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1. Describe the disadvantages of economic integration for international businesses.

How can
firms protect themselves from these threats? (2.5 marks)

Regional economic integration is an agreements between countries in a geographic region


to reduce tariff and non-tariff barriers to the free flow of goods, services and factors of
production of between each other. Economic integration for international business has some of
advantages. One of them is it encourages a shift in workforce. For example, a particular region
offers lucrative opportunities, most professionals are bound to move from their native countries
to the country with better opportunities. This may create new challenges to the native country as
it tries to compete with the others. Second, trade inefficiency may crop up. For example, if one
country traditionally engaged in trade with a particular country, their trade may be forced to stop
if new laws are established which prevent countries from trading with others that do not belong
to the economic union. Countries within the union may offer lower prices or may be too
expensive, making trade difficult or less lucrative. Lastly, regional economics requires member
countries to give up some degree of control over key policies like trade, monetary and fiscal
policies. The higher the level of integration, the greater the degree of controls that needs to be
given up particularly in the case of a political union economic integration which requires nations
to give up a high degree of sovereignty.

Firms can protect themselves from these threats by taking some actions. To survive, firms
will have to capitalize on the opportunities presented by the creation of an integrated marketplace
and rationalize their production and reduce their costs. Companies that are outside of trading
areas such as the EU may find themselves facing a trade fortress with high barriers to imports
and investment. Consequently, firms may find that to protect themselves, they will need to
establish operations "on the inside." Finally, firms may find their strategic choice limited by
restrictions on proposed acquisitions and mergers. Firms may find that they must make
significant concessions in order for their proposed plans to move ahead.
2. A country X intends to attract the foreign direct investment to foster faster economic growth.
What is your advised to the government of country X? ( 2.5 marks)

From my opinion, a country X takes a good action for its development country and the
economic growth. FDI provides the benefits of reduced cost through the realization of scale
economies and coordination advantages especially for integrated supply chains.

Even though past studies show that FDI and trade have a positive impact on economic growth,
the size of such impact may vary across countries depending on the level of human capital,
domestic investment, infrastructure, macroeconomic stability, and trade policies. The literature
continues to debate the role of FDI and trade in economic growth as well as the importance of
economic and institutional developments in fostering FDI and trade. This lack of consensus
limits our understanding of the role of FDI and trade policies in economic growth processes and
restricts our ability to develop policies to promote economic growth.