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The government has intervened trade by imposing barriers which are either, political, social or economic. The efforts to do away with these barriers that governments have imposed are discussed. Governments always support their domestic companies.
Reasons for government’s intervention to trade
Governments intervene in the trade of goods due to various reasons. These reasons are political, economic, or cultural. They restrict trade by providing support to domestic companies’ exporting activities. This intervention is usually high in nations whose economy is not performing.
Political reasons: There are several political reasons that make a government intervene in a country’s trade. These are; protecting jobs, preserving national security, and gaining influence over other nations. Nothing costs a government than high rates of unemployment (Cavusgil 130, 2012).
Economic reasons: The major economic reason for government’s intervention in trade is to protect the domestic industries from competition. This is because as an industry grows, it gains the knowledge to become more efficient, innovative, and competitive. Most of the domestic industries are very young.
Cultural Reasons: Many nations restrict the trade of goods and services to protect their national identity. Negative cultural influence in a country can make the government block the imports. This is because it can cause great distress to a country. This means the government controls all trades in its country.
Methods of promoting trade: Subsidies -A subsidy is a financial help granted to the domestic producers in the form of cash payments, low-interest loans, or in other forms. Subsidies are given to help the domestic companies to compete with international companies. Though subsidies provide short-term relief to industries, they have other limitations.
Export Financing: Governments help companies to finance their export activities. They give them loans or charge them at a lower interest rate. The government also assures that it will repay the loan in case the company fails to pay the loan. Nations also have other agencies that are there to support the companies. These nations only support companies that are domestic. That is the ones in their country.
Foreign direct investment
Foreign direct investment involves the purchase of physical assets of a company in another country to gain a measure of management control. There are several factors that have promoted the growth of Foreign Direct Investment over the past decade.
The two main propellers of Foreign Direct Investment are globalization and international mergers and acquisitions. There are many theories that attempt to explain why these companies engage in foreign direct investment. These include the internationathe l product life cycle, market imperfections, electric theory, market power theory, and many others.
Government’s intervention to foreign direct investment
Many nations often participate in foreign direct investment for various reasons. These are, to protect their cultural heritages, domestic companies, and jobs. They usually create laws, regulations and other administrative hurdles that other nations have to overcome before they invest in that country (Grosse 234, 2005).
Regulatory changes that promote investment have been enacted. These are proving to promote the foreign direct investment in recent years. The amount of foreign direct investment varies from one country to another. Some prefer economic self sufficiency without using FDI. On the other hand, there are those who do not entertain any government intervention. Another group believes a little FDI promotes the standards of living.
Regional Economic Integration
This is a process in which nations in a geographic region work together so as to do away with barriers to the international flow of product, people, or capital. There are several levels of regional economic integration. These are a free trade union, customs union, common market, economic union, and political union (Wild, and Kenneth 302, 2012).
Effects of regional economic integration have a great influence on the trade of the countries involved in this integration. Higher levels of trade between nations result in increased efficiency, greater consumption, and high standards of living.
International financial markets
A capital market is a system that gives financial resources in the form of debts in their efficient use. Their main aim is to provide a system, so that those who wish to do so can do that efficiently. The forces that expand the international capital market are; information technology, deregulation, and financial instruments.
The main purpose of international capital markets is that it provides a network for individuals, financial institutions to invest, and borrow across boundaries. This market makes use of the instruments that help investors and borrowers trading with one another. This international market joins borrowers and lenders from different nations.
International monetary systems
This chapter increases our skills on the exchange rates and international markets. It also involves trading of national and international countries. Factors that determine the exchange rates are also mentioned. It is important for countries that are involved in trading of goods and services to be aware of the current exchange rates in the market. This will enable them to trade fairly with each other.
Works Cited
Cavusgil, S. Tamer, Gary A. Knight, and John R. Riesenberger. International business: the new realities. 2nd ed. Upper Saddle River, N.J.: Prentice Hall/Pearson, 2012. Print.
Grosse, Robert E.. International business and government relations in the 21st century. Cambridge: Cambridge University Press, 2005. Print.
Wild, John J., and Kenneth L. Wild. International business: the challenges of globalization. 6th ed. Upper Saddle River, N.J.: Pearson Prentice Hall, 2012. Print.
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