WHAT ARE TRADE AND INVESTMENT POLICES? (I) Government policies are designed to regulate, stimulate, direct, and protect national activities. The exercise of these policies is the result of national sovereignty, which provides a government with the right and responsibility to shape the environment of the country and its citizens. Because they are border bound, governments focus mainly on domestic policies. Nevertheless, many policy actions have repercussions on other nations, firms, and individuals abroad and are therefore a component of a nation’s trade and investment policy. Influence of Domestic Policy Domestic policy can be subdivided into two groups of actions that affect trade and investment. The first affects trade and investment indirectly, the second directly. The domestic policy actions of most governments aim to increase the standard of living of the country’s citizens, to improve the quality of life, to stimulate national development, and to achieve full employment. Clearly, all of these goals are closely intertwined. For example, an improved standard of living is likely to contribute to national development. Similarly, quality of life and standard of living are interlinked. Also, a high level of employment plays a major rule in determining standard of living. Yet all of these policy goals also indirectly affect international trade and investment. For example, if foreign industries become more competitive and rapidly increase their exports, employment in importing countries may suffer. Likewise, if a country accumulates large quantities of debt, which at some time must be repaid, present and future standards of living may be under threat. Policy affects trade and investment in more direct ways, too. A country may pursue policies of increased development that mandate either technology transfer from abroad or the exclusion of foreign industries to the benefit of domestic firms. Also, government officials may believe that imports threaten the culture, health, or standards of living of the county’s citizen’s and thus the quality of life. As a result, nations develop regulations aimed at protecting their citizens.

Czinkota, Michael R., Ilkka A. Ronkainen and Michael H. Moffett. Fundamentals of International Business. Mason: South-Western, 2004.