Topic8_PugelCh15.ppt

Chapter15 MultinationalsandMigration InternationalFactorMovements 1 ForeignDirectInvestment FDI Flowdefinition Flowoffundingprovidedbyinvestors usuallyfirms toestablishoracquireforeigncompaniesortoexpandorfinanceexistingforeigncompaniesthattheinvestorsown Keyissufficientownershiptocontrolorinfluencethemanagementoftheforeigncompany Stockdefinition Totalvalueofexistingfunding equityanddebt offoreigncompaniesthathasbeenprovidedbyinvestorsthatowntheseforeigncompanies 2 MultinationalEnterprise MNE AfirmthatownsandcontrolsoperationsinmorethanonecountryTheparentfirmoftheMNEislocatedinthehomecountry ThehomecountryisthesourcecountryforoutwardFDITheMNEhasoneormoreaffiliateslocatedinoneormorehostcountries ThehostcountryisthedestinationcountryforinwardFDI 2 MNES Whytheyexist Inherentdisadvantagesofoperatingaforeignaffiliatecompetingagainstlocalfirms Firm specificadvantagesoftheMNE especiallyintangibleassets Internalizationadvantagesinusingtheseassets Locationfactorsbasedonresourcecostsandavailability customerdemand governmentpolicies andotherconsiderations OligopolisticrivalrythatusesFDIinthefirms strategiesforcompeting 3 Migrationandthelabourmarkets AInternationalmigrationisthemovementofpeoplefromonecountrytoanotheronalongtermbasisSeeTables15 2and15 3forimmigrationratestotheUSandEU Figure15 2GrossimmigrationratestotheUSandCanada Figure15 3 NetimmigrationratesintotheEU 3 Migrationandthelabourmarkets Tosimplifytheanalysistheworldisdividedintoalowincome South andahighincome North Initially assumenomigration Northernworkersearn 6anhourandsouthernworkers 2anhourThenremovethebarrierstomigrationsothatthereisfreemigrationbetweentheSouthandtheNorth 3 Migrationandthelabourmarkets Themovementof20millionmigrantlabourbidthenorthernwageratedownto 5andtheoutflowofthesameworkersraisesthesouthernwageto 3 20Morepeopledon tmove andequalizewages becausetherearecoststomigration i e transportationcosts leavingbehindfamilyandfriends learninganewlanguage customsetc 3 Migrationandthelabourmarkets Migrantsgainareae fBecauseofthecostofmigration c thosewhomigrateearn 5butitisonlyworthasmuchas3 20intheSouth SouthWorkersremaininginthesouthgainaread becauseofthereductionincompetition Southernemployerslooseare d e becausetheyhavetoofferhigherwagerates Thenetlossisareaeor d e d 3 Migrationandthelabourmarkets NorthNativenorthernworkerslooseareaahavingtheirwageratebiddownfrom 6to 5 Northernemployersgainarea a b becausetheypaylessforlabour ThenetgainisareabTheworldgainsarea b f ThefreedomtomigratesendslabourtowardscountrieswheretheymakeagreaternetcontributiontoworldproductionTheworldachievesamoreefficientallocationofresources Figure15 3 Labour Marketeffectsofmigration 4 Shouldsendingcountryrestrictemigration ThepreviouslabourmarketanalysisshowedthatsendingcountryloseseconomicwellbeingbecauseofemigrationTheotherimportantcostsandbenefitsofemigrationare ThegovernmentlosesfuturetaxpaymentsButthosewhoemigratedon trequiregovernmentservices i e healthcare welfare educationetc sothatgovernmentspendingisreducedThosewhoemigrateoftensentmoneytorelativesbackhome 4 Shouldsendingcountryrestrictemigration WhetheremigrationhasanetnegativeorpositiveeffectdependsontherelativestrengthoftheabovefactorsIftheeffect onbalance isnegativethecountrycouldencouragethereturnaftertheemigranthasgoneforwhile byappealingtonationalprideandofferinggoodemploment 4 Shouldthereceivingcountryrestrictimmigration ThepreviouslabourmarketanalysisshowedthatreceivingcountrygainsfromimmigrationThereareotherimportantcostsandbenefitsofimmigration 1 EffectsonthegovernmentbudgetImmigrantspaytaxesintheirsnewcountryImmigrantsrelyonsocialservicesThereisaconsensusthatthatfiscaleffectsofdependontheskillleveloftheimmigrant 4 Shouldthereceivingcountryrestrictimmigration 2 ExternalcostsandbenefitsKnowledgebenefits onlypartoftheeconomicbenefitsofknowledgeaccruestotheimmigrants partofitoftenspillsover CongestioncostsSocialfriction 5 Whatpoliciestoselectimmigrants Thetypeofimmigrantworkersadmittedwillaffectwhichgroupswithinthepopulationwin lose Forexample ifimmigrantsareunskilled theywillcompeteforjobsagainstunskillednativeworkersThetypesofimmigrantsadmittedwillaffectthenetfiscalbenefitorburdenofimmigration 5 Whatpoliciestoselectimmigrants Togaingraterfiscalbenefits thecountryshouldadmityoungadultswhohav