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Unformatted text preview: Chapter 7 International Factor Movements T Chapter Organization International Labor Mobility A One-Good Model without Factor Mobility International Labor Movement Extending the Analysis Case Study: Wage Convergence in the Age of Mass Migration Case Study: Immigration and the U.S. Economy International Borrowing and Lending Intertemporal Production Possibilities and Trade The Real Interest Rate Intertemporal Comparative Advantage Box: Does Capital Movement to Developing Countries Hurt Workers in High-Wage Countries? Direct Foreign Investment and Multinational Firms The Theory of Multinational Enterprise Multinational Firms in Practice Case Study: Foreign Direct Investment in the United States Box: Taken for a Ride? Summary Appendix I: Finding Total Output from the Marginal Product Curve Appendix II: More on Intertemporal Trade T Chapter Overview This chapter introduces an additional aspect of economic integration, international factor movements. Most notably, this refers to labor and financial capital mobility across countries. An important point emphasized in Chapter 7 is that many of the same forces which trigger international trade in goods between countries will, if permitted, trigger international flows of labor and finances. Students may find this analysis especially interesting in that it sheds light on issues which may involve them personally, such as motives for the 19th and early 20th century waves of emigration to land-abundant but labor-scarce America from land-scarce and labor-abundant Europe and China. Other, more current examples of international factor mobility include the international capital flows associated with the debt crisis of the 1980s, and intertemporal substitution motives behind United States borrowing and foreign direct investment inflows and outflows in the 1980s and 1990s. 30 Krugman/Obstfeld • International Economics: Theory and Policy, Seventh Edition The chapter proceeds in three main sections. First, a simple model of international labor mobility is presented. Next, intertemporal production and consumption decisions are analyzed in the context of international borrowing and lending. Finally, the role of multinational corporations is discussed. To demonstrate the forces behind international labor mobility, the chapter begins with a model which is quite similar to that presented in Chapter 3. In each country of the world, the real return to labor equals its marginal product in perfectly competitive markets in each of two countries which produce one good using two factors of production. Labor relocates until the marginal products are equal across countries. While the redistribution of labor increases world output and provides overall gains, it also has important income...
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- Spring '10