True or False: Political unrest in countries often creates a hostile environment for foreign businesses and can act as a barrier to international trade

The correct answer is - true.

It is true to say that political unrest makes the investor's environment hostile and most of them are unable to invest hence acting as a barrier to international trade. The foreign investors' main is to establish a production sector that will grow to the point of exporting goods to other foreign markets. A country with good infrastructure will motivate investors to invest more. However, when a country has political unrest, it will likely import more than it will export, resulting in a trade deficit. A country with a trade deficit will not establish infrastructures that will motivate the foreign investor to invest.

Secondly, it will be expensive for the foreign business to do well in a country full of political unrest. A country with political instability can raise the trading cost between importers and exporters hence lessening inducements to establish and maintain trade relations. Therefore, the foreign business faces a barrier to trade since insecurity in a particular country acts as a hidden tax when trading, raising the commodities' cost and making the country have comparative disadvantages.

Finally, no single investor is willing to invest in a country with inflation since political unrest results in inflation and capital flights. Foreign businesses will lose their trust and confidence in such a country.