Distortion of international trade by restrictive controls over foreign investment

The measures, applied unilaterally to discipline the actions of the foreign firms, have been made to ensure that the policies of foreign firms conform to the development objectives of the host country and which have derived from the observation that investment by such firms was generally aimed at serving the domestic market only and that such foreign firms had a pronounced tendency to import rather than purchase from domestic sources. In most of the developing countries import controls are introduced for balance-of-payments reasons and export performance requirements are often necessitated by the anxiety of the host country to reduce the burden of its balance-of-payments problems.