- P -

P4 Trans-Pacific Strategic Economic Partnership Agreement.
Paache price index A price index that uses quantities from the given year, qg, as weights: IPaache = 100Σpgqg / Σpbqg, where pb, pg are prices in the base and given years respectively. Known to understate the adverse effects of price changes, as it gives greatest weight to lower priced goods due to substitution towards them. Contrasts with Laspeyre price index.
PACER Plus Pacific Agreement on Closer Economic Relations (PACER) Plus
Pacific Agreement on Closer Economic Relations Plus A free trade agreement covering goods, services, and investment among Australia, New Zealand, and 9 Pacific island countries. Negotiations concluded September 7, 2017.
Pacific Alliance Described as "an initiative of regional integration," it comprises four countries -- Chile, Colombia, Mexico and Peru -- and was established April 28, 2011. It is not itself an FTA, but each of the members is included in FTAs with each other member. [Source]
Pacific blockade A blockade without recourse to war. Hence "pacific" in the sense of "tending to lessen conflict." Pacific blockades were used at least 23 times by different powers in the 19th century. [Source]
Pacific Rim A collective term for the countries that border on the Pacific Ocean.
PAFTA Pan-Arab Free Trade Area
Pain trade This term applies to stock markets and seems to refer to a situation in which "a majority of market participants have positioned themselves in a particular direction, only to see the market move against them." I don't claim to understand it, but it has nothing to do with international trade. [Source]
Paisa Subunit of the rupee.
Pan-Arab Free Trade Area A free trade area in force since January 1, 1998, including 19 Arab countries.
Panama Papers The leak on April 3, 2016, of over eleven million files from one of the world's largest law firms, Mossack Fonseca, basedin Panama. The papers revealed how the very rich, many of the named, were able to exploit secretive tax regimes. [Source]
Pandemic The spread of a communicable disease, today most often a virus, across international borders to afflict most or all of the world.
Panel A three-person committee assembled by the WTO to hear evidence in disputes between members, as part of the WTO dispute settlement mechanism. Panels are also used to settle disputes under NAFTA.
Panel data Data on an economic variable that include both multiple economic units and multiple time periods, thus displaying both cross sectional variation and time series variation.
Panel report The finding of a WTO dispute settlement mechanism panel.
Paneuropean Union "The International Paneuropean Union, also referred to as the Pan-European Movement and the Pan-Europa Movement, is the oldest European unification movement." It started in 1923, advocating a unified European State and is based in Munich with branches elsewhere. [Source]
Par 1. Equality. See at par.
2. Official value. See par value.
Par value The central value of a pegged exchange rate, around which the actual rate is permitted to fluctuate within set bounds.
Para-tariff A charge on an imported good instead of, or in addition to, a tariff. [Source]
Paradox As used in economics, it seems to mean something unexpected, not something seemingly impossible. Some paradoxes are just theoretical results that go against what one thinks of as usual. Others, like the Leontief paradox, are empirical findings that seem to contradict theoretical predictions.
Paradox of Plenty Resource Curse [Origin]
Parallel economy Black market
Parallel import Trade that is made possible when the owner of intellectual property causes the same product to be sold in different countries for different prices. If someone else imports the low-price good into the high-price country, that is a parallel import. Thus, one example of gray market trade. [Source]
Parameter A constant that helps to determine the shape and position of a functional relationship, such as an exponent in a Cobb-Douglas function or the marginal propensity to import in a linear import function.
Parent In a firm that has one or more subsidiaries, especially a multinational corporation, the portion of the firm that owns and ultimately controls the others.
Pareto criterion The criterion that for change in an economy to be viewed as socially beneficial it should be Pareto improving.
Pareto distribution The probability distribution of a continuous random variable with the following cdf: F(x) = 1−(b/x)a, defined over xb.
Pareto efficient Same as Pareto optimal.
Pareto improving Making no one worse off and making at least one person better off.
Pareto optimal Having the property that no Pareto improving change is possible.
Pari passu Latin phrase meaning at an equal rate or pace. In economics it tends to be used to indicate that two variables are changing at the same rate: if income grows pari passu with population, then per capita income is unchanged.
Paris Agreement A legally binding treaty on climate change adopted in Paris December 12, 2015. Its aim is to "limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels."
Paris Club A group of 22 creditor countries (permanent members as of February 2024) that have met regularly but informally in Paris since 1956 to seek ways of helping debtor countries to manage their debts through coordinated rescheduling and other means.
Paris Convention The Paris Convention for the Protection of Industrial Property is a treaty administered by WIPO concerning industrial property such as patents, trademarks, and appellations of origin.
Paris Declaration of 1856 Signed alongside the Treaty of Paris ending the Crimean War in March 1986, this committed the signatories to several provisions, including that "they would not seize enemy goods on neutral vessels nor neutral goods on enemy vessels." These came to be considered part of international law. [Source]
Parity 1. Equality. Same as par. See also interest parity and purchasing power parity.
2. Official value, or par value.
3. An exchange rate at which two currencies have equal value. Thus an exchange rate of 1.00. Meantioned most frequently for that between the US dollar and the euro.
Parsimonious Stingy. Although in normal language, this has a negative connotation, when applied to a model or an explanation in economics it tends to be positive, meaning that it relies on as simple a structure as possible.
Partial Favoring one person or side over another; not impartial.
Partial equilibrium Equilibrium in only a subset of an economy's markets -- usually just one -- taking variables, usually prices, from other markets as given. Partial equilibrium models are appropriate for products that make up only a very small part of the economy. They are used routinely (not always appropriately) for analysis of trade policies in single industries. Contrasts with general equilibrium.
Partial scope agreement A trade agreement that covers only some aspects of trade, in contrast to, say, a free trade agreement that under WTO rules should cover almost all trade.
Participation rate The fraction of a country's working-age population that is employed or seeking employment.
Partnership This word has increasingly replaced "trade agreement" and "free trade agreement" in the names of such arrangements, due to the negative connotation that "free trade" has acquired in recent years. [Source]
Partnership for Global Infrastructure and Investment Announced by US President BidenJune 26, 2022, it intends to "deliver game-changing projects to close the infrastructure gap in developing countries, strengthen the global economy and supply chains, and advance U.S. national security." Although somewhat related to trade, it does not change any tariffs.
Party International agreements have "parties" to the agreement, in contrast to international organizations that have "members." Thus countries may be members of the WTO, while they were contracting parties to the GATT.
Pass-through The extent that an exchange rate change appears in the prices of imported goods. With full pass-through, a currency depreciation, which raises the price of foreign currency, would cause equal increase the prices of imported goods. With no pass-through, prices of imports remain constant. See pricing to market.
Passporting In the European Economic Area this means the right given to any firm registered in one EEA country to do business in any other EEA country without getting further permission. It applies to firms based outside the EEA once they have been authorized by a single EEA state. [Source]
Patent The legal right to the proceeds from, and control over the use of, an invented product or process, granted for a fixed period of time, now usually 20 years. Patent is one of several forms of intellectual property that are subjects of the TRIPS agreement.
Patent box A provision of a country's tax code that applies a lower rate on profits from intellectual property, including but not limited to patents. Since intellectual property has no physical location, some countries use this policy to induce multinational enterprises to place these there so as to collect taxes on them. [Source]
Patent Cooperation Treaty A treaty administered by WIPO providing a unified procedure for filing patent applications in participating countries.
Path dependent The property that destination depends on the route traveled. That is, if the equilibrium that will ultimately be reached by a system depends on the values of variables that occur away from equilibrium, then the equilibrium is path dependent.
Patriotism argument for protection The view that one is helping one's country by buying domestically produced goods instead of imports. In a nondistorted economy, this is not correct, since the country can do better producing where it has a comparative advantage rather than using scarce resources where it does not.
Pattern of specialization The particular goods that a country produces and those it does not.
Pattern of trade See trade pattern.
Pauper labor Low-wage labor. Usually applied to labor in another country with wages so low that a potential trading partner fears that trade will lower its own wages to theirs.
Pauper labor argument The view that a country loses by importing from another country that has low wages, as that will reduce wages at home. This ignores that low wages are due to low productivity, and that the high-wage country, with high productivity, will have comparative advantage in some products and will gain from trade. [Origin]
Pause clause Debt suspension clause
Pax Mongolica The period of stability in Eurasia begun during the Mongol Empire of the 13th and 14th centuries. It facilitated trade, travel, and communication along the Silk Road. It continued after the Mongol Empire split up, but came to an end with the Black Death. [Source]
Payment at sight Written as one of the terms of payment in a letter of credit, this means that the payment will be made immediately when the completion of the trade is documented, as opposed to after some specified delay. [Source]
Payments deficit Balance of payments deficit.
Payments imbalance Imbalance in the balance of payments, normally including both current and capital accounts.
Payne-Aldrich Tariff Act The first change in US tariffs since the Dingley Tariff of 1897, this 1909 legislation was an unhappy compromise between those who wanted to lower tariffs and those who wanted to raise some of them even further. It did however reduce tariffs quite substantially. [Source]
PCEPI Personal consumption expenditure price index
PDF Probability density function
PDO Protected designation of origin
Peak The point in the business cycle when an economic expansion reaches its highest point before turning down. Contrasts with trough.
Pecuniary externality The effect that one or a group of market participants may have on a price by a change in their behavior. Such a price change has equal and opposite effects on buyers and sellers in the affected market, and thus does not cause a net gain or loss to others as would a non-pecuniary externality.
Peg 1. To maintain a pegged exchange rate; thus to set a currency's value within a narrow range by exchange-market intervention.
2. The par value of a pegged exchange rate.
3. The regime of a pegged exchange rate.
Pegged exchange rate A regime in which the government or central bank announces an official (par) value of its currency and then maintains the actual market rate within a narrow band above and below that by means of exchange market intervention.
PEM Convention The Regional Convention on pan-Euro-Mediterranean preferential rules of origin, which provides for diagonal cumulation within the FTAs of the EU with many of its European and Mediterranean partners. [Source]
Penn Effect The finding, by Kravis et al. (1978) using the Penn World Table, and named by Samuelson (19994), that average prices are lower, and real incomes therefore higher, in developing countries than would be found at nominal exchange rates. This was subsequently explained as the Balassa-Samuelson Effect.
Penn World Table The database originally produced at the University of Pennsylvania, which "provides purchasing power parity and national income accounts converted to international prices." Prices come from the International Comparison Program. Useful for many purposes, especially for comparing real values across countries.
Per capita Per person.
Per capita income Income per person, usually measured as GDP divided by population.
Per capita output The value of an economy's output per person, GDP divided by population and thus the same as per capita income.
Percentage point A one percent increment. For example, a two percentage point increase in a growth rate that was previously 5% would be an increase to 7% (which might alternatively be correctly, though less commonly, called a 40% increase in the growth rate, since 7 is 40% higher than 5).
Perfect capital mobility 1. The absence of any barriers to international capital movements.
2. The requirement that, in equilibrium, rates of return on capital (interest rates) must be the same in different countries, because otherwise all capital would move to the country with the higher return.
Perfect competition An idealized market structure with large numbers of both buyers and sellers, all small, so that they act as price takers. Perfect competition also assumes homogeneous products, free entry and exit, and complete information. Most international trade theory prior to the New Trade Theory assumed perfect competition.
Perfect foresight Exact knowledge of the future. Under perfect foresight, for example, the forward rate would exactly equal the spot rate that later prevails when the forward contract matures.
Perfect substitute A good that is regarded by its demanders as identical to another good, so that the elasticity of substitution between them is infinite.
Perfectly competitive Refers to an economic agent (firm or consumer), group of agents (industry), model, or analysis that is characterized by perfect competition. Contrasts with imperfectly competitive.
Perfectly elastic Refers to a supply or demand curve with an infinite price elasticity, implying that the supply or demand curve as usually drawn is horizontal. A small open economy faces perfectly elastic demand for its exports and supply of its imports, and a foreign offer curve that is a straight line from the origin.
Perfectly inelastic Having zero elasticity with respect to some variable, often income, price, or both. Thus completely insensitive to changes in this variable.
Perfectly mobile capital Perfect capital mobility.
Performance requirement 1. A requirement that an importer or exporter must achieve some level of performance, in terms of exporting, domestic content, etc., in order to obtain an import or export license.
2. A requirement by the host country of FDI that the investor must do certain things, such as exporting, employing, or purchasing certain amounts.
Performance target In the international economic context, this is likely to refer to one of several targets specified by the IMF as a condition for a loan to a developing country.
Peril point The point beyond which tariff reduction in an industry would cause it serious injury. The U.S. Tariff Commission was required to determine peril points for U.S. industries as a constraint on negotiations in early GATT Rounds.
Periphery This is something that is on the edge. It therefore is used to refer to countries that are located far from the center of the world's economic activity.
Permanent normal trading relations The granting of permanent MFN status (NTR) to a country that has not previously been a member of the WTO.
Permit A license issued by government granting permission to engage in some activity, such as to export, import, or invest.
Personal consumption expenditure price index A price index released each month by the US Bureau of Economic Analysis reflecting "changes in the prices of goods and services purchased by consumers in the United States." Contrasts with Consumer Price Index and implicit price deflator.
Personal income Income received by persons (as opposed to firms and government). It differs from national income by excluding income earned but not received (e.g., corporate retained earnings) and including income received but not earned (e.g., government transfer payments).
Perverse loop The feedback effect that might undermine a currency union such as the eurozone, if fear that a country will exit the union causes capital outflow that makes exit more likely. [Source]
Peso The main currency unit of several Spanish speaking countries. It is divided into 100 centavos.
Peso Crisis The massive devaluation of the Mexican currency, the peso, at the end of 1994, and the associated strains and hardships in the Mexican economy. Tequila Crisis.
Peso problem 1. The need for a country with a history of high inflation to have a higher interest rate than other countries, to compensate bond holders for the expectation of depreciation. The term seems first to have appeared in print in Krasker (1980), motivated by experience before the 1976 Mexican peso devaluation. [Origin]
2. More generally, a peso problem refers to the need for an asset to pay a high return to compensate for even a small perceived probability of a large decline in value.
Peterson Institute for International Economics "A private, nonprofit, nonpartisan research institution devoted to the study of international economic policy." Founded in 1981 as Institute for International Economics by C. Fred Bergsten, it was renamed the Peter G. Peterson Institute for International Economics in 2006.
Petition A request for administered protection.
Petrobras Scandal Lava Jato
Petrodollar The profits made by oil exporting countries when the oil price rose, profits that they preferred holding in U.S. dollar-denominated assets, in the U.S. or as Eurodollars. A portion of these were in turn lent to oil-importing developing countries that used them to buy oil. See recycling petrodollars.
PGI See protected geographical indication
PGII See Partnership for Global Infrastructure and Investment
Phantom GDP The portion of real GDP, or of an increase in real GDP, that occurs when domestic producers switch to lower cost imported inputs. Although it represents a valid gain from trade, it does not represent real output produced within the domestic economy, but may be treated as such in statistics. [Source]
PHARE Programme A program of the European Union providing financial assistance to countries of Central and Eastern Europe prior to their accession to the EU. The name is a acronym for the program's name when it began, then targeting only Poland and Hungary Aassistance for the Restructuring their Eeconomies. [Source]
Pharma Agreement Agreement on Trade in Pharmaceutical Products
Phase One 1. Refers to the first part of a trade agreement when it is hoped or expected that further negotiations will yield additional steps.
2. The agreement signed between China and the US on January 15, 2020, intended to stop the hostilities of the China-US Trade War. It included just a few reductions in tariffs and a commitment by China to greatly increase its imports from the US.
3. The Stage One US-Japan Agreement.
Phillips curve An inverse relationship between inflation and unemployment observed by Phillips (1958) and thought to describe an achievable tradeoff between the two. The relationship was later found to also depend on inflation expectations, preventing unemployment from differing permanently from the NAIRU.
Physical capital The same as "capital," when that word is used without any adjective, in the sense of plant and equipment. The adjective "physical" is used only for clarity, to distinguish it from human capital and financial capital.
Physiocrat One of a school of French thinkers who developed a system of economics before Adam Smith's foundation of modern economics. Founded by François Quesnay, they believed that all wealth is derived from the land and that commerce and industry were sterile. They advocated both free trade and taxing only land.
Phytosanitary Pertaining to the health of plants, especially freedom from pests and pathogens. See sanitary and phytosanitary regulations.
PIAAC Programme for the International Assessment of Adult Competencies
Piaster Subunit of a pound in both Egypt and Lebanon.
Piecemeal tariff reform The reduction of only one tariff (or a subset of tariffs) by a country that has tariffs on other products.
Pigouvian 1. Based on the ideas and writings of Arthur Cecil Pigou(1877-1959).
2. When used with tax-cum-subsidy, it means that the policy is set equal to the size of a negative (if tax) or positive (if subsidy) externality, as prescribed by Pigou (1920). Such a policy is the first best way to deal with an externality, in contrast to a tariff, which is only second best.
PIGS 1. Acronym for the four poorest -- and, as it happens, Mediterranean -- countries of the EU15: Portugal, Italy, Greece, and Spain.
2. Also used for the four countries subject to debt crisis starting in 2010: Portugal, Ireland, Greece, and Spain. Also sometimes including both Ireland and Italy, as PIIGS.
PIIE Peterson Institute for International Economics
PISA Programme for International Student Assessment
Pivot to Asia The announced policy of the Obama administration to increase its diplomatic and economic emphasis on the countries of Asia, especially the Asia-Pacific region, as opposed to other parts of the world, especially the Middle East, that had until then gotten greater attention.
PL-480 Public Law 480.
Platform See export platform.
Plaza Accord An agreement reached in 1985 among the central banks of France, Germany, Japan, US, and UK to bring down the value of the U.S. dollar, which had appreciated substantially since 1980. By the time of the Louvre Accord, two years later, the dollar had fallen 30%.
Plurilateral Among several countries -- more than two, which would be bilateral, but not a great many or all, which would be multilateral.
Plurilateral agreement Plurilateral agreements, both within the WTO and separate from it, contrast with larger multilateral agreements in that the former are signed by, and apply to, only those countries that choose to do so, while all WTO members must be party to the multilateral agreements.
Plus One China Plus One
PNTR Permanent normal trading relations
PNUD Programa de Naciones Unidas para el Desarrollo (Spanish for United Nations Development Programme)
Point elasticity See elasticity
Poisson distribution The probability distribution of a discrete random variable with the following cdf: F(n) = Σkn (e−μμn/n!), n=0,1,2,...., where μ is the mean of the distribution.
Policy A deliberate act of government that in some way alters or influences the society or economy outside the government. Includes, but is not limited to, taxation, regulation, expenditures, and legal requirements and prohibitions, including in each case those that affect international transactions.
Policy instrument A particular type of policy that can be used in varying degrees or intensities. The context is usually one of trying to achieve several objectives with two or more policy instruments.
Policy space The freedom of a developing country to use policies as needed to promote development. Concern about policy space arose as developing countries began to be constrained by international agreements such as those in the WTO. [Origin]
Policy tool Policy instrument
Polish plumbers Shorthand for migrant workers from Central and Eastern Europe into Western Europe, after the enlargement of the European Union from 15 to 25 members. Said to have caused unemployment of workers in France and the U.K.
Political economy 1. Early name for the discipline of economics.
2. A field within the discipline of economics encompassing several alternatives to neoclassical economics, including Marxist economics. Also called radical political economy.
3. A field within the discipline of economics that concerns the interactions between political processes and economic variables, especially economic policies. May stress the effects of politics on economics more than the other way around.
4. A field within the discipline of political science that concerns the interactions between political processes and economic variables, especially economic policies. May stress the effects of economics on politics more than the other way around.
Political economy of protection The study of reasons, especially political ones, that countries choose to use protection. Includes models of voting, lobbying, and campaign contributions as these lead policy makers to erect tariffs.
Political risk The risk in an international transaction -- export, import, or FDI -- that a government or military will intervene, preventing or altering the terms of the transaction. Contrasts with commercial risk and exchange risk.
Political Trilemma of the World Economy See Trilemma of the World Economy
Poll tax A tax levied on individuals, not based on their income or property.
Pollution haven A country that, because of its weak or poorly enforced environmental regulations, attracts industries that pollute the environment.
Pollution tax A tax on a firm or industry based on the amount that it pollutes.
Pooled equilibrium An equilibrium in which two or more different types of agents behave in the same way and therefore cannot be distinguished.
Population pyramid A graph plotting, as horizontal bars on both sides of a vertical axis, the numbers of people in a country in different age ranges, with females on one side and males on the other. Since numbers diminish at high ages, the graph has the shape of a pyramid.
Port The facility at which ships dock and transfer cargo and/or passengers to and from land.
Porter hypothesis The idea that regulation, especially for environmental purposes, may induce innovation that in turn may give a country's industry an advantage in international trade. Due to Porter (1991).
Porter's Diamond The four determinants of competitive advantage of nations, as identified by Porter (1990): factor conditions; demand conditions; related and supporting industries; and firm strategy, structure, and rivalry.
Portfolio The entirety of the financial assets (and usually also liabilities) that an economic agent or group of agents owns.
Portfolio approach An approach to explaining exchange rates that stresses their role in changing the proportions of different currency-denominated assets in portfolios. The exchange rate adjusts to equate these proportions to desired levels.
Portfolio balance effect The effect that sterilized exchange market intervention may have on the exchange rate by altering the composition of portfolios and inducing exchange-rate adjustment so as to match desired to actual holdings.
Portfolio capital Financial assets, including stocks, bonds, deposits, and currencies.
Portfolio decision An economic agent's choice as to how much of various assets (or sometimes liabilities) to hold. The choice to hold a higher proportion of assets denominated in foreign currency, for example, is a portfolio decision.
Portfolio diversification See diversified portfolio.
Portfolio flow The sale or purchase of financial assets across countries.
Portfolio investment The acquisition of portfolio capital. Usually refers to such transactions across national borders and/or across currencies.
Portland A "communications and public affairs consultancy" that produces the Soft Power 30 index.
Positive 1. Beneficial. Opposite of negative.
2. Of a number: greater than zero. Contrasts with negative.
3. Of a change in a number: moving toward zero if less than zero or away from zero if greater than zero. Opposite of negative.
4. Refering to "what is," in contrast to normative which involves value judgments as to "what ought to be." The word is not, in this use, the opposite of either "negative" or "harmful."
Positive consensus A unanimous decision to take action, in contrast to a negative consensus. Under the GATT prior to the WTO, acceptance of a dispute settlement decision required a positive consensus, including acceptance by a losing party. [Source]
Positive externality A beneficial externality; that is, a beneficial effect of one economic agent's actions on another. Considered a distortion because the first agent has inadequate incentive to act. Examples are the attractiveness of well-kept farms for the tourism industry (a production externality) and reduced contagion of disease due to vaccines (a consumption externality).
Positive list In an international agreement, a list of those items, entities, products, etc., to which the agreement will apply, with no commitment to apply the agreement to anything else. Contrasts with negative list.
Positive sum game A game in which the payoffs to the players may add up to more than zero, so that it may be possible for all players to gain. Contrasts with zero sum game. Due to the gains from trade, trade and trade policy may be thought of as positive sum games.
Post See ex post.
Potential Pareto improvement A change that could be Pareto improving if accompanied by suitable redistribution. A move to free trade, though likely to hurt some, is Kaldor-Hicks beneficial because it is a potential Pareto improvement. Also called Kaldor improvement, Kaldor-Hicks improvement, or Hicks-Kaldor improvement.
Pound 1. The main currency unit of the United Kingdom, more formally called the pound sterling. It is today divided into 100 pence.
2. The main currency unit of both Egypt and Lebanon. It is divided into 100 piastres.
Poverty datum line Same as poverty line.
Poverty line The level of annual income below which a household is defined to be living in poverty. This is set differently by different governments and institutions and, in spite of the great importance of its intent, is not in fact as meaningful as one might wish.
Poverty Reduction and Growth Facility The IMF's low-interest lending facility for poor countries, established in 1999 and intended to be more favorable to reducing poverty and promoting growth than previous policies. Replaced in 2009 with the Extended Credit Facility.
PPF Production possibility frontier
PPP 1. Public private partnership
2. Purchasing power parity
PPP exchange rate Purchasing power parity exchange rate
PPP method Use of a purchasing power parity exchange rate to convert one country's nominal values (usually of GDP) to another country's currency, so as to compare them. Contrasts with the Atlas method.
PRA Property Rights Alliance
Pre-shipment inspection Certification of the value, quality, and/or identity of traded goods done in the exporting country by specialized agencies or firms on behalf of the importing country. Traditionally used as a means to prevent over- or under-invoicing, it is now being used also as a security measure.
Prebisch-Singer Hypothesis The idea that the prices of primary products relative to manufactures would decline over the long term, and therefore that developing countries that were led by comparative advantage to specialize in them would find their prospects for development diminished. Due to Prebisch (1950) and Singer (1950).
Precautionary principle The view that when science has not yet determined whether a new product or process is safe or unsafe, policy should prohibit or restrict its use until it is known to be safe. Applied to trade, this has been used as the basis for prohibiting imports of GMOs, for example. [Origin]
Precautionism In contrast to protectionism, which seeks to protect companies from foreign competitors, precautionism may equally restrict trade to protect "citizens and consumers in advance against all kinds of possible risks." The term was coined in 2020 by Pascal Lamy, former Director General of the WTO. [Source]
Predation The use of aggressive (i.e., low) pricing to put a competitor out of business, with the intent, once they are gone, of raising prices to gain monopoly profits.
Predatory dumping Dumping for the purpose of driving competitors out of business and then raising price. This is the one motivation for dumping that most economists agree would be undesirable, like predatory pricing (predation) in other contexts. But it rarely, if ever, happens.
Predatory pricing Predation.
Preference erosion The reduction in advantage given to recipient of a preferential tariff when the importing country reduces tariffs on others.
Preference for variety The increased utility that people get from access to more differentiated product varieties. In reality this may reflect their ability to find products more closely suited to their own needs, but as modeled in the Dixit-Stiglitz utility function, they gain consuming a little of each of a larger number of products.
Preference margin Margin of preference
Preference set The set of vectors of goods or other economic magnitudes that are preferred by an economic decision maker (e.g., consumer) to a given one.
Preference utilization rate The extent to which traders within a free trade agreement or other preferential arrangement take advantage of the preferences available. Measured as the percentage of exports that would qualify for a lower tariff that instead pay the higher one.
Preferences 1. In trade policy, this refers to special advantages, such as lower-than-MFN tariffs, accorded to another country's exports, usually in order to promote that country's development. See GSP.
2. In trade theory, this refers to the attitudes of consumers toward different goods, as represented by a utility function. Some propositions in trade theory use the assumption of identical and/or homothetic preferences.
Preferential duty Preferential tariff.
Preferential rule of origin A rule of origin used to determine whether an imported good is entitled to a tariff preference under the rules of an FTA or other preferential trade arrangement.
Preferential tariff A tariff lower than the MFN tariff, levied against imports from a country that is being given favored treatment, as in a preferential trading arrangement or under the GSP.
Preferential Trading Arrangement 1. A group of countries that levy lower (or zero) tariffs against imports from members than from outsiders. Includes FTAs, customs unions, and common markets. Encouragement to use this term instead of the misleading "FTA" has come from Jagdish Bhagwati, as in Bhagwati and Panagariya (1996).
2. Frankel (1997) uses PTA for an arrangement where internal tariffs are reduced but not zero, reserving FTA for a trading bloc with zero internal tariffs.
Preliminary With reference to a tariff or other trade barrier applied as a result of administered protection, this refers to a barrier imposed part way through the administrative process, as opposed to the definitive barrier that is imposed when the administrative process is complete.
Premature Deindustrialization As defined and documented by Rodrik (2015), some emerging economies, especially in Latin America and Africa, have experienced deindustrialization at lower levels of income than their more industrialized predecessors, and therefore find it harder to achieve the latter's levels of development.
Premium 1. The excess of one price over another.
2. Forward premium
Present value The value today of a stream of payments and/or receipts over time in the future and/or the past, converted to the present using an interest rate. If Xt is the amount in period t and r the interest rate, then present value at time t=0 is V = Σt (Xt)/(1+.r)t. If the interest rate varies with time, it's somewhat harder.
Presidential trade authority Informal name for trade promotion authority or fast track.
Prespa Agreement The agreement on June 12, 2018, signed beside Lake Prespa in what was then The Former Yugoslav Republic of Macedonia, to change its name to Republic of North Macedonia. [Source]
Preston Curve The relationship between a country's life expectancy and its real per capita income. Named after Preston (1975).
PRGF Poverty Reduction and Growth Facility
Price band A form of nontariff barrier that includes both a minimum import price and an import price ceiling. [Source]
Price ceiling A government-imposed upper limit on the price that may be charged for a product. If that limit is binding, it implies a situation of excess demand and shortage.
Price competition Competition among firms by reducing price, as opposed to by changing characteristics of the product.
Price control Intervention by a government to set the price in a market or limit its movement, thus attempting to override the market mechanism.
Price definition A way of defining relative factor abundance from factor prices in autarky: Compared to country B, country A is abundant in factor X relative to factor Y iff wXA/wYA < wXB/wYB, where wIJ is the autarky price of factor I in country J, I=X,Y, J=A,B. Also known as the "Ohlin definition," as it was used by Ohlin (1933).
Price differentiation Price discrimination
Price discrimination The sale by a firm to different buyers at different prices. When this occurs internationally and the lower price is charged for export, it is regarded as dumping.
Price elastic Having a price elasticity greater than one (in absolute value).
Price elasticity The elasticity of anything, usually supply or demand, with respect to price.
Price fixing An agreement among competing firms on the prices that they will charge, presumably to keep prices higher than they otherwise would be. See cartel. Though illegal in many domestic contexts, this is encouraged as a resolution of an anti-dumping case.
Price floor A government-imposed lower limit on the price that may be charged for a product. If that limit is binding, it implies a situation of excess supply, which the government may need to purchase itself to keep price from falling.
Price index A measure of the average prices of a group of goods relative to a base year. A typical price index for a vector of quantities q and prices pb, pg in the base and given years respectively would be I = 100Σpgq / Σpbq.
Price inelastic Having a price elasticity of less than one (in absolute value).
Price level The overall level of prices in a country, as usually measured empirically by a price index, but often captured in theoretical models by a single variable.
Price line A straight line showing combinations of variables, usually two goods, costing the same at given prices. The slope of a price line measures relative prices. Changes in prices can thus be shown by rotating a price line. A steeper line means a higher relative price of the good measured on the horizontal axis.
Price mechanism Same as market mechanism.
Price rigidity Failure of a price to move to clear the market. Reasons include costs of changing prices, contracts, and regulations.
Price-specie flow mechanism The adjustment mechanism of the gold standard. A country with high prices would export less, import more, and thus lose specie, i.e., gold. With money supply fixed to the stock of gold, money contracts and prices fall. Due to Hume (1777). [Origin]
Price stabilization 1. Intervention in a market in order to reduce fluctuations in price. This has sometimes been attempted by means of a buffer stock in markets for primary products.
2. The use of macroeconomic policies to reduce inflation.
Price support Government action to increase the price of a product, usually by buying it. May be associated with a price floor.
Price system Same as market mechanism.
Price taker An economic entity that is too small relative to a market to affect its price, and that therefore must take that price as given in making its own decisions. Applies to all buyers and sellers in markets that are perfectly competitive. Applies also to a country if it is a small open economy.
Price undertaking A commitment by an exporting firm to raise its price in an importing-country market, as a means of settling an anti-dumping suit and preventing an anti-dumping duty.
Price-cost margin The amount by which the price of a product, p, exceeds its cost, c, usually expressed as a percent of price: (pc)/p.
Pricing to market The practice of an exporting firm holding fixed (or not fully adjusting) the price it charges in the export market when its cost or exchange rate changes. See pass-through. Seminal treatment was Krugman (1987).
Primary boycott See boycott.
Primary budget surplus The primary budget surplus (or deficit) of a government is the surplus excluding interest payments on its outstanding debt.
Primary commodity Primary product
Primary environment See functional currency.
Primary factor An input that exists as a stock providing services that contribute to production. The stock is not used up in production, although it may deteriorate with use, providing a smaller flow of services later. The major primary factors are labor, capital, human capital (or skilled labor), land, and sometimes natural resources.
Primary income In the current account of the balance of payments, primary income is payment for factor services between residents and non-residents, including especially labor income flows and investment income. Contrasts with secondary income.
Primary input Same as primary factor.
Primary product A good that has not been processed and is therefore in its natural state, specifically products of agriculture, forestry, fishing, and mining.
Primary sanction A sanction in which a government prohibits its own people and firms from doing business with a target country. Contrasts with secondary sanction.
Primary sector The portion of an economy producing primary products, in contrast with the secondary sector and the tertiary sector.
Primary surplus The government budget surplus, not including net interest payments on the government debt.
Prime rate The interest rate that a country's largest banks announce for loans to their best customers. In practice, their most creditworthy customers get a rate lower than this.
Priming the pump An expansionary monetary or fiscal policy that is intended to get people spending again so that the economy will then expand on its own.
Principal 1. The initial amount of a loan, thus not including interest.
2. The person or other entity on whose behalf an agent acts, in the principal-agent theory.
Principal-agent theory The theory of interaction between an agent and the principal for whom they act, the point being to structure incentives so that the agent will act to benefit the principal. Can be used, for example, to analyze government as agent for society, or international institutions as agents for governments.
Principal supplier The exporting country that provides the largest share of imports of a good into a particular importing country, among those exporters subject to MFN tariffs. It is customary in tariff negotiations, and to some extent mandated by WTO rules, that countries negotiate with their principal suppliers.
Prior deposit An import deposit that must be made before importing, often at the time an import license is granted.
Priority Watch List One of two lists (with the Watch List) that are identified in USTR's annual Special 301 Report as providing inadequate or ineffective protection of intellectual property. Those on the Priority Watch List present the greatest concerns. [Source]
Prisoners' dilemma A strategic interaction in which two players both gain individually by not cooperating, but leading to a Nash equilibrium in which both are worse off than if they cooperated. Important especially for explaining why countries may choose protection even though all lose as a result. See tariff-and-retaliation game.
Private aid Assistance given to developing countries other than by governments or international institutions.
Private benefit The benefit to an individual economic agent, such as a consumer or firm, from an event, action, or policy change. May differ from the social benefit if there are externalities.
Private cost The cost to an individual economic agent, such as a consumer or firm, from an event, action, or policy change. May differ from the social cost if there are externalities.
Private sector involvement Resolution of a debt crisis by having private-sector debt holders suffer part of the loss. Also called a haircut or bail-in.
Privateering "The officially sanctioned commandeering and looting of the ships of enemy powers." [Source]
Privatization The conversion of a government-owned enterprise to private ownership.
Pro-competitive effect One [Source] of gains from trade: the fact that it forces domestic producers, which may be limited in number and therefore imperfectly competitive, into competition with foreign firms. The resulting increase in competition improves efficiency and therefore welfare.
Probability density function For a continuous random variable, a function whose integral over any set is the probability of the variable being in that set. The density function is the derivative of the cumulative distribution function.
Probability distribution A specification of the probabilities for each possible value of a random variable. Several standard distributions appear frequently in theoretical and/or empirical research in international economics and may be defined by their cumulative distribution and/or probability density functions.
Procedural protectionism The use of cumbersome legal procedures to restrain trade, as when imports that will ultimately be permitted must first go through costly or time-consuming certification processes.
Process protection A trade barrier on imports of a good based on how it is produced, rather than its observable characteristics. Examples include banning imports of tuna based on how they were caught (endangering dolphins) or apparel based on labor conditions where it was produced. Not permitted under GATT or WTO rules.
Processed good A good that has been transformed in some way by a production activity, in contrast to a raw material.
Procurement See government procurement.
Procurement officer A government official responsible for purchasing goods and services and for deciding among alternative suppliers.
Procyclical Varying with the business cycle, being high when national income is high or rising and vice versa. Contrasts with counter-cyclical.
Producer presence Mode 3 of 4 modes of supply of a traded service in which the producer establishes a presence in the buyer's country by FDI and/or permanent employment of workers.
Producer subsidy equivalent 1. Producer support estimate.
2. This ought logically to measure the extent to which existing policies serve to subsidize producers, defined as the ad valorem subsidy that, if paid directly to producers per unit of production, would lead to the same level of output as existing policies.
Producer support estimate Introduced by the OECD to quantify support in agriculture, it measures "transfers from consumers and taxpayers to agricultural producers as a result of measures [of] support," expressed as a percentage of gross farm receipts. Also called producer subsidy equivalent. See also CSE.
Producer surplus The difference between the revenue of producers and production cost, measured as the area above the supply (or marginal cost) curve and below price, extending from the vertical axis out to the quantity supplied, and net of fixed cost and losses at low output. If input prices are constant, this is profit; if not, it includes gains to input suppliers, such as labor. Normally useful only as the change in producer surplus.
Product A good or service that is produced.
Product cycle The life cycle of a new product, which first can be produced only in the country where it was developed; then, as it becomes standardized and more familiar, can be produced in other countries and exported back to where it started. Due to Vernon (1966), in his product cycle model.
Product differentiation See differentiated product.
Product exhaustion The payment of all of the value of what a firm produces to the factors of production that produced it. If factors are paid the value of their marginal products and if production functions are linearly homogeneous, then Euler's theorem implies product exhaustion.
Product life cycle See product cycle.
Product market The market for a good or a produced service. As distinct from factor market.
Product mix diagram A diagram of Hausmann et al. (2007) relating the per capita incomes associated with countries' exports to their actual per capita incomes. The former is given by the RCA-weighted average per capita incomes of countries that export each good. These are then weighted by a focus country's exports.
Product price equalization The equalization of the price of a homogeneous good (or perhaps service, though that is less likely) across countries as a result of free trade. Full product price equalization can be expected, other than by accident, only if all trade costs are zero.
Production deflection In the context of a free trade area, the shifting of production to the member country with a lower tariff on an imported input.
Production externality An externality arising from production.
Production factor Factor of production.
Production frontier Production possibility frontier.
Production function A function that specifies the output in an industry for all combinations of inputs.
Production possibilities schedule A table reporting various combinations of outputs that are possible for an economy, given its technology and factor endowments. Thus the data on which the production possibility frontier is based.
Production possibility curve See production possibility frontier.
Production possibility frontier A diagram showing the maximum output possible of one good for various outputs of another (or several others), given technology and factor endowments. The PPF is also called a transformation curve or production possibility curve.
Production possibility set The set of all technically feasible combinations of inputs and outputs, representing the technology of a firm, industry, or country, including inferior ones that use more inputs and get less output than are technically possible.
Production sharing A term for fragmentation used by Johnson and Noguera (2012).
Production worker A worker directly engaged in production. In empirical studies of skilled and unskilled labor, data on production workers are often taken to represent unskilled labor.
Productive efficiency The production of maximum output from a given set of inputs, thus reaching the production possibility frontier. Just one aspect of achieving economic efficiency.
Productivity Output per unit input, usually measured either by labor productivity or by total factor productivity.
Productivity effect One [Source] of gains from trade: As explained in a Melitz Model, trade permits more productive firms within an industry to expand for export, and least efficient firms to shut down. This raises the average productivity of the industry, lowering costs and raising welfare.
Productivity of labor See labor productivity.
Profit 1. The net gain from an activity.
2. For a firm: revenue minus cost.
Profit maximizing The level of a variable or behavior that maximizes the profit of a firm.
Profit remittance In a multinational corporation, the return of part of the profit earned by a subsidiary in one country to the parent in another.
Profit shifting 1. The manipulation of costs and revenues within an MNC across taxing jurisdictions (countries) so as to record profits where they will be taxed at the lowest rate. See transfer pricing.
2. The use of government policies to alter the outcome of international oligopolistic competition so as to increase the profits of domestic firms at the expense of foreign firms. This is a key element of strategic trade policy.
3. The use of government regulation to advantage some firms over others, such as by increasing fixed costs that are more easily absorbed by large firms than by small ones. See regulatory protection. [Source]
Programme for International Student Assessment The PISA program of the OECD to test student achievement in a large number of countries and report (and rank) the results.
Programme for the International Assessment of Adult Competencies A program of the OECD that "measures adults' proficiency in key information-processing skills."
Progressive income tax An income tax in which the marginal and/or average tax rate rises with income, so that high-income taxpayers pay a larger fraction of income than low-income tax payers.
Prohibited subsidy A subsidy that is forbidden under the rules of the WTO. These include subsidies that are specifically designed to distort international trade, such as export subsidies or subsidies that require use of domestic rather than imported inputs.
Prohibition Denial of the right to import or export, applying to particular products and/or particular countries. Includes embargo.
Prohibitive tariff A tariff that reduces imports to zero.
Prohibitory Act An act of the British parliament in 1775 prohibiting all trade with the American colonies and treating all American ships and cargoes as foreign and subject to seizure. This response to various rebellious actions in the colonies was intended and viewed as a declaration of economic warfare. [Source]
Project LINK A research consortium established in 1968 to link together several national econometric models to produce a macroeconometric model of the world economy.
Promotion The use of policy, especially a subsidy to encourage an activity, such as production in an industry. See export promotion.
Propensity The extent to which an economic agent uses income for a particular purpose, such as the (marginal or average) propensity to import, to consume, or to save, measured as the fraction of income (or of a change in income, if marginal) devoted to the activity.
Property rights The legally defined and enforced rules of ownership, specifying who has the right to use and to sell anything, especially a piece of land and whatever may be situated on, above, and below it. Well established property rights are essential to a successful economic system.
Property Rights Alliance "An advocacy organization dedicated to the protection of innovation, intellectual property rights, and physical property rights around the world." It produces the International Property Rights Index.
Property tax A tax on owned land and housing.
Prospective analysis Ex ante analysis.
Prosper Africa "The US government's Prosper Africa program, launched in 2019, aims to double two-way trade and investment between the United States and African countries and, in doing so, to put a new face on American foreign policy in Africa." [Source]
Prosperity Index See Legatum Prosperity Index.
Protected designation of origin One of two categories of protected names for products approved in 1992 by the EU, the other being protected geographical indication. To qualify for either, a product's features must arise from the particular place where it is produced. For PDO designation, 100% of the product must be produced there. For PGI designation, some fraction of the production process must take place there. [Source]
Protected geographical indication See protected designation of origin
Protection 1. Without any adjective, or as "import protection," this refers to restriction of imports by means of tariffs and/or NTBs, and thereby intended to insulate domestic producers from competition with imported goods.
2. As "IP protection," or "intellectual property protection," this refers to enforcement of intellectual property rights by granting patents, copyrights, and trademarks and by prosecuting those who violate them.
Protection for Sale The dominant political economy model explaining protection in terms of political contributions by protection-seeking firms to candidates for political office. Due to Grossman and Helpman (1994).
Protectionism Advocacy of protection. The word has a negative connotation, and few advocates of protection in particular situations will acknowledge being protectionists.
Protective tariff An import tariff with the avowed purpose of providing protection. Since all tariffs, if they have any effect at all, do provide protection, this common expression is really a redundant tautology.
Protocol of accession Legal document specifying the procedures for a country to join an international agreement or organization, including the rights and responsibilities that accompany such accession.
Protocol of Provisional Application The device that allowed the initial signatories of the GATT to accept it in spite of existing policies that it prohibited: the grandfather clause. Intended to be temporary, it continued to apply until replaced in 1995 by the WTO.
Provision In the context of international economics, a provision is likely to mean a portion of an agreement, such as the investment provisions of NAFTA or the balance of payments provisions of the GATT. In that context, it is less precise than article.
Proximity-concentration tradeoff The tradeoff for a MNE between producing close to its foreign markets, if transport costs are high, or producing in one location and exporting, if scale economies in production are high. Identified and named by Brainard (1997).
Prussian Tariff of 1818 A system of import tariffs that united the Prussian territories and served as a precursor to the German zollverein. [Source]
PSA Partial scope agreement.
PSE Producer support estimate or producer subsidy equivalent.
PSI Private sector involvement
PTA Preferential Trading Arrangement
Public Citizen A US NGO and think tank that "serves as the people's voice in the nation's capital." Its Global Trade Watch is particularly critical of many US trade policy initiatives, such as NAFTA.
Public debt The amount that has been borrowed by a government.
Public finance A general term encompassing both the spending by government and the methods used to pay for that spending, especially taxation and borrowing.
Public good A good that is provided for users collectively, the use by one not precluding use of the same units of the good by others.
Public interest Some governments -- Brazil, Canada, EU, and New Zealand but not in the US -- may deny anti-dumping duties and CVDs based on broader interests than just the protected industry. The EU defines the public interest as "all the various interests in the union taken as a whole." [Source]
Public Law 480 The Agricultural Trade Development and Assistance Act of 1954, commonly known as PL-480, was the first permanent US program for distributing commodities to developing countries. It drew on the agricultural surpluses that the US was running at the time. [Source]
Public private partnership A collaboration between a government and a private sector firm to finance, build, and operate a project. The GPA 2012 initiated coverage of these, so that the private partner may be foreign. [Source]
Public procurement Government procurement.
Pump priming Priming the pump.
Punitive tariff A high tariff the purpose of which is to inflict harm on a foreign exporting country as punishment for some previous behavior.
Punta del Este Declaration The ministerial declaration adopted at the GATT ministerial in 1986 launching the Uruguay Round.
Purchasing power The amount of goods that money will buy, usually measured (inversely) by the CPI.
Purchasing power parity 1. Equality of the prices of a bundle of goods (usually the CPI) in two countries when valued at the prevailing exchange rate. Term was introduced by Cassel (1918) and today is sometimes called absolute PPP. [Origin]
2. Equality of the time rates of change in the prices of a bundle of goods in two countries when valued at the prevailing exchange rate. Called relative PPP. Implies that a currency's rate of depreciation equals the difference between its inflation rate and the inflation rate in the other currency.
Purchasing power parity exchange rate An exchange rate, R, calculated to yield absolute purchasing power parity. Useful for comparing real values (wages, GDP) across countries with different currencies. Since absolute PPP rarely holds, it contrasts with the nominal exchange rate, E. Its calculation is that of the real exchange rate but with P and P* the domestic and foreign prices of a basket of goods.
Purchasing power parity puzzle The fact that divergence of exchange rates from purchasing power parity lasts for a long time, often years. See Rogoff (1996).
Purchasing power parity theory A theory of the exchange rate that the rate will adjust to achieve purchasing power parity, in either its absolute or its relative form.
Pure competition Same as perfect competition.
Pure exchange economy A theoretical economy in which goods are not produced, but exist as endowments, and are then traded among consumers.
Pure monopoly A market structure in which the single seller has essentially no competition from producers of close substitutes or from potential entrants. The difference from a monopoly without the adjective "pure" is not obvious.
Put option A financial contract that permits (but does not require) the buyer of the option to sell a commodity or financial instrument (perhaps a currency) to the seller of the option at a specified price and during a specified time period. Also just called a "put." Contrasts with a call option.
PWT Penn World Table