Arguments for government intervention in international trade take two paths: political and economic (Hill 2011, p205). Political intervention is concerned with protection of certain groups within the nation. These groups are usually the producers who have a lot to gain at the expense of consumers. On the other hand, economic arguments for intervention are concerned with increasing the wealth of the nation to the benefit of all i.e. producers and consumers. This paper discusses the arguments for the protectionist measures and the instruments governments apply in controlling trade and foreign direct investments. Firstly the instruments for trade policy available to governments are defined. The arguments for intervention are then looked at. Following this, the challenges and opportunities faced by international companies wishing to expand into these controlled markets are then analysed and discussed with examples. Finally conclusions are drawn from the analysis and recommendations made on multi-national strategies to adopt in harnessing opportunities availing.
Trade policy instruments
Governments have at their disposal various instruments to use in trade policing. The most common are briefly explained below;
Tariffs – Hill (2011, p199) defines this as a tax levied on imports or exports. The tax may be fixed (specific) or as a percentage of the value of the goods (ad valorem). Import tariffs help governments to increase revenue, protect local producers who gain and affect consumers who lose through higher priced goods. Import tariffs promote inefficiencies in local industries as goods are produced that could be more efficiently produced abroad. Export tariffs are less common. They are used to raise revenue on exports an...
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...d Beghin, J. C. (2012) Protectionism Indices for Non-Tariff Measures: An Application to Maximum Residue Levels. Food Policy 45 pp.57-68.
10. Mayda, A. M. and Rodrik, D. (2005) Why are some people (and countries) more protectionist than others?. European Economic Review, 49 (6), pp. 1393--1430.
11. Ng, F., Yeats, A. and Er. (1997) Open economies work better! did Africa's protectionist policies cause its marginalization in world trade?. World Development, 25 (6), pp. 889--904.
12. Tharakan, P., Greenaway, D. and Kerstens, B. (2006) Anti-dumping and excess injury margins in the European Union: A counterfactual analysis. European Journal of Political Economy, 22 (3), pp. 653--674.
13. Wang, Y. (2013). Fiscal Decentralization, Endogenous Policies, and Foreign Direct Investment: Theory and Evidence From China and India. Journal of Development Economics. 103 pp.107-123.
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