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Chapter 7 Government Intervention in International Business

GOVERNMENT INTERVENTION

1. In a short essay, describe two methods of government intervention. What is the purpose of government intervention in international business?

Answer
Government intervention is often manifested as protectionism. Protectionism refers to national economic policies designed to restrict free trade and protect domestic industries from foreign competition. Protectionism often leads to two types of intervention: tariffs and nontariff barriers. A tariff is a tax imposed by government on imported products, effectively increasing cost of acquisition for the customer. A nontariff trade barrier, such as a quota, is a government policy, regulation, or procedure that impedes trade through means other than explicit tariffs.

Governments intervene in trade and investment to achieve political, social, or economic objectives. Barriers are often applied to benefit specific interest groups, such as domestic firms, industries, and labor unions. A key rationale is to create jobs by protecting industries from foreign competition. Governments may also intervene to support home-grown industries or firms. In various ways, government intervention alters the competitive positions of companies and industries, and the status of citizens.
(pp. 195-196; concept; Learning Objective 1; moderate; AACSB: Analytic Skills)

RATIONALE FOR GOVERNMENT INTERVENTION

2. In a short essay, explain the four main motives for government intervention in international trade and investment activities. Provide examples to clarify each reason.

Answer
In the broadest terms, there are four main motives for government intervention. First, tariffs and other forms of intervention can generate much revenue. For example, Ghana and Sierra Leone generate more than 25 percent of total government revenue from tariffs. Second,...

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