Inappropriate Government Intervention. Open markets and free competition do not always guarantee significant economic returns from improved efficiencies. When the level of competition in markets is low and 58(Xxxxxx, 2005), pp. 21-2. 59 Ibid. 60 (X. X. X. Xxxxx & Xxxxxxxxxx, 2001), pp. 217-8. 61 (European Commission, 2003), pp. 6-7. 62 Ibid. economic activity is hindered by factors such as poor physical infrastructure, small size of the economy and geographical remoteness, governmental intervention might be necessary in order to correct market failure.63 For instance, market liberalisation would normally enable firms that suffer from limited domestic demand to produce at efficient levels by raising exportation. However, when domestic firms of a developing country cannot make the necessary initial investment in exportation due to information asymmetries in the condition of export markets (unlike TNCs, these domestic firms may not be informed about consumer preferences in markets abroad, and costs and profitability of exportation), a government initiative for training firms and providing information might help domestic firms to overcome this initial difficulty of expanding to markets abroad, and contribute to long-term economic development in the respective country.64 Likewise, when limited financial resources are the primary obstacles to exportation by domestic firms in a developing country, a policy intervention ensuring the availability of long-term credit to private businesses might prove beneficial.65 Government intervention in the economy often takes the form of subsidies, state aid or tolerance of cartels and monopolies.66 Likewise, developing country governments may focus on achieving industrialisation through SOEs or by granting exclusive privileges to domestic companies (such as offering procurement preferences, introducing public restraints on market entry and FDIs, and granting exclusive rights for provision of certain goods and services).67 Another common industrial policy consideration of developing countries is embracing weak patent protection regimes for disseminating new technologies within their borders.68 Developing country governments may also consider social objectives such as promotion of employment (see the previous sub- section on SOEs) or protection of certain social groups (e.g. special treatment for the historically disadvantaged population in South African competition law) in their economic interventions. 63(X. Xxxxxxx & Xxxxxxxx, 2004) – the paper includes a review of...
