International Business: The New Realities

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You are required to produce a 2,000 word correctly referenced essay (using the Harvard referencing system) on the questions indicated below – answer all questions. Don’t need using difficult word.

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BUS3019 – Assignment 2
Theo Anderson
The Assessment Task
➢You are required to produce a 2,000 word
correctly referenced essay (using the Harvard
referencing system) on the questions indicated
below – answer all questions.
Question 1
➢ You are the Chief Executive Officer (CEO) of a company that
has to choose between making a £50 million investment in
Ghana or Zambia. Both investments promise the same
long-run return, so your choice is driven by risk
considerations. Assess the various risks of doing business in
each of these nations. Which investment would you favour
and why?
(500 words).
NB
Remember to use only the 2 countries mentioned in the
question.
Question 2
➢Milton Friedman stated in his famous article in
the New York Times in 1970 that “the social
responsibility of business is to increase profits”.
Do you agree? If not, do you prefer that
multinational corporations adopt a focus on
corporate social responsibility or sustainability
practices?
(500 words)
Question 3
➢How have changes in technology contributed to
the globalisation of markets and production?
Would the globalisation of markets and
production have been possible without these
technological changes?
(500 words)
Question 4
➢ Reflect on the in-class presentations prepared by your
group in week 11, on regional Economic Integration (Trade
blocs), and answer the questions below:
➢ You are an economic advisor to Papua New Guinea, a
prospective member of the Association of the Southeast
Asian Nations (ASEAN). The group was founded in 1967
when the Bangkok declaration was signed by the original
five members. Since then the membership has grown to 10.
Members are expected to agree to all the treaties,
declarations, and agreements of ASEAN. There are no
conditions other than being located in Southeast Asia.
There are no expectations regarding the government,
ideology, development status, economic policy. ASEAN
acknowledges the fact that there are diverse types of
country in the region.
Question 4
➢To what extent do you think that ASEAN has
contributed towards trade in its member
countries
(250 words)
➢How might membership be disadvantageous to
the domestic industries in Papua New Guinea?
(250 words)
Anonymous Marking
Do not write your name or student number (or identify your work in
anyway)
Your title page should only show the name of the Module, Module
Code number, and Assignment type – Assignment 1.
Structure of
Essay
In answering the questions, please write only the question number as your title,
for example “Question One”, Question Two, Question Three, Question Four (a)
Question Four (b) etc. this is to make it easier for your tutors to know the
question you have answered when grading your work.
Use paragraphs to space out your work.
Please use Verdana – font size 11, and 1.5 line spacing.
Remember to keep to the word count assigned to the question you
answer.
Provide referencing (citations throughout your work and provide a full
reference list arranged in an alphabetical order.
At least 20 references should be used in your work, and this should be
listed on your reference list.
Question 1 – Suggested approach
➢ You are the Chief Executive Officer (CEO) of a company that has to choose
between making a £50 million investment in Ghana or Zambia. Both
investments promise the same long-run return, so your choice is driven by risk
considerations. Assess the various risks of doing business in each of these
nations. Which investment would you favour and why?
(500 words).
➢ You can use any search engine for this question, however,
https://globaledge.msu.edu/ is a good source that you can
also use to look for information about the 2 countries given.
1.
Brief overview of Ghana and Zambia’s investment
opportunities in terms of Foreign Direct Investment (FDI).
2.
The question mention risks factors that can impact on
investment, you need to consider the political risk,
economic risk, cultural risks etc.
Question 1 – Suggested Approach
➢ Issues on corruption,
➢ Critically analyse the 2 countries and their risk
factors.
➢ Decide which country offers a better investment
opportunity.
➢ Conclusion
➢ Applying a theory (FDI theories) here will be ideal in
your discussions
Milton Friedman stated in his famous article in the New York
Times in 1970 that “the social responsibility of business is to
increase profits”. Do you agree? If not, do you prefer that
multinational corporations adopt a focus on corporate social
responsibility or sustainability practices?
(500 words)
Question 2 – Suggested
Approach
It will be ideal to read the original article written by Milton
Friedman (pls see week 11 learning materials This will help with
your understanding of his assertion as well as the key points
that underpinned his reasoning.
Approach
– Brief overview on the debate of corporate social responsibility.
– Analyse Friedman’s position on Corporate social responsibility.
Friedman’s argument, also known as the Friedman doctrine, states that a
corporation’s sole responsibility is to increase profits for its shareholders,
who can then decide for themselves which social causes to support,
rather than letting the company head decide for them.
– A common criticism of Friedman’s position is that such
practices encourage unethical behavior among businesses and
greed among executives, who are more likely to keep the excess
profits for themselves than they are to contribute to the greater
good.
Question 2 – Suggested
Approach
– State your position on Friedman’s argument, do you agree to
his assertion? If you do, you need to articulate your reasons as
to why you agree to his line of argument. Support your answer
with examples in-text citations and theory/ theories.
Alternatively, if you disagree to his assertion, you need to clearly
indicate by stating your reasons supported by theories, examples
and in-text citations.
– Conclusion
How have changes in technology contributed to the
globalisation of markets and production? Would the
globalisation of markets and production have been possible
without these technological changes?
(500 words)
Question 3 – Suggested
Approach
– Briefly define globalization of market and globalization of production.
– Consider the impact of technology on globalization of markets and
production
– Note both positive and negative impact
– Remember to answer the question as to whether the globalization of
markets and production would have been possible without
technological changes.
– Give industry/ company-based examples and citations in support of
your work.
– Is there any theory on globalization that could be used in your
discussions?
Question 4 –
Suggested Approach
A) To what extent do you think that ASEAN has contributed
towards trade in its member countries (250 words)
B) How might membership be disadvantageous to the
domestic industries in Papua New Guinea?
(250 words)
A) Indicate the benefits that member countries have gained
by joining the regional grouping called ASEAN.
1.
Give examples with facts and figures
2.
Remember to use in-citations.
B) Discuss the disadvantages that domestic (local) industries
may face when their country Papua New Guinea becomes a
member of ASEAN.
Support the section with facts and figures.
Grading
Undergraduate
Numeric Grade
Letter Grade
90
78
73
68
65
61
58
55
51
48
45
41
A+
A
AB+
B
BC+
C
CD+
D
D-
Pass Mark
38
F+
Fail needs a re-take
27
F
Fail needs a re-take
13
F-
Fail needs a re-take
Finally!
• Remember to support all assertions,
facts, figures – data used in your essay
with in-text references (citations).
• If you are not sure about how to do a
proper citations, kindly refer to the
Harvard Referencing Guide on the
library website.
• All references should follow the Harvard
Referencing style.
• Minimum references to be used is 20.
Finally!
• Please answer the questions asked on
the assessment brief, and do not
create your own questions.
• If for any reason you are unsure of
anything or do not understand the
questions after this briefing, please
write to your module tutors (Israa or
Theo) , they will be happy to help.
Any
Question?
Assessment Brief
Module Code
Module Name
International Trade and Commerce
Level
6
Module Leader
Theophilus Anderson
Module Code
BUS3019
Assessment title:
Essay (AS1)
Weighting:
1
Submission dates:
19/01/2024
Feedback and
Grades due:
Please see NILE under Assessment Information
Please read the whole assessment brief before starting work on the Assessment Task.
The Assessment Task
You are required to produce a 2,000 word correctly referenced essays (using the Harvard
referencing system) on the questions indicated below – answer all questions.
1. You are the Chief Executive Officer (CEO) of a company that has to choose between
making a £50 million investment in Ghana or Zambia. Both investments promise the
same long-run return, so your choice is driven by risk considerations. Assess the various
risks of doing business in each of these nations. Which investment would you favour and
why? (500 words).
2. Milton Friedman stated in his famous article in the New York Times in 1970 that “the social
responsibility of business is to increase profits”. Do you agree? If not, do you prefer that
multinational corporations adopt a focus on corporate social responsibility or
sustainability practices? (500 words)
3.
How have changes in technology contributed to the globalisation of markets and
production? Would the globalisation of markets and production have been possible
without these technological changes? (500 words)
4. Reflect on the in-class presentations prepared by your group in week 12, on regional
Economic Integration (Trade blocs), and answer the questions below:
You are an economic advisor to Papua New Guinea, a prospective member of the
Association of the Southeast Asian Nations (ASEAN). The group was founded in 1967
when the Bangkok declaration was signed by the original five members. Since then the
membership has grown to 10. Members are expected to agree to all the treaties,
declarations, and agreements of ASEAN. There are no conditions other than being
located in Southeast Asia. There are no expectations regarding the government,
ideology, development status, economic policy. ASEAN acknowledges the fact that there
are diverse types of country in the region.
a) To what extent do you think that ASEAN has contributed towards trade in its
member countries (250 words)
2
b) How might membership be disadvantageous to the domestic industries in
Papua New Guinea? (250 words)
Learning Outcomes
On successful completion of this assessment, you will be able to:
a) Discuss and analyse key aspects of international trade and commerce, its players
and related dimensions of the highly complex field of international business.
b) Demonstrate understanding of a range of current decisions by trade blocs relating
to international trade and devise a well researched and informed response from
their own national perspective.
c) Identify, select, apply and critique data and/or literature relevant and appropriate to
the topic.
d) Acquire skills for professionalism through independent work and ability to work
within teams on complex tasks.
e) Consciously engage with alternative perspectives or conflicting views and justify their
own ethical stance.
Your grade will depend on how well you meet these learning outcomes in the way relevant for
this assessment. Please see the final page of this document for further details of the
criteria against which you will be assessed.
Assessment Support
Specific support sessions for this assessment will be provided by the module team and
notified through NILE. You can also access individual support and guidance for your
assessments from Library and Learning Services. Visit the Skills Hub to access this support
and to discover the online support also available for assessments and academic skills.
Use of Generative AI (Artificial Intelligence) within this assessment
Some uses of Generative AI may deemed as unethical in your assessment. Further
guidance on the conditions for allowable use of Generative AI will be given by the
module team.
Please access the following position guidance from University of Northampton on the use of
Generative AI within assessments.
Academic Integrity and Misconduct
The work you produce must be your own, with work taken from any other source properly
referenced and attributed. This means that it is an infringement of academic integrity and,
therefore, academic misconduct to ask someone else to carry out all or some of the work for
3
you, whether paid or unpaid, or to use the work of another student whether current or
previously submitted.
For further guidance on what constitutes plagiarism, contract cheating or collusion, or any other
infringement of academic integrity, please read the University’s Academic Integrity and
Misconduct Policy. Other useful resources to help with understanding academic integrity are
available from UNPAC – the University of Northampton’s Plagiarism Avoidance Course.
N.B. The penalties for academic misconduct are severe and include failing the
assessment, failing the module and even expulsion from the university.
Assessment Submission
To submit your work, please go to the ‘Assessment and Submission’ area on the NILE site and
use the relevant submission point to upload the assessment deliverables. The deadline for
this is 11.59pm (UK local time) on the date of submission. Please note that essays and textbased reports should be submitted as word documents and not PDFs or Mac files.
Written work submitted to TURNITIN will be subject to anti-plagiarism detection software.
Turnitin checks student work for possible textual matches against internet available resources
and its own proprietary database.
When you upload your work correctly to TURNITIN you will receive a receipt which is your
record and proof of submission. If your assessment is not submitted to TURNITIN, rather than
a receipt, you will see a green banner at the top of the screen that denotes successful
submission.
N.B Work emailed directly to your tutor will not be marked.
Late submission of work
For first sits, if an item of assessment is submitted late and an extension has not been
granted, the following will apply:
•
•
Within one week of the original deadline – work will be marked and returned with full
feedback and awarded a maximum bare pass grade.
More than one week from original deadline – grade achievable LG (L indicating late).
For resits there are no allowances for work submitted late and it will be treated as a nonsubmission.
Please see the Assessment and Feedback Policy for full information on the processes related
to assessment, grading and feedback, including anonymous grading. You will also find
Guidance on grades and resit opportunities from the main University website. Also explained
there are the meanings of the various G grades at the bottom of the grading scale including
LG mentioned above.
4
Extensions
The University of Northampton’s general policy about extensions is to be supportive of
students who have genuine difficulties in meeting an assessment deadline. It is not intended
for use where pressures of work could have reasonably been anticipated.
For full details please refer to the Extensions Policy. Extensions are only available for first sits
– they are not available for resits.
Mitigating Circumstances
For full guidance on Mitigating circumstances please go to Mitigating Circumstances where
you will find information on the policy as well as guidance and the form for making an
application. Please also see Extensions & Mitigating Circumstances guide that compares your
options.
Please note, however, that an application to defer an assessment on the grounds of mitigating
circumstances should normally be made in advance of the submission deadline or
examination date.
Feedback and Grades
These can be accessed through clicking on the “Gradebook” on NILE. Feedback will be
provided by a rubric with summary comments.
Note to tutors – insert rubric below
5
RUBRIC
Grading Criteria
FAIL
PASS
COMMENDED
MERIT
DISTINCTION
Evidence included
or provided but
missing in some
very important
aspects
Of satisfactory quality,
demonstrating
evidence of achieving
the requirements of
the learning outcomes
Of sound quality,
demonstrating
evidence which is
sufficient and
appropriate to the
task or activity
Discuss and analyse
key aspects of
international trade and
commerce, its players
and related dimensions
of the highly complex
field of international
business.
Very limited
application of
knowledge in
discussing the key
aspects of
international trade
and commerce
and international
business
Sound application of
knowledge in
discussing the key
aspects of
international trade
and commerce,
demonstrating sound
knowledge and
understanding of the
highly complex nature
of international
business.
Demonstrate
understanding of a
range of current
decisions by trade
blocs relating to
international trade and
devise a well
researched and
informed response
Your essay
demonstrates a
very limited
amount of critical
analysis and
synthesis of the
topic under
consideration
Satisfactory
application of
knowledge in
discussing the key
aspects of
international trade
and commerce,
demonstrating fair
knowledge and
understanding of the
highly complex nature
of international
business.
Your essay
demonstrates a
satisfactory amount of
critical analysis and
synthesis of the topic
under consideration
Of high quality,
demonstrating
evidence which is
rigorous and
convincing,
appropriate to the
task or activity
High quality
application of
knowledge in
discussing the key
aspects of
international trade
and commerce,
demonstrating high
quality knowledge and
understanding of the
highly complex nature
of international
business.
Your essay
demonstrates highquality critical analysis
and synthesis of the
topic under
consideration
Of very high quality,
demonstrating
evidence which is
strong, robust and
consistent,
appropriate to the
task or activity
Very High-quality of
knowledge in
discussing the key
aspects of
international trade
and commerce,
demonstrating a very
high quality
knowledge and
understanding of the
highly complex nature
of international
business.
Your essay
demonstrates a very
high-quality critical
analysis and synthesis
of the topic under
consideration
Learning outcomes
addressed through this
assignment
6
NO
SUBMISSION
Work
submitted is
of no
academic
value /
nothing
submitted
Your essay
demonstrates a sound
amount of critical
analysis and synthesis
of the topic under
consideration
from their own national
perspective.
7
Identify, select, apply
and critique data
and/or literature
relevant and
appropriate to the
topic.
You demonstrated
limited ability in
terms of linking
data, theory and
practice in your
submission.
You demonstrated
satisfactory ability in
terms of linking data,
theory and practice in
your submission.
You demonstrated
sound ability in terms
of linking data, theory
and practice in your
submission.
You demonstrated
high-quality ability in
terms of linking data,
theory and practice in
your submission.
You demonstrated
very high-quality
ability in terms of
linking data, theory
and practice in your
submission.
Acquire skills for
professionalism
through independent
work and ability to
work within teams on
complex tasks.
Very limited
application of ‘real
life’ experience/
examples to the
theory learned in
your essay
Satisfactory
application of ‘real life’
experience/ examples
to the theory learned
in your essay
Sound application of
‘real life’ experience/
examples to the
theory learned in your
essay
High quality
application of ‘real life’
experience/ examples
to the theory learned
in your essay
Very high quality
application of ‘real life’
experience/ examples
to the theory learned
in your essay
Consciously engage
with alternative
perspectives or
conflicting views and
justify their own ethical
stance.
Limited insight on
divergent
perspectives and
on the topic under
consideration
Satisfactory insight on
divergent perspectives
on the topic under
consideration
Sound insight on
divergent
perspectives on the
topic under
consideration
Good insight on
divergent perspectives
on the topic under
consideration
Excellent insight on
divergent perspectives
on the topic under
consideration
Supporting arguments
with named sources.
limited effort at
using named
sources to support
and justify your
arguments
You showcased
satisfactory effort at
using named sources
to support and justify
your arguments
sound effort at using
named sources to
support and justify
your arguments
high-quality effort at
using named sources
to support and justify
your arguments
Excellent use of named
sources to support and
justify your arguments
International Business: The New Realities
Fifth Edition, Global Edition
Chapter 7
Government Intervention
and Regional Economic
Integration
Slide in this Presentation Contain
Hyperlinks. JAWS users should be able to
get a list of links by using INSERT+F7
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Learning Objectives
7.1
Understand the nature of government intervention.
7.2
Know the instruments of government intervention.
7.3
Explain the evolution and consequences of government trade
intervention.
7.4
Describe how firms can respond to government trade intervention.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Questions for discussion
1. Why do government intervenes in trade?
2. What are some of the key instruments used in
intervening in trade?
3. How can firms respond to government trade
intervention?
Copyright © 2017 Pearson Education, Ltd.
7-2
Government Intervention (1 of 3)
• Governments intervene in trade and investment to
achieve political, social, or economic objectives.
• Governments impose trade and investment barriers that
benefit interest groups, such as domestic firms,
industries, and labor unions.
• Government intervention alters the competitive
landscape, by hindering or helping the ability of firms to
compete internationally.
• Government intervention is an important dimension of
country risk.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Government Intervention (2 of 3)
• Protectionism – National
economic policies that
restrict free trade. Usually
intended to raise revenue
or protect domestic
industries from foreign
competition.
• Customs – The
checkpoint at national
ports of entry where
officials inspect imported
goods and levy tariffs.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Government Intervention: Key
Instruments
• Tariff – A tax on imports (e.g.,
Citrus, textiles).
• Nontariff trade barrier Government policy, regulation, or
procedure that impedes trade.
• Quota – Quantitative restriction
on imports of a specific product
(e.g., Imports of Japanese cars).
• Investment barriers – Rules or
laws that hinder foreign direct
investment (e.g., Mexico’s
restrictions in its oil industry).
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Example of Protectionism: U.S. Steel
Industry
• In the early 2000s, the U.S. government imposed tariffs on
imports of foreign steel to protect U.S. steel manufacturers
from foreign competition, aiming to give the U.S. steel industry
time to restructure and revive itself.
• However, this resulted in:
– Higher steel costs.
– Increased production costs for firms that use steel, such as
Ford, Whirlpool, and General Electric.
– Reduced prospects for selling products in world markets,
making U.S. steel firms less competitive.
• The steel tariffs were removed within two years.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Consequences of Protectionism
• Reduced supply of goods to buyers.
• Price inflation.
• Reduced variety, fewer choices available to buyers.
• Reduced industrial competitiveness.
• Various adverse unintended consequences (e.g., while
the home country dithers, other countries can race
ahead).
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
General Rationale for Government
Intervention
Governments impose tariffs and other trade barriers to
achieve various goals:
• To generate revenue. Tariffs are an important source of
government revenue in many developing economies.
• To ensure citizen safety, security, and welfare. For example,
governments pass laws to prevent importation of harmful
products such as contaminated food.
• To pursue economic, political, or social objectives. E.g.,
Intervention can promote domestic job growth.
• To serve company and industrial interests. Government
intervention can help stimulate development of domestic
industries.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Defensive Rationale for Government
Intervention (1 of 2)
• Protection of the national economy. Weak or young
economies sometimes need protection from foreign
competitors. E.g., India imposed barriers to shield its
huge agricultural sector, which employs millions.
• Protection of an infant industry. A young industry may
need protection, to give it a chance to grow and succeed.
e.g., Japan long protected its car industry.
• National security. The United States prohibits exports of
plutonium and similar products to North Korea.
• National culture and identity. Canada restricts foreign
investment in its movie and TV industries.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Defensive Rationale for Government
Intervention (2 of 2)
To safeguard its national culture, the French government prevents foreign
companies from owning television and movie companies in France. Shown
here is Cannes, the site of France’s popular film festival.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Offensive Rationale for Government
Intervention
• National strategic priorities – Protection helps ensure the
development of industries that bolster the nation’s
economy. Countries create better jobs and higher tax
revenues when they support high value-adding
industries, such as IT, automotive, pharmaceuticals, or
financial services.
• Increase employment – Protection helps preserve
domestic jobs, at least in the short term. However,
protected industries become less competitive over time,
especially in global markets, leading to job loss in the
long run.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Types and Effects of Government
Intervention (1 of 2)
Intervention
Type
Definition
Practical Effect on Customers, Firms, or
Government
Tax imposed on imported
products.
Increases cost to the importer, exporter, and
usually the buyer of the product; discourages
product imports; generates government
revenue
Quota
Quantitative restriction on
imports of a product during a
specified period of time.
Gives early importers monopoly power and the
ability to charge higher prices; harms late
importers; usually results in higher prices to the
buyer
Local content
requirements
Requirement that firms include
a minimum percent of locally
sourced inputs in the
production of given products or
services.
Discourages imports of raw materials, parts,
and supplies, which harms manufacturers’
sourcing options; may result in higher costs
and lower product quality for buyers
Tariff
Regulations and Safety, health, or technical
technical
regulations; labeling
standards
requirements.
May hinder the entry of imported products and
reduce the quantity of available products,
resulting in higher costs to importers and
buyers
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Types and Effects of Government
Intervention (2 of 2)
Intervention Type
Definition
Practical Effects on
customers, Firms, or
Government
Administrative and
bureaucratic procedures
Complex procedures or
requirements imposed on
importers or f01eign investors
that hinder trade and
investment.
Slows the import of products or
services; hinders or delays
firms’ investment activities
FDI and ownership restrictions Rules that limit the ability of
Limits how much foreigners
foreign firms to invest in certain can invest in a country, and/or
industries or acquire local
the proportion of ownership
firms.
that foreigners can hold in
firms in the country
Subsidy
Financing or other resources
that a government grants to a
firm or group of firms, to
ensure their survival or
success.
Increases the competitive
advantage of the grantee while
diminishing the competitive
advantages of those that do
not receive the subsidy
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Sampling of Import Tariffs
Note: Exhibit shows the average, most favored nation-applied tariff. Source: Based on
World Tariff Profiles 2017, World Trade Organization, www.wto.org
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Decline in Average Tariff Rates
Source: Based on the World Bank, http://data.worldbank.org
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Tariffs are Widespread
• Harmonized code – Standardized worldwide system that
determines tariff amount.
• In developing economies, tariffs are common.
• In advanced economies, tariffs provide significant revenue.
• For example, the U.S. typically collects high tariffs (often
48 percent) on imports of basic, low-quality shoes, and low
tariffs (just 9 percent) on luxury shoes. Low-income shoe
buyers end up paying the highest tariffs.
• The European Union applies tariffs up to 191% on meat,
118% on cereals, and 106% on sugar.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Import Tariffs Have Been Declining
• Governments have reduced tariffs over time, mainly via
the General Agreement on Tariffs and Trade (GATT),
which became the World Trade Organization (WTO).
• Economic integration also leads to lower tariffs, but only
within economic blocs. E.g., Under NAFTA, Mexico
eliminated nearly all tariffs on imports from the U.S., but
maintains tariffs with the rest of the world.
• China reduced its tariffs since joining the WTO in 2001.
• Firms bypass tariffs by entering countries via FDI. E.g.,
Toyota built factories in the U.S. partly to avoid tariffs.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Subsidies
• Subsidies are government grants (monetary or other resources)
to firm(s), intended to ensure their survival or success by
facilitating production at reduced prices, or encouraging exports.
• Grants include cash, tax breaks, infrastructure construction, or
government contracts at inflated prices.
Examples
• In China, Shanghai Automotive and numerous other MNEs are
partly owned by the Chinese government, and receive huge
financial resources.
• Europe and the U.S. provide huge agricultural subsidies to
farmers. EU subsidies represent 40 percent of the EU budget.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Economic Freedom
• Economic freedom is the absence of government coercion so
that people can work, produce, consume, and invest however
they want to.
• The Index of Economic Freedom assesses the rule of law,
trade barriers, regulations, and other criteria.
– Virtually all advanced economies are “free”.
– Emerging markets are either “free” or “mostly free”.
– Most developing economies are “mostly unfree” or
“repressed”.
• Economic freedom flourishes with appropriate of intervention;
too much regulation harms the economy.
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.
Evolution of Government Intervention
• Protectionist tendencies, the Great Depression, and isolationism
shaped early 20th century world trade.
• The Smoot-Hawley Act (1930) raised U.S. tariffs to more than 50%
(compared to only 3% today).
• Trade policies greatly reduced tariffs after WWII.
• In 1947, 23 nations signed the General Agreement on Tariffs and
Trade (G A T T). The G A T T:
• Reduced tariffs via continuous worldwide trade
negotiations;
• Created an agency to supervise world trade
• Created a forum for resolving trade disputes.
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The GATT
• The GATT introduced the concept of most
favored nation (renamed normal trade
relations), according to which each member
nation agreed to extend the tariff reductions
covered in a trade agreement with one country
to all other countries. A concession to one
became a concession to all.
• In 1995 the GATT was superseded by the World
Trade Organization (WTO), and grew to include
150 member nations.
• The GATT and WTO presided over the greatest
global decline in trade barriers in history.
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Market Liberalization in China
• In 1949, China established communism and
centralized economic planning.
• Agriculture and manufacturing were controlled
by inefficient state-run industries.
• The country was long closed to international
trade.
• In the 1970s, China liberalized its economy.
• In 2001,