State Interventionism in Foreign Trade: A Response to Market Inefficiency

State Interventionism in Foreign Trade: A Response to Market Inefficiency

Ewa Szymanik (Cracow University of Economics, Poland)
DOI: 10.4018/978-1-7998-1196-1.ch017

Abstract

The chapter refers to the literature to show how the state mitigates the effects of market failures in foreign trade through intervention in response to inefficient markets at national and international levels. The research study leads to several conclusions. Firstly, theoretical research focuses on the effects of market inefficiency on the domestic market, apart from the analysis of an international perspective, which implies that in the conditions of globalization there is a need for extended research in an international context. Secondly, state interventions are necessary in creating administrative and legal conditions for facilitating trade exchange in the context of the role of transnational corporations in the global economy, as well as in reducing the adverse impact of international turbulences on the competitiveness of national entities through the use of export supporting instruments.
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A Historical Outline

The concept of market inefficiency or market failures was introduced by a German researcher at the end of the 19th century. The opinion that markets were not able to cope with violent economic changes was to be justified by the Great Depression.

It is believed that the first macroeconomic analysis of market inefficiency is the 1936 publication of Keynes’ General Theory of Employment, Interest and Money. The author identified the main causes of the phenomenon – inflation and unemployment. If such phenomena exist, it is necessary to identify the limitations of market mechanisms and seek solutions for mitigating the effects of market failures.

Interventionism had led to positive effects by the end of the 1960s. The first oil crisis of 1972 undermined the belief in the state’s ability to eliminate or mitigate the effects of economic disturbances. Ultimately, the occurrence of stagflation and slumpflation led to the rebirth of neoliberal concepts. M. Friedman claims that all economists – monetarists, the followers of Keynes, and all the others recognise the existence of market inefficiency (Snowdown, Vane, Wynarczyk, 1998). Therefore, even his criticism of state intervention as a threat to individual freedom did not indicate the denial of the existence of market failures – it only implied the need for reducing the government’s role, which was to lead to economic growth and stability. However, Keynes claimed that state interventionism could not be justified only by the necessity to correct market failures. Similar views were held by the representatives of the neoclassical school, advocating the state’s conscious self-restraint in its economic activities. This view was rejected as unrealistic (Bochenek, 2010, p.74).

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