Effects of Trade Restrictions

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Trade restrictions are an excellent example of government introduced sources of rents. The importation of goods becomes custom to tighter immigration restrictions. The licences required for importing the goods become more valuable, leading to corruption between importers and officials. Trade restrictions are often done to protect an industry from foreign competition. With this prices can be artificially inflated creating a semi-monopoly for the local industry. Local manufactures will feel a high from the boom in the industry and may bribe influential politicians to keep the monopoly going. ‘Studies have indicated that country’s which have open economies are linked to lower corruption rates.’ (Mauro, 1997) An example of trade restrictions is the Hainan Island Vehicle binge in 1984. A 260% import duty was imposed across china which was to reduce the number of imported automobiles entering the country. The Island of Hainan was exempt from the import duty in an effort to boost development. Eric Harwit states that ‘unfortunately, Hainan officials took advantage of the lenient rule to import tens of thousands of cars and other vehicles, mostly from japan and resold the automobiles at premiums of three to five times the purchase cost to other mainland provinces.’ (Harwit) Government subsidies can constitute a source of rents. A perfect example of a current issue would be the privation of the UKs railway industry in 1996. Since the privatatation the government has invested more
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