International factors flow Dr. Petre Badulescu

Lecture 5, International economics Topics to be covered Introduction Movement of production factors between countries Gains from labor and capital flows Dr. Petre Badulescu Lecture 5, International economics

Lecture 5, International economics Introduction First, we study the movement of labor across countries by explaining the case in which immigration leads to a fall in wages in the host country following the inflow of labor. - The model we use is the specific-factors model, the short-run model. Next, we use the long-run Heckscher-Ohlin model in which capital and land can also move between industries. In the long run, an increase in labor will not lower the wage, as industries have more time to respond to the inflow of workers. For the study of the movement of L across … The model we use is the specific-factors model, the short-run model introduced in Lecture 2. Dr. Petre Badulescu Lecture 5, International economics

Lecture 5, International economics Introduction The short- and long-run models also explain the returns to capital due to foreign direct investment, the movement of capital across countries. We conclude the lecture by discussing the gains to the host and destination countries, and to the world, from the movement of labor or capital between countries. For the study of the movement of L across … The model we use is the specific-factors model, the short-run model introduced in Lecture 2. Dr. Petre Badulescu Lecture 5, International economics

Movement of labor: migration To understand the impact of migration on wages and rentals paid to capital and land in the host country, we return to the specific-factors model presented in Lecture 3. We begin with the short-run model in which capital and land are fixed and labor mobile between industries and countries. We assume that the prices of products, determined by the world markets, and wages are fixed. Dr. Petre Badulescu Lecture 5, International economics

Movement of labor: migration Effects of Immigration in the Short Run: Specific-Factors Model We assume, similar to L3, that the economy has two sectors: agriculture, where land is the specific factor, and manufacturing, which uses capital as the specific factor. Figure 5-1 shows the total amount of labor in the economy is divided between the two industries. Slide 4, Ch 5 Dr. Petre Badulescu Lecture 5, International economics