MAKING: risk tolerance, decision-making processes, and problemsolving

approaches.

LEADERSHIP: leadership styles and the role of hierarchy.

CONSUMER BEHAVIOR: preferences, buying habits, and brand loyalty.

AVOIDING MISUNDERSTANDINGS: miscommunication or cultural insensitivity can

harm relationships, teamwork, and business deals.

BUILDING TRUST: understanding and respecting a coworker or partner's culture

fosters trust and cooperation.

ENHANCING NEGOTIATIONS: cultural insights aid in negotiation strategies and

reaching mutually beneficial agreements

EXPANDING GLOBAL MARKETS: cultural competence opens doors to new markets

and opportunities

MANAGING MULTINATIONAL TERMS: effective leadership requires navigating

cultural differences within teams

HOFSTEDE'S THEORY OF CULTURAL DIMENSIONS: framework developed by

social psychologist Geert Hofstede to analyze and compare cultural differences across
countries. It identifies key dimensions that describe how societies organize themselves and
what values they prioritize. These dimensions help explain variations in behavior,
communication, and management styles across cultures.

→ Here are the six dimensions:

1.​ POWER DISTANCE: measures the extent to which a culture accepts here hierarchy
authority, in particular the extent to which the less powerful members of
organization institutions accept and expect that power is distributed unequally. High
Power distance cultures respect authority and hierarchy. Low power distance
cultures prefer equality and question authority.

2.​ INDIVIDUALISM VS COLLECTIVISM: the extent to which people feel

independent, as opposed to being interdependent as members of larger wholes.
 -​ INDIVIDUALISM: emphasizes individual rights and personal freedom, individual
choices and decisions are expected.
-​ COLLECTIVISM: Focuses on group cohesion and loyalty. An individual's place in
the group is determined socially.

3.​ MASCULINITY VS FEMININITY: the extent to which the use of force and
endorsed socially. It doesn't necessarily relate to gender roles but two cultural values.
-​ MASCULINITY: are more competitive, they value assertiveness, achievement and
material rewards for success. Masculine societies tend to have stronger gender roles
-​ FEMININITY: are more consensus-oriented, they prioritize cooperation, nurturing,
and quality of life. Competition is not so openly endorsed, there tends to be more
sympathy.

4.​ UNCERTAINTY AVOIDANCE: a society’s tolerance for ambiguity, uncertainty,

and risk.
-​ High uncertainty avoidance cultures prefer rules, structure, predictability, and fixed
habits and rituals. They may exhibit more anxiety and distress when faced with the
unknown.
-​ Low uncertainty avoidance cultures are more adaptable and open to change.

5.​ LONG-TERM VS. SHORT-TERM ORIENTATION: How society deals with

change and how it values the past.
-​ Long-Term Orientation (or flexhumility) emphasizes saving, persistence and
endurance. Societies tend to foster virtues oriented towards future rewards, take a
pragmatic approach and the common view is that the world is constantly changing
and preparing for the future is a constant need.
-​ Short-Term Orientation (or monumentalism) values tradition and stability. The
common view in these normative societies is that the world largely remains the same,
so the past is a very useful tool, keeping things the same is valued and fixed rules and
social obligations always apply. Societies are proud of themselves, suspicious of
change and tend to be more ideological and fundamentalist.

6.​ INDULGENCE VS. RESTRAINT (gratification dimension): Freedom to enjoy life

(indulgence) vs. control (restraint). reflects a society's approach to the gratification of
natural human desires and needs without guilt or social constraints. It helps us
understand how societies regulate and express their emotions, desires, and impulses.
-​ Indulgence cultures put emphasis on pursuit of happiness, self expression, and
personal freedom.
-​ Restraint cultures suppress these desires and regulate behavior. Emphasis on self
discipline, adherence to societal norms and rules and traditional sense of duty over
personal pleasure.

SILK ROAD: The Silk Road was a network of trade routes connecting East and West from
the 2nd century BCE to the 15th century. Stretching over 6,400 kilometers, it facilitated trade,
culture, and ideas. Named after China’s silk trade, it also carried spices, gold, tea, perfumes,
porcelain, horses, wine, and more.

THE MONGOL EMPIRE: although it came at a great cost in war and lives, the Mongol
empire facilitated a stable environment for trade and the exchange of knowledge.
There was an exchange of spices, tea, porcelain, silk, gold and innovations.

THE ROMAN EMPIRE: regional and international trade were common features of the
Roman world. A mix of state control and free markets facilitated trade across the
Empire. There was significant trade in products such as cereals, wine, olive oil,
precious metals, marble, and spices.

THE INCA EMPIRE: or Tawantinsuyu, traded foods, ceramics, cloth metal, wool,
skins and feathers using a road network of over 35,000 km.

→ FIRST GLOBALIZATION (1870 - 1913)

Several factors contributed to a deep economic integration (“first golden age of globalization)
-​ Pax Britannica (“British Peace”)
-​ Monetary stability (gold standard)
-​ Improvements in transport and communications, as well as reduction in tariffs
-​ New territories and economic growth and productivity

FIAT MONEY: Fiat = trust in latin

Has no value on its own

GOLD STANDARD: monetary system where the value of currency is based on gold. Paper
money is freely convertible into a fixed amount of gold backed by the Central Bank.

FIAT SYSTEM: the value of a currency is not based or backed on any physical
commodity. It has value only because the individuals who use it as a unit or medium
of exchange agree on its value.

THE STOLPER–SAMUELSON THEOREM: shows how changes in the prices of goods

cause changes in the prices of factors of production:
-​ An increase (decrease) in the price of a good will cause an increase (decrease) in the
price of the factor of production that is used intensively in the production of that good
and a decrease (increase) in the price of the other factor.
-​ Relation between prices of gods and owners of goods.
-​ points out who wins and who loses in trade

TRADE WAR: an economic conflict arising because of perceived unfair protectionist

policies (tariffs, quotas, restrictions or bans on imports…) They typically lead to high
costs for all involved. Led to international agreements to prevent such events in the
future (GATT, WTO).
OFFSHORING: Moving business operations to another country, often to benefit from
lower labor costs or favorable regulations. Example: A U.S. company opening a factory in
China.

OUTSOURCING: Company hires people outside company. Hiring an external company to

handle certain tasks or services instead of doing them in-house. Example: A company
contracting IT support to a specialized firm.

FORWARD INTEGRATION: form of vertical integration in which companies expand

their activities to control the direct distribution of their products.. Ex: handling the
shipping of products directly to customers

BACKWARD INTEGRATION: a form of vertical integration involving the purchase (or

merger) of supplier in the supply chain

REGIONALISM: Various types of regional agreements are possible:

-​ Free Trade Agreement (FTA): eliminate mutual barriers
-​ Customs Union: FTA + establishment of common external tariffs with common
external trade policy. No restrictions with goods, restrictions with people
-​ Single Market: trade barriers eliminated and freedom of movement of factors of
production and enterprise

PROTECTIONISM: Protectionism is an economic policy where a country restricts imports

and promotes domestic industries by imposing tariffs, quotas, or other trade barriers. It aims
to protect local businesses and jobs from foreign competition.

INTERNATIONAL TRADE

MERCANTILISM (XVI - XVIII CENTURY):

-​ The world's wealth is fixed
-​ When we import, we “give away” some of that wealth
-​ its best to export, not import
-​ The government should provide the means and favor and protect national production
and foster exports.

ADAM SMITH: ABSOLUTE ADVANTAGE THEORY

Which country has an absolute advantage?
-​ That is, which country can produce goods more cheaply (using less labor)??

ADAM SMITH'S THEORY OF NATIONS: explains how countries grow wealthier

through:
1.​ Division of Labor: Specialization boosts productivity.
 2.​ Absolute Advantage: Nations should produce what they do best and trade for other
goods.
3.​ Free Markets: Minimal government interference lets supply and demand drive
growth.

DAVID RICARDO: COMPARATIVE ADVANTAGE:

Assumptions:
-​ 2x2xF1 model
-​ 2 countries (home country and foreign country)
-​ 2 goods (wheat and cloth)
-​ 1 f.o.p (L)
-​ The factor of production (L) is not mobile.
-​ Fixed opportunity cost of goods for both countries (Assumption, mostly because of
technology)
-​ No transportation or transaction costs
Technology will determine which country has the highest labor productivity

ABSOLUTE ADVANTAGE: Absolute advantage refers to the ability of a person, company,

or country to produce a good or service more efficiently than others using the same resources.
It focuses on productivity and efficiency.
-​ Example: if Country A can produce 10 units of a product using the same resources as
Country B, which can only produce 5 units, Country A has an absolute advantage.
-​ Key Point: It compares productivity directly without considering opportunity costs.

COMPETITIVE ADVANTAGE: Comparative advantage is the ability of a person,

company, or country to produce a good or service at a lower opportunity cost than others.
This concept shows that even if one entity has an absolute advantage in multiple goods, trade
can still benefit all parties if they specialize in goods where they have the greatest relative
efficiency.
-​ Example: If Country A is better at producing both cars and rice but is relatively better
at producing cars (lower opportunity cost), it should specialize in cars, while Country
B focuses on rice.
-​ Key Point: Specialization based on opportunity costs leads to mutually beneficial
trade.

COMPARATIVE ADVANTAGE: Competitive advantage refers to the ability of a person,

company, or country to produce goods or services in a way that provides greater value to
customers or lowers costs compared to competitors. It focuses on strategies, brand,
technology, or innovation that make a company or country stand out in a market.
-​ Example: A company that uses advanced technology to make better-quality products
at a lower price has a competitive advantage.
-​ Key Point: It's about outperforming rivals through differentiation or cost efficiency.

ECONOMIES OF SCALE: Large scale production reduces unitary costs

INTER-INDUSTRIAL TRADE: where a country specializes in producing and exporting
certain goods to import others.

INTRA-INDUSTRIAL TRADE: where the same products are exchanged across borders. A
country then acts as a producer, exporter and importer of the same
goods.
-​ This type of trade cannot be explained with traditional trade theories.
-​ Measured using the Grubel-Lloyd index

→PROTECTIONIST MEASURES: INSTRUMENTS OF TRADE POLICY

SPECIFIC TARIFF: fixed charge for each unit of imported goods

-​ Example: $1 per kg of cheese

AD VALOREM TARIFF: fraction of the value of imported goods.

-​ Example: 25% tariff on the value of imported cars

COMPOUND DUTY TARIFF: combination of an ad valorem tariff and specific tariff

-​ Example: $1 per liter of wine (specific tariff) plus 15% of the wine’s value (ad
valorem tariff).

IMPORT QUOTA: Restriction on the quantity of a good that may be imported

VOLUNTARY EXPORT RESTRAINT: Limit imposed by the government of the

exporting country restricting the amount that may be exported to a specific country during a
certain period of time.

→PROTECTIONIST MEASURES: OTHER INSTRUMENTS OF TRADE POLICY

DOMESTIC CONTENT REQUIREMENTS: regulations that require a specified fraction

of a final good to be produced domestically

RED TAPE: bureaucratic and administrative barriers

ENVIRONMENTAL, HEALTH REGULATIONS: imposed as an “excuse” can act as a

form of protection

PUBLIC PROCUREMENT REQUIREMENTS: Government agencies are obligated to

purchase, even when they charge higher prices (or have inferior quality) compared to foreign
suppliers

ECONOMIC DEVELOPMENT
4 APPROACHES TO THE DEFINITION AND MEASUREMENT OF POVERTY:

1.​ MONETARY APPROACH: a shortfall in consumption or income

2.​ CAPABILITY APPROACH (inspired by the work of Amartya Sen): the deprivation
of a person’s capabilities to live the life they have reason to value
3.​ SOCIAL EXCLUSION APPROACH: exclusion from the ordinary patterns,
customs and activities of society / alienation or disenfranchisement
4.​ PARTICIPATORY APPROACH : lack of opportunity to participate in decision
making / having a voice in society

They are all constructions of reality, involving numerous judgements, which are often not
transparent.

“OBJECTIVE” poverty:
-​ ABSOLUTE POVERTY: the situation where lack of resources prevents access to
basic needs
-​ RELATIVE POVERTY: clear disadvantage with respect to the society of reference
-​ TEMPORARY VS. PERMANENT POVERTY: key element is social mobility

“SUBJECTIVE” poverty: refers to how the individual understands or perceives his own
situation. Influencing the needs that the person has, the resources available to
him and the reality that surrounds him.

ABSOLUTE VS RELATIVE POVERTY:

-​ ABSOLUTE POVERTY LINES: are used for developing countries. Monetary value
of the resources required to maintain a minimum welfare, given in absolute terms:
$2,15 a day (updated from $1,90 in Sept 2022), for example.
-​ RELATIVE POVERTY LINES: are often used in developed countries. Monetary
value defined with respect to a reference value: median of the distribution of
household income (adjusted for household members) In the European Union a person
is considered to be poor if her income is below 60 % of the median.

POVERTY PUZZLE:
-​ We have to go beyond the old ways of how to measure poverty
-​ We have to get a full picture, we need to look at different components and combine
them to see how poverty is really experienced because people experience it
individually.
SUMMARY DEL VIDEO DE POVERTY PUZZLE: The video highlights the importance of
redefining poverty measurement to include multidimensional factors like access to education,
health, and basic infrastructure beyond income levels. It emphasizes holistic approaches for
achieving global poverty reduction.
Key Themes:
 -​ Multidimensional Poverty: Poverty isn't just lack of income; it includes lack of
education, healthcare, clean water, and energy.
-​ Beyond Dollar Measures: Focusing only on monetary metrics overlooks critical
inequalities.
-​ Global Goals: Aligning poverty alleviation with sustainable development goals.
Important Points:
-​ "Measuring poverty multidimensionally helps policymakers understand its root
causes.
-​ Inclusion of social and environmental factors is essential for sustainable solutions.
-​ Action Steps: Improved education access, healthcare systems, and infrastructure.

IMPORTANT REMEMBER!!!!!
→ Nowadays extreme poverty is concentrated in Sub Saharan Africa!!!!!

DEVELOPMENT: improvements in the standard of living (welfare) of a society and all

the people who are part of it.
-​ “Development is a multidimensional process involving changes in social structures,
popular attitudes, and national institutions, as well as the acceleration of economic
growth, the reduction of inequality, and the eradication of poverty”

EASTERLIN PARADOX: The Easterlin Paradox states that at a point in time happiness
varies directly with income, both among and within nations, but over time the long-term
growth rates of happiness and income are not significantly related.

POVERTY LINE (or poverty threshold): Minimum amount of income considered

adequate.

POVERTY GAP INDEX: The poverty gap index tries to capture the intensity of poverty,
telling us the fraction of the poverty line that people are missing, on average, in order to
escape poverty.

THE MULTIDIMENSIONAL POVERTY INDEX (MPI): summary measure of average

achievement in key dimensions of human development: health, education and decent
standards of living.
-​ The index replaced the HDI in 2010 (it identifies deprivations across the same three
dimensions as the HDI, but uses slightly different data)

THE HUMAN DEVELOPMENT INDEX (HDI): summary measure of average

achievement in key dimensions of human development: a long and healthy life, being
knowledgeable, and having a decent standard of living.

GENDER DEVELOPMENT INDEX (GDI) : measures gender inequalities in achievement

in the three basic dimensions of human development, separated by gender
GENDER INEQUALITY INDEX (GII): is a composite metric of gender inequality using
three dimensions: reproductive health, empowerment and the labor market. A low GII value
indicates low inequality between women and men, and vice- versa.

THE GENUINE PROGRESS INDICATOR (GPI): measures sustainable economic

welfare, rather than economic activity alone. It tries to capture the wellbeing of a country,
incorporating environmental and social elements not found in the calculation of GDP.
→ It uses 3 underlying principles:
-​ Consider consumption, but adjust for inequality
-​ Include non-market benefits (not counted in GDP)
-​ Deduct bads such as environmental degradation, human health effects, and loss of
leisure time.

THE SOCIAL PROGRESS INDEX: measures the capacity of a society to meet the basic
human needs of its citizens, establish the building blocks that allow citizens and communities
to enhance and sustain the quality of their lives, and create the conditions for all individuals
to reach their full potential. (Basic human needs, foundations of wellbeing, opportunity).

THE INCLUSIVE WEALTH INDEX: measures a nation’s capacity to create and then
maintain human well-being over time. To that end, the index measures wealth using the
country’s manufactured, human and social natural capital. It is meant to be used as a
sustainability index, and allow countries to measure whether they are developing in a way
that allows future generations to meet their own needs.

THE LORENZ CURVE: a picture of how income is cumulatively distributed among

members of a population.

GINI COEFFICIENT: The area between the Lorenz curve and the perfect-equality line that
gives us an idea of how unequal the distribution of income is.
-​ If there is no inequality: gini coefficient = 0
-​ The larger the coefficient (maximum of 1), the more unequal the income distribution
in the country

POPULATION

URBANIZATION: increase of urban populations, especially in less developed countries,

partly because of population growth, mostly due to migration

THE DEMOGRAPHIC TRANSITION MODEL: is based on historical trends of the birth

rate (annual births/1000 people) and death rate (annual deaths/1000 people) . The model
predicts that a country’s population growth rate goes through several stages as it develops,
and the interaction between the birth and death rates causes significant changes in population
size and dynamics.
HALE (health-adjusted life expectancy): average equivalent number of years of full health
that a person could expect to live

REJUVENATION: Short-run increase of birth rates, but immigrant populations assimilate

and replicate demographic patterns

GENDER AWARENESS: The ability to view society from the perspective of gender roles
and understand how this has affected women’s needs in comparison to the needs of men

GENDER ANALYSIS: Critical examination of how differences in gender roles,

activities, needs, opportunities and rights/entitlements affect women, men, girls and
boys in a given policy area, situation or context.

GENDER AWARENESS IN ECONOMICS (also referred to as gender sensitivity):

requires to be informed and attentive to how gender bias and dynamics can influence
economic decisions, processes and outcomes and cause gender inequalities in wellbeing.

GENDER BLINDNESS: may be understood as ignoring/failing to address the gender

dimension: An oversight of gender roles and relationships that cause gender biases to occur in
economic policy processes and outcomes.

GENDER EQUALITY: Means equality in rights, responsibilities and opportunities for

both women and men. Does not mean that men and women are (or need to become) the same.
Requires that both men and women´s perceptions, priorities and needs will have equal weight
in the planning and allocation of resources.

SOCIAL INSTITUTIONS AND GENDER INDEX: is a composite index designed by the

OECD to measure gender equality in a society focusing only on social institutions that impact
the roles of men and women, such as a society's norms, values and attitudes that relate to
women

THE GENDER EQUALITY INDEX: provides a “comprehensive map of gender gaps

adjusted by levels of achievement in the EU and across Member States based on the EU
policy framework”

GENDER INEQUALITY AND GROWTH: estimates of the impact of unequal access to

education have established robust effects of gender inequality on growth.

GENDER BUDGETING (or gender responsive budgeting): an approach to budgeting

that uses fiscal policy and administration to promote gender equality