Chapter 7 International Factor Movements
Chapter 7 ▪ International Factor Movements
Chapter organization Introduction International labor mobility a International Borrowing and Lending Direct Foreign Investment and Multinational Firms Summary Appendix: More on Intertemporal Trade Copyright C 2003 Pearson Education, Inc Slide 7-2
Copyright © 2003 Pearson Education, Inc. Slide 7-2 ▪ Introduction ▪ International Labor Mobility ▪ International Borrowing and Lending ▪ Direct Foreign Investment and Multinational Firms ▪ Summary ▪ Appendix: More on Intertemporal Trade Chapter Organization
Introduction Movement of goods and services is one form of international integration Another form of integration is international movements of factors of production(factor movements) Factor movements include ° Labor migration Transfer of capital via international borrowing and lending International linkages involved in the formation of multinational corporations Copyright C 2003 Pearson Education, Inc Slide 7-3
Copyright © 2003 Pearson Education, Inc. Slide 7-3 Introduction ▪ Movement of goods and services is one form of international integration. ▪ Another form of integration is international movements of factors of production (factor movements). ▪ Factor movements include: • Labor migration • Transfer of capital via international borrowing and lending • International linkages involved in the formation of multinational corporations
International Labor Mobility A One-Good Model without Factor Mobility Assumptions of the model There are two countries(Home and Foreign) There are two factors of production: Land(T)and Labor (L). Both countries produce only one good (refer to it as output Both countries have the same technology but different overall land-labor ratios Home is the labor-abundant country and Foreign is the land-abundant country Perfect competition prevails in all markets Copyright C 2003 Pearson Education, Inc Slide 7-4
Copyright © 2003 Pearson Education, Inc. Slide 7-4 ▪ A One-Good Model Without Factor Mobility • Assumptions of the model: – There are two countries (Home and Foreign). – There are two factors of production: Land (T) and Labor (L). – Both countries produce only one good (refer to it as “output”). – Both countries have the same technology but different overall land-labor ratios. – Home is the labor-abundant country and Foreign is the land-abundant country. – Perfect competition prevails in all markets. International Labor Mobility
International Labor Mobility Figure 7-1: An Economy's Production Function Output, Q Q(T, L Labor, L Copyright C 2003 Pearson Education, Inc Slide 7-5
Copyright © 2003 Pearson Education, Inc. Slide 7-5 International Labor Mobility Labor, L Output, Q Q (T, L) Figure 7-1: An Economy’s Production Function