Glossary of Economic and Business Terms - R, Glossary of International Economics, Business and Economic Terms, Abbreviations, Terms List, MBA Exam

"R"

R&D	Research and development.
Race to the bottom	The idea that, if one country provides a competitive advantage to its firms by lax regulation (of the environment, for example), then competing firms in other countries will demand even weaker regulation by their governments, and regulation will be reduced to minimal levels everywhere.
Radical political economy	See political economy.
Random variable	An economic or statistical variable that takes on multiple (or a continuum of) values, each with some probability that is specified by a probability distribution (or probability density function).
Rate of interest	Interest rate.
Rate of return	The percentage of an asset's value that the owner of the asset earns, usually per year.
Ration	1. In the presence of excess demand (for a good, etc.), to allocate among demanders by some means other than the price they are willing to pay. 2. The quantity of a rationed good allocated to one demander.
Ration foreign exchange	To ration access to scarce foreign currency under a pegged exchange rate with an over-valued currency. Usually done by means of import licensing. See exchange control.
Rational expectations	In forming opinion about future events, the use of all available information to assess the probabilities of the possible states of the world. More simply, expectations that are as correct as is possible with available information.
Raw material	A good that has not been transformed by production; a primary product.
Ray	A straight line drawn from the origin of a diagram. In the Heckscher-Ohlin Model, two rays are used to define a diversification cone.
RCA	Revealed comparative advantage.
Reaction curve	The graph of a reaction function.
Reaction function	The function specifying the choice of a strategic variable by one economic agent as a function of the choice of another agent. Most familiar: specifying output choices of firms in a Cournot duopoly.
Real	1. Expressed in terms of the amounts of goods and services that something is worth at market prices. 2. Adjusted for inflation. 3. Referring only to real economic variables as opposed to nominal, or monetary ones, as in real models. 4. Used with "appreciation" or "depreciation," refers to the real exchange rate. Thus a real appreciation means that the nominal value of a country's currency has increased by more than its relative price level may have decreased, so that the prices of its goods relative to foreign goods have increased. 5. The name of one unit of the Brazilian currency. One real equals 100 centavos. Pronounced "ray-all'".
Real effective exchange rate	The effective exchange rate adjusted for the rates of inflation in each country.
Real exchange rate	1. The nominal exchange rate adjusted for inflation. Unlike most other real variables, this adjustment requires accounting for price levels in two currencies. The real exchange rate is: R=EP/P* where E is the nominal domestic-currency price of foreign currency, P is the domestic price level, and P* is the foreign price level. 2. The real price of foreign goods; i.e., the quantity of domestic goods needed to purchase a unit of foreign goods. Equals the reciprocal of the terms of trade. Equivalent to definition 1. 3. The relative price of traded goods in terms of nontraded goods.
Real GDP	The real counterpart to nominal GDP, obtained by valuing output in a given year at prices from another year, called the base year.
Real interest rate	The nominal interest rate adjusted for inflation, to get the percentage yield an asset holder receives in terms of real resources. Equals the nominal interest rate minus the rate of inflation.
Real model	An economic model without money. Most general equilibrium models of trade are real models. This includes the Ricardian Model, the Heckscher-Ohlin Model, and the models of the New Trade Theory.
Real money balances	The real value of the amount of money held by a person, household, or firm, or the amount in circulation in the economy.
Real national income	National income adjusted for inflation.
Real terms	Same as real. A "wage expressed in real terms" is just the real wage.
Real trade	A shorthand term for most of the theory of international trade, which consists largely of real models. Contrasts with international finance.
Real wage	The wage of labor -- or more generally the price of any factor -- relative to an appropriate price index for the goods and services that the worker (or factor owner) consumes.
Recession	A significant decline in economic activity. In the U.S., recession is approximately defined as two successive quarters of falling GDP, as judged by NBER. A recession in one country may be caused by, or may itself cause, recession in another country with which it trades.
Reciprocal demand	The concept that, in international trade, it is not just supply and demand that interact, but demand and demand. That is, a trading equilibrium is a reciprocal equilibrium in which one country's demand for another country's products (and willingness to pay for them with its own) matches with the other country's demands for the products of the first.
Reciprocal demand curve	An offer curve. So called to emphasize that a country exports in order, reciprocally, to get imports in return.
Reciprocal dumping	The sale by firms from two countries into each others' markets for prices below what each charges at home. So called because the exports of both firms meet the price-discrimination definition of dumping. Brander and Krugman (1983) introduced the term and showed that this is likely to happen in an international duopoly with transport costs.
Reciprocal trade agreement	Agreement between two countries to open their markets to each other's exports, usually by each reducing tariffs. Early trade rounds under the GATT consisted mostly of reciprocal trade agreements, extended to other contracting parties by the MFN requirement.
Reciprocal Trade Agreements Act of 1934	US legislation in 1934 in which Congress delegated the setting of tariffs to the President, who was then authorized to negotiate reciprocal trade agreements.
Reciprocity	A principle that underlies GATT negotiations, that countries exchange comparable concessions.
Reciprocity Conditions	In the production structure of the Heckscher-Ohlin Model, the fact that the effect of a small change in any factor endowment on output of any good is equal to the effect of a small change in the price of that good on the price of that factor. That is, the matrices of Rybczynski derivatives and Stolper-Samuelson derivatives are the same. Also called Samuelson's reciprocity conditions, from Samuelson (1953).
Red box	A category of subsidies that is forbidden under WTO rules. This terminology is used in the Agriculture Agreement, where however there is no red box. Presumably equivalent to prohibited subsidies.
Redistributed tariff revenue	Refers to a common assumption that tariff revenue is given to consumers as transfer payments (not in proportion to what they paid by importing) to be spent like any other income. Since in general equilibrium the effects of a tariff depend on how the revenue is spent, this is a useful neutral assumption.
Redundant tariff	A tariff that, if changed, will not change the quantity of imports, either because the tariff is prohibitive, or because some other policy such as a quota or an embargo is limiting quantity.
Reexport	The export without further processing or transformation of a good that has been imported. See entrepot trade.
Reference price	See minimum price system.
Reflation	Expansionary monetary or fiscal policy.
Regional aid	A subsidy directed at a geographic region within a country to assist its development. Such subsidies are non-actionable under WTO rules.
Regional integration	The formation of closer economic linkages among countries that are geographically near each other, especially by forming preferential trade agreements.
Regional policy	In a trade context, this usually refers to a regional aid.
Regional trade	Trade among countries that are geographically close together, especially on the same continent.
Regionalism	The formation or proliferation of preferential trading arrangements.
Registered exports and imports	If a country regulates what can be traded, then "registered" means legal. In contrast, unregistered exports and imports are smuggled in some fashion.
Regression analysis	The statistical technique of finding a straight line that approximates the information in a group of data points. Used throughout empirical economics, including in both international trade and finance.
Regression model	See linear regression model.
Regressor	In a linear regression model, an independent -- or right-hand-side -- variable. That is, one of the variables that is being used to explain another.
Regulation	Any government effort to influence the performance of the economy or the behavior of economic agents, especially firms, within it. Conflicts sometimes arise between domestic regulations and international commerce or commitments.
Relative demand	The ratio of the demand for one good to the demand for another, most useful in representing general equilibrium in a two-good economy, where relative price adjusts to equate relative supply and relative demand.
Relative factor prices	The ratio of the price of one factor to the price of another. In a two-factor model with constant returns to scale, this alone determines the ratio of factors employed in a sector.
Relative price	The price of one thing (usually a good) in terms of another; i.e., the ratio of two prices. The relative price of good X in terms of good Y is pX/pY</SUB< i>.
Relative supply	The ratio of the supply of one good to the supply of another, most useful in representing general equilibrium in a two-good economy, where relative price adjusts to equate relative supply and relative demand.
Remedy	In a trade dispute in the WTO or other forum, the measure recommended by the dispute settlement panel to resolve the dispute, usually a measure that will bring the offending country into compliance with WTO (or other) rules.
Remittances	Payments from one country to another that are not payment for anything (goods, services, assets, the use of capital, etc.), such as charitable contributions, gifts to family members, and government aid.
Remuneration	Payment in return for services rendered.
Rent	1. Economic rent: The premium that the owner of a resource receives over and above its opportunity cost. 2. The payment to the owner of land or other property in return for its use.
Rent seeking	The using up of real resources in an effort to secure the rights to economic rents that arise from government policies. In international economics the term usually refers to efforts to obtain quota rents. Term introduced by Krueger 1974.
Rental price	The payment per unit time for the services of a unit of a factor of production, such as land or capital.
Rentier	A person whose income comes mainly from rent on land or, more broadly, from assets rather than labor. (Pronounced "Ron' Tee Yay".)
Reparations	Payment or other compensation provided by a government to a group of people or to another country to compensate for loss or damage that it has caused. Internationally, reparations have been paid after a war by the losers to the winners, most notably by Germany after World War I.
Repatriation	To return something, especially money or profit, to the country of its owner or its origin.
Repo	Repurchase agreement.
Repurchase agreement	An agreement to sell a security for a specified price and to buy it back later at another specified price. A repo is essentially a secured loan.
Reschedule	To renegotiate the terms of a loan, reducing payments by extending them over time and/or forgiving a portion of the principal. Debt rescheduling has been a primary means of dealing with international debt crises.
Research and development	The use of resources for the deliberate discovery of new information and ways of doing things, together with the application of that information in inventing new products or processes.
Reserve asset	Any asset that is used as international reserves, including a national currency, precious metal such as gold, or SDRs.
Reserve currency	A currency that is used as international reserves, often because it is an intervention currency. See also seigniorage.
Reserve ratio	The ratio of a commercial bank's reserves to its deposits.
Reserves	1. International reserves of a government or central bank. 2. Amounts held by commerical banks in their vaults or on deposit with the central bank as backing for deposits.
Resource	1. An input to be used in an activity, especially production. 2. A natural resource.
Restricted trade	Trade that is restrained in some fashion by tariffs, transport costs, or NTBs.
Restriction on trade	See trade restriction.
Restrictive business practice	Action by a firm or group of firms to restrict entry by other firms, that is, to prevent other firms from selling their product or in their market. This is a restraint of competition and would normally be illegal under competition policy.
Restructure	To alter the terms of repayment of a debt, usually by extending repayment over a longer period of time, perhaps at a lower interest rate.
Results-based trade policy	The use of trade policies targeted to specific indicators of economic performance. For example, in the early 1990s, the U.S. insisted on achieving specified market shares in trade with Japan.
Retaliation	1. The use of an increased trade barrier in response to another country increasing its trade barrier, either as a way of undoing the adverse effects of the latter's action or of punishing it. 2. The formal procedure permitted under the GATT whereby a country may raise discriminatory tariffs above bound levels against a GATT member that has violated GATT rules and not provided compensation.
Retrospective analysis	Ex post analysis.
Return	The amount that is earned by someone who holds an asset, usually expressed as a percentage of what it cost to acquire the asset. The return includes interest, dividends, and capital gains and losses, the latter due to both changes in the price of the asset and, for international holdings, changes in exchange rates.
Return to capital	Same as the rental price of capital. Since capital can only be measured in monetary units, the rental price is, say, dollars per dollar's worth of capital per unit time, and it therefore has the form of a rate of return like an interest rate.
Returns to scale	Same as increasing returns to scale.
Revealed comparative advantage	Balassa's (1965) measure of relative export performance by country and industry, defined as a country's share of world exports of a good divided by its share of total world exports. The index for country i good j is RCAij=100(Xij/Xwj)/(Xit/Xwt) where Xab is exports by country a (w=world) of good b (t=total for all goods).
Revealed preference	The use of the value of expenditure to "reveal" the preference of a consumer or group of consumers for the bundle of goods they purchase compared to other bundles of equal or smaller value. Used by Samuelson (1939) and Ohyama (1972), especially, to examine the gains from trade.
Revenue	Referring to a tariff, the money collected by the government. Equals the size of the tariff times the quantity of imports. An analysis of the effects of a tariff needs to account for the revenue, and in a general equilibrium model it must specify whether and how the revenue is spent.
Revenue argument for a tariff	The use of a tariff to raise revenue for the government. Many other kinds of tax cause smaller distortions and are therefore preferable to tariffs for this purpose. However, a tariff is one of the easier taxes to collect, and it is therefore common in the early stages of a country's development.
Revenue deficit	1. In general use, this seems to be essentially the same as a budget deficit, but with attention given to the low level of revenue rather than to the high level of expenditure. 2. More precisely, this means a larger deficit (or smaller surplus) than had been budgeted for.
Revenue Seeking	The use of real resources in an effort to secure a share of the disposition of tariff revenues. Term due to Bhagwati and Srinivasan 1980.
Reverse engineering	The process of learning how a product is made by taking it apart and examining it.
Ricardian Model	The classic model of international trade introduced by David Ricardo to explain the pattern of, and the gains from, trade in terms of comparative advantage. It assumes perfect competition and a single factor of production, labor, with constant requirements of labor per unit of output that differ across countries.
Ricardo point	On the world PPF of a two-country, 2-good Ricardian Model, the point at which each country is specialized in production of a different good; the kink of the world PPF.
Ricardo-Viner Model	A specific factors model with a single specific factor in each industry and one mobile factor, named after two of the many who used this as the standard model of trade prior to the Heckscher-Ohlin Model. It extends the simple Ricardian Model by allowing the marginal product of labor to fall with output. It was revived by Jones (1971), Samuelson (1971), then merged with H-O by Mayer (1974), Mussa (1974), and Neary (1978).
Rio Summit	The United Nations Conference on Environment and Development, held 3-14 June 1992 in Rio de Janeiro, Brazil. 172 governments participated, including 108 heads of state. Also called the Earth Summit.
Risk	1. Uncertainty associated with a transaction or an asset. 2. The probability of loss. Differs from definition 1 because "uncertainty" includes probability of gain as well.
Risk aversion	Desire to avoid uncertainty. Risk aversion is usually quantified by the mathematical expected value that one is willing to forego in order to get greater certainty.
Risk free rate	The interest rate on a riskless, or safe, asset, usually taken to be a short-term U.S. government security.
Risk premium	1. The higher expected return (in the sense of mathematical expected value) that an uncertain asset must pay in order for risk averse investors to be willing to hold it. 2. The difference between the interest rate on a risky asset and that on a safe one. 3. In exchange markets the difference between the forward rate and the expected future spot rate.
Rollback	1. The phasing out of measures that are not consistent with an agreement. 2. In the Uruguay Round, the agreement to remove all GATT-inconsistent trade-restricting and trade-distorting measures by the time negotiations were completed. See standstill.
ROO	Rule of origin.
Round	See trade round.
Rule of law	A legal system in which rules are clear, well-understood, and fairly enforced, including property rights and enforcement of contracts.
Rules-based trade policy	Institutional arrangements in which national trade policies are governed by internationally agreed-upon rules, as in the GATT and WTO.
Rules of origin	Rules included in a FTA specifying when a good will be regarded as produced within the FTA, so as to cross between members without tariff. Typical ROOs are based on percentage of value added or on changes in tariff heading.
Run on a currency	The short-term capital outflows that occur when a pegged exchange rate regime is thought to be running out of reserves and is thus expected (and therefore forced) to devalue.
Rybczynski derivative	The effect of a small change in a single factor endowment on the output of a good.
Rybczynski Theorem	The property of the Heckscher-Ohlin Model that, at constant prices, an increase in the endowment of one factor increases the output of the industry that uses that factor intensively and reduces the output of the other (or some other) industry. Due to Rybczynski (1955).

(DOU 18082007)