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Flashcards in Government intervention Deck (24)
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1

What is government intervention?

Governments intervene in trade and investment to achieved political, social, or economic objectives

2

What is the nature of government intervention?

Protectionism

3

What is protectionism?

Natural economic policies that restrict free trade.

Usually intended to raise revenue or protect domestic industries from foreign competition

4

Consequences of protectionism

Reduced supply of goods to buyers

Price inflation

Reduced variety, fewer choices available to buyers

Reduced firm and industrial competitiveness

5

General rationale for government intervention

Generate substantial government revenue- key in undeveloped economies

Ensure the safety, security and welfare of citizens

Pursue broad economic, political and social objectives for the nation

Serve the interests of the nations firms and industries

6

Defensive rationale for government intervention

Protection of the national economy

Protection of an infant industry

National security

National culture and identity

7

Offensive rationale for government intervention

National strategic priorities

Increase employment

8

Types of government intervention (8)

Tariff

Non tariff trade barrier

Quota

Investment barriers

Subsidies

Local contract requirements

Administrative practices

Anti-dumping duty

9

What is a tariff?

A tax on imports (sometimes exports)

10

What is a nontariff trade barrier?

Government policy, regulation, or procedure that impedes trade

11

What is a quota?

Quantitative restriction on imports of a specific product

12

What are investment barriers?

Rules or laws that hinder FDI

13

What are subsidies?

Government grants to a firm or group of firms to ensure their survival or success

14

What are local content requirements?

Requirement that a certain proportion of the value of the goods made in one country originate from that country

15

What are administrative practices?

Bureaucratic rules that make it harder to import foreign goods

16

What is anti dumping duty?

Costs levied on imports that have been dumped (selling below costs to unfairly drive domestic firms out of business)

17

How can firms respond to government intervention?

Seek favourable customs classifications for imported products

Take advantage of investment incentives and other government support programmes

Lobby for freer trade and investment

18

Example of protectionism

US Steel industry convinced the government to adopt policies that benefit themselves

Tariffs to import foreign steel

Gave US industry time to grow

Save jobs but higher material costs makes the companies less competitive

19

Outcomes of government intervention

Increase GDP indicated people have more money to spend, reducing global poverty

Decreasing tariffs - trade barrier- means countries trade more openly, major factor in growth of global commerce, rising income around the world

20

What is economic freedom?

Absence of government coercion

People can work, produce, consume and invest how they want

Flourished with appropriate intervention

Too much can harm the economy

21

Index of economic freedom

Advanced economies- FREE

Emerging markets- MOSTLY FREE

Developing economies- MOSTLY UNFREE OR REPRESSED

22

How should firms respond to government intervention? (6)

Research to gather knowledge and intelligence

Choose the most appropriate entry strategies

Take advantage of foreign trade zones

Seek favourable customs classifications for exported products

Take advantage of investment incentives and other gov support programmes

Lobby for freer trade and investment

RESCCIIL

23

What is the GATT

General agreement on tariffs and trade

1947 23 nations signed

24

WTO

World trade organisation 1995 150 nations