Harberger-Laursen-Metzler Effect

The conjecture or result that a terms of trade  deterioration will cause a decrease in savings due to the decrease in real income, and therefore that a real depreciation will cause an increase in real expenditure. Due to Harberger (1950) and Laursen and Metzler (1950).

Harberger triangle

The triangular area, or areas, in a supply and demand diagram that measures the net welfare loss, or dead-weight loss due to a market distortion or policy, such as a tariff.

Hard currency

A currency that is widely accepted around the world, usually because it is the currency of a country with a large and stable market. Examples today include the U.S. dollar and the euro.

Hard peg

A pegged exchange rate with a credible commitment never to change the par value, thus subordinating monetary policy to the needs of the exchange market and denying access to devaluation as a policy tool. In practice, the effects of a hard peg are achieved only through a currency board or by adopting another country's currency, e.g. dollarization.

Harmful externality

Negative externality.

Harmonization

1. The changing of government regulations and practices, as a result of an international agreement, to make those of different countries the same or more compatible.
2. In the case of tariffs, this means making tariff rates more similar across industries and/or across countries.

Harmonized System

An international system for classifying goods in international trade and for specifying the tariffs on those goods. It was adopted at the beginning of 1989, replacing the previously used schedules in over 50 countries, including the Brussels Tariff Nomenclature.

Harrod neutral

A particular specification of technological change or technological difference that is labor augmenting.

Hat algebra

The Jones (1965) technique for comparative static analysis in trade models. By totally differentiating a model in the logarithms of its variables, a linear system is obtained relating small proportional changes (denoted by carats (^), or "hats") in terms of various elasticities and shares. (The published article used *, not ^, because of typographical constraints.)

Havana Charter

The charter for the never-implemented International Trade Organization. The draft was completed at a conference in Havana, Cuba, in 1948.

Headquarters services

The activities of a firm that typically occur at its main location and that contribute in a broad sense to its productivity at all of its locations and plants. These may include management, accounting, marketing, and R&D.

Heavily indebted poor countries

The name given to those poor countries with large debts, the target of initiatives to forgive that debt as a means of assisting development.

Heckscher-Ohlin Core Propositions

See core propositions.

Heckscher-Ohlin Model

A model of international trade in which comparative advantage derives from differences in relative factor endowments across countries and differences in relative factor intensities across industries. Sometimes refers only to the textbook or 2x2x2 model, but more generally includes models with any numbers of factors, goods, and countries. Model was originally formulated by Heckscher (1919), fleshed out by Ohlin (1933), and refined by Samuelson (1948, 1949, 1953).

Heckscher-Ohlin-Samuelson Model

Usually synonymous with the Heckscher-Ohlin Model, although sometimes the term is used to distinguish the more formalized, mathematical version that Samuelson used from the more general but less well-defined conceptual treatment of Heckscher and Ohlin.

Heckscher-Ohlin Theorem

The proposition of the Heckscher-Ohlin Model that countries will have comparative advantage in, and therefore export, the goods that use relatively intensively their relatively abundant factors.

Heckscher-Ohlin-Vanek Model

The Heckscher-Ohlin Model for the case of identical techniques of production (due either to FPE or Leontief technologies), used to derive the strong prediction about the factor content of trade known as the Heckscher-Ohlin-Vanek Theorem.

Heckscher-Ohlin-Vanek Theorem

The prediction of the H-O-V Model that a country's net factor content of trade equals its own factor endowment minus its world-expenditure share of the world factor endowment. That is, for country i, Fi=Vi-siVW, where Fi is the factor content of its trade, Vi,VW its and the world's factor endowments, and si its share of world expenditure. Due to Vanek (1968).

Hedge

To offset risk. In the foreign exchange market, hedgers use the forward market to cover a transaction or open position and thereby reduce exchange risk. The term applies most commonly to trade.

Hedonic pricing

The use of statistical techniques such as regression analysis to determine, from the prices of goods with different measurable characteristics, the prices that are associated with those characteristics. The latter can then be used to construct what the comparable price of a good would be from its characteristics.

Helms-Burton Act

A United States law enacted in 1996 that penalized companies for doing business in Cuba. Since the law applied to non-U.S. companies as well as U.S. companies, other governments objected.

Herfindahl index

A standard measure of industry concentration, defined as the sum of the squares of the market shares (in percentages) of the firms in the industry.

Hicks-neutral

Said of a technological change or technological difference if production functions differ by scaling of output only: F2(V)=lF1(V), where F1(·) and F2(·) are the production functions being compared, V is a vector of factor inputs, and l>0 is a constant.

High dimension

In trade theory, this refers to having more than two goods, factors, and/or countries, or to having arbitrary numbers of these. Contrasts with the two-ness of the 2x2x2 Model.

High powered money

Same as monetary base, in the sense of currency plus commercial bank reserves.

HIPC

Heavily indebted poor countries.

H-O Model

Heckscher-Ohlin Model.

Home bias

A preference, by consumers or other demanders, for products produced in their own country compared to otherwise identical imports. This was proposed by Trefler (1995) as a possible explanation for the mystery of the missing trade.

Homogeneous

1. Having the property that all constituent elements are the same, as a homogeneous good.
2. Possessing a certain form of uniformity, as a homogeneous function.

Homogeneous function

A function with the property that multiplying all arguments by a constant changes the value of the function by a monotonic function of that constant: F(lV)=g(l)F(V), where F(·) is the homogeneous function, V is a vector of arguments, l>0 is any constant, and g(·) is some strictly increasing positive function. Special cases include homogeneous of degree N and linearly homogeneous.

Homogeneous good

A good all units of which are the same; a homogeneous product.

Homogeneous of degree 1

The same as linearly homogeneous and, for a production function, constant returns to scale. See homogeneous of degree N.

Homogeneous of degree N

A homogeneous function where the monotonic function is the constant raised to the exponent N: F(lV)=lNF(V). For N>1, see increasing returns to scale; for N<1, see decreasing returns to scale.

Homogeneous of degree zero

The property of a function that, if you scale all arguments by the same proportion, the value of the function does not change. See homogeneous of degree N. In the H-O Model, CRTS production functions imply that marginal products have this property, which is critical for FPE.

Homogeneous product

The product of an industry in which the outputs of different firms are indistinguishable. Contrasts with differentiated product.

.Homohypallagic

Having a constant elasticity of substitution. One of the inventors of the CES function tried to christen it this in Minhas (1962), where he also explored its theoretical and empirical implications for the Heckscher-Ohlin Theorem, but the name did not catch on.

Homothetic

A function of two or more arguments is homothetic if all ratios of its first partial derivatives depend only on the ratios of the arguments, not their levels. For competitive consumers or producers optimizing subject to homothetic utility or production functions, this means that ratios of goods demanded depend only on relative prices, not on income or scale.

Homothetic demand

Demand functions derived from homothetic preferences. The demand functions are not themselves literally homothetic.

Homothetic preferences

Together with identical preferences, this assumption is used for many propositions in trade theory, in order to assure that consumers with different incomes but facing the same prices will demand goods in the same proportions.

Homothetic tastes

Homothetic preferences.

Horizontal discipline

The use of a rule, as in the regulations of trade policies under the GATT or GATS, that applies across the board to all sectors of the economy.

Horizontal integration

Production of different varieties of the same product, or different products at the same level of processing, within a single firm. This may, but need not, take place in subsidiaries in different countries.

Horizontal intraindustry trade

Intraindustry trade in which the exports and imports are at the same stage of processing. Likely due to product differentiation. Contrasts with vertical IIT.

Hormone dispute

See beef hormone case.

HOS Model

Heckscher-Ohlin-Samuelson Model.

Host country

The country into which a foreign direct investment is made.

HOT

Heckscher-Ohlin Theorem.

Hot money

Holdings of very liquid assets, which may be sold or cashed on short notice and then removed from a country, often in response to expectations of devaluation or other financial crisis.

HOV Model

Heckscher-Ohlin-Vanek Model.

HS

Harmonized System

Hub and spoke integration

A pattern of economic integration in which one country (the "hub") forms preferential trading arrangements with two or more other countries (the "spokes") that do not form such arrangements with each other.

Human capital

1. The stock of knowledge and skill, embodied in an individual as a result of education, training, and experience, that makes him or her more productive.
2. The stock of knowledge and skill embodied in the population of an economy.

Hysteresis

1. The failure of an economic variable to return to its initial equilibrium after a temporary shock. For example, an industry or trade flow might disappear due to an exchange rate change, then not reappear after the change is reversed.
2. A time lag between a cause and an effect. (Though this seems to be the more standard dictionary definition, economists seem to prefer definition 1.)