Local firms have a significant role in any economy as they do not only produce large revenues for the economy but also help in increasing the human capital and make the local economy more competitive in the global market. Sometimes, these local firms and industries need protection from the foreign market due to several economic, business, political, and strategic reasons (Dunning, 1988). In that case, the government steps out and provides shelter to these local markets in the form of trade protection. Protectionism supports believe that this protection is good for economic welfare (Tansey, et al., 2005). The essay is divided into five major sections. The first section explains the domestic firms, and their importance while the second section describes the role of the government protecting these firms. The third section puts light on the trade protectionism, and its reasons. The fourth section describes how the protectionism can lead to economic welfare, and the last section concludes the essay.
Domestic Firms and Their Importance
Domestic and local firms are the firms that operate in the domestic economic territory of a country. These firms are mainly initiated, designed, and operated by local people or sometimes the government of the country. These firms are registered as a local company as a small, medium or large company, and depending upon their size, they provide employment to a wide range of people. These local firms abide by the rules of the government and follow the regulations of the market as well (Cetrad, 2015).
Every government tries its best to promote the local firms because no economy can survive without them. They do not only help protect the country from over-reliance on the foreign market, but also increase the productivity of the economy by increasing the flow of money, higher output, and providing employment to millions of people (Snoxall, 2014). Higher productivity and competitiveness of the local firms can eventually make them capable of entering into the international market, and help the country economically, politically and strategically as well. They also provide better opportunities of research and development. Due to their vital role in the economy, every government focuses to protect and promote these local firms (Malchow-Moller, et al., 2011).