top of page

Definitions are extremely important for all essay response questions and is tested under the Learning Objective "Relevant economic terms are used appropriately throughout the response"

Below is a list of definitions pertaining to International topics that are frequently tested. This is not a comprehensive list and if you feel that we have left out any important definitions please do not hesitate to suggest it using the "Contact Us" form. 

HL and SL 

Free Trade

Absence of government intervention of any kind in international trade

Trade protection

Government intervention in international trade through imposition of trade restrictions


Taxes on imported goods


A legal limit to the quantity of goods that can be imported over a particular time period

Production subsidies

Payment per unit output granted by the government to domestic firms that compete with imports

Export Subsidies

Payment per unit on exported good

Economic Integration

Economic cooperation between countries and coordination of their economic policies leading to increased economic links between them

Preferential Trade Agreement

An agreement between two or more countries to lower trade barriers on particular products

Bilateral Trade Agreement

Trade agreement between two countries

Multilateral Trade Agreement

Trade agreement between many countries

Regional Trade Agreement

Trade agreement between group countries within same geographical location

Trade Liberalisation

Freeing up of trade by reducing or eliminating trade barriers

Trading Bloc

A group of countries that have agreed to reduce barriers to trade for the purpose of encouraging trade

Free Trade Agreement

Group of countries that agree to gradually eliminate trade barriers between themselves. Each country still pursues unique policies to non-member countries

Custom Union

Group of countries that fulfil free trade agreement requirements and also adopt common policy towards non-members

Common Market

Countries in custom unions eliminate any remaining trade barriers and restrictions to mobility of Factors of Production

Monetary Union

A high form of economic integration involves the adoption by a group of countries of a single currency, in addition to a single central bank

Foreign Exchange

International transactions that involve the use of different national currencies

Exchange Rate

Value of one currency expressed in terms of another


Lowering value of currency


Increasing value of currency

Pegged Exchange Rate

A currency that is fixed against another currency

Managed Exchange Rate

Exchange rates are free for the most part over long periods of time however central banks periodically intervenes to keep it within certain bounds

Balance of Payment

Record of all transactions between residents of the country and all other countries


Payment received from other countries


Payments made to other countries

Sustainable Development

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs

Economic Development

Rise in living standards and well being of the population

Current Account Balance

The net inflows of trade in goods and services, income and cash transfers

Capital Account Balance

The net inflows of funds for capital transfers and transactions in non produced, non financial assets

Financial Account Balance

Net inflows of funds for foreign direct investment, portfolio investment, reserve assets and official borrowing

Poverty Cycle

Arises when low incomes result in low savings, permitting only low investments in physical, human and natural capital, and therefore low productivity of labour and of land. This gives rise to low, if any growth in income and hence low incomes once again.

Foreign Direct Investment

Investment by firms based in one country in productive activities in another country with control of at least 10 per cent of the firm in the host country.

Multinational Corporation

A firm that undertakes foreign direct investment

Foreign Aid

The transfer of funds or goods and services to developing countries with the main objective to bring about improvements in their economic, social or political conditions

Humanitarian Aid

Aid extended in regions where there are emergencies caused by violent conflicts or natural disasters.

Development Aid

Aid intended to help developing countries achieve their economic growth and development objectives


Credit in small amounts to people who do not ordinarily have access to credit

Import Substitution

A growth and trade strategy in which a country begins manufacturing simple consumer goods oriented towards the domestic market in order to promote its domestic industry

Export Promotion

A growth and trade strategy where a country attempts to achieve economic growth by expanding its exports

Economic integration

Economic interdependence between countries, usually achieved by agreement between countries to reduce or eliminate trade and other barriers between them

HL Only


Occurs when an individual, firm or a country concentrate production on one or a few goods and services

Absolute advantage

The ability of one country to produce a good using fewer resources than another country

Comparative advantage

Situation in which one country has a lower opportunity cost in the production of a good than another country

Expenditure Switching

Policies that involve switching consumption away from imported goods and towards domestically produced goods

Expenditure Reducing

Policies that involve reducing expenditures in the domestic economy so as to bring about a decrease in imports

bottom of page