International Economics

TOPIC 5
International Factor Movements

Topic 5 covers R.C ch.10, P.K ch.7

Topic 5 Outline
Why focus turns on factor movements Defining Productive Factors International Labor Mobility International Capital Mobility This part can be regarded as the further exploration of trade theory!
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TOPIC 5
International Factor Movements
Why analytical focus turns on FACTOR movement? Classical and neoclassical trade theories did not tell us the basis for all kinds of international business(trade,investment). International factor movement produces even more difficulties than trade flow. The interrelation between trade and investment needs to be identified.
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International Factor Movements

Examples as follows: A capital abundant country may not import labor intensive goods as it may allow more foreign laborers move in (Canadian Economy in 1980s:Substitution Effect). A labor abundant country must import capital intensive goods but it may fail to realize it.( Economic Sanction: China in 1989) Above 50 billion USD flow into China each year, JVs exceeded SOEs to be the no.1 contributor of its total trade value(A new basis for Chinas Trade: Creation 4 2013/4/12

International Factor Movements

Release of assumption Recardian Model assumed Labor as the unique input and unavailable by other countries.This is the essential base for

specialization.

H-O Model assumed the factors of production are available for certain industries at home but not for use of foreign countries. The past case: the mobility of productive factors did little effect on trade pattern in the past. 2013/4/12

TOPIC 5
International Factor Movements
Therefore, The new models should release the assumption of factor immobility internationally. A factor Oriented model can be developed for explaining new trade, immigration and capital transfer. That is the fact!
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TOPIC 5
International Factor Movements
Define the factors of production The resource required to produce a commodity or service. They are usually divided into three categories: Land, Labor, and Capital. (What is the return to a particular factor?)
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TOPIC 5
International Factor Movements
Specific Factor A factor that can only be used for producing a particular good due to its industrial specific. Generally, Labor is mobile, not specific. Capital is specific because of its physical features
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TOPIC 5
International Factor Movements
But, there are some exceptions: Highly trained workers may find difficult to switch careers to a low paid job. Given time, the capital equipment in an auto factory may be used by breweries. Note:no sharp line between specific 2013/4/12 9 factor and mobile factor!

TOPIC 5
International Factor Movements
International Labor Mobility
q

Production Function:

Q=f(L,A,K)
Why is it upward sloping?

Q(L,A,K)

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TOPIC 5
International Factor Movements
MPL

The Marginal Product of Labor(MPL)

Why MPL is downward Sloping?

R.Wage

Labor
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TOPIC 5
International Factor Movements
How will international labor mobility occur?
The employed numbers of workers and Wage Rates will determine A the flow of labor:L1 L2 What does ABC measure?
MPL2

MPL1

Home
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L2

L1

Foreign
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TOPIC 5
International Factor Movements
Please prepare homework in guide of following: Immigrant waves changed over time: How and why The cases of the U.S in 1920s and during 1970s to 1980s. The cases of Chinese students studied abroad.( new stories in Australia)
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TOPIC 5
International Factor Movements
International Capital Movement The intertemporal production frontier Future
Consumption

Why is the frontier Concave? Borrowing and lending will Provide a trade-off . Real interest rate differs
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Present Consumption
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TOPIC 5
International Factor Movements
FDI: To be explained by a variety of theories: The essential causes were not from the traditional ideas. This is mainly explained by the MNE theories

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TOPIC 5
International Factor Movements
MNE is special for its Monopolistic power in the market Network marketing Global strategy FDI Platform

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TOPIC 5
International Factor Movements
Theories mainly lie on: Monopoly Internalization Product Life Cycle OIL Management motive
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1. 2. 3. 4.

Further Readings: UNCTAD: world investment report(renewed) J.Dunning: M. Porter: the competitive advantages of nations HBS working paper: FDI and Growth

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Team Work for Next Week

TOPIC: Trade Policy ACTIVITY: team Presentation Note: 1. Team work: 5 teams, each team of 4-5 in efficient division 2. Center on one issue 3. 1-2 Clearly Delivery of team arguments 4. Debating on related issues rising from the presentation 5. PPT tech is encouraged to use 6. 5 minutes for main speakers

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CENTER QUEWATIONS:
What types of trade strategies should be practiced by China currently in a Global trade system? Why some industries were selected to be purposely protected?

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