Balance of payments - reason for protection, Managerial Economics

Balance of Payments

Perhaps the most immediate reason for bringing in protection is a balance of payment deficit.  If a country had a persistent deficit in its balance of payments, it is unlikely to be able to finance these deficits from its limited reserves.  If therefore becomes necessary for it adopt some form of restriction on imports (e.g. tariffs, quotas, foreign exchange restrictions) or some means of boosting its exports (e.g. export subsidies).

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