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People and Capital on the Move

People and Capital on the Move. Lec 17 – Tuesday, 12 April 2011 J A Morrison. California Teamsters, 12 Feb 2008. Admin. Essay 2 Due this Wednesday, 10 PM Sample Essay Posted IP Wiki Goal: facilitate your discussion, reading, & understanding No posts due this week

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People and Capital on the Move

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  1. People and Capital on the Move Lec 17 – Tuesday, 12 April 2011 J A Morrison California Teamsters, 12 Feb 2008

  2. Admin • Essay 2 • Due this Wednesday, 10 PM • Sample Essay Posted • IP Wiki • Goal: facilitate your discussion, reading, & understanding • No posts due this week • Add to “wiki” portion if you have fallen behind

  3. Lec 17: People & Capital on the Move • Our Variables and Assumptions • Trade and Factor Relocation as Substitutes • Capital Movement • Migration as Labor Relocation

  4. Lec 17: People & Capital on the Move • Our Variables and Assumptions • Trade and Factor Relocation as Substitutes • Capital Movement • Migration as Labor Relocation

  5. The “Factors” of Production • Labor: You and Me • Capital: Resources required to produce additional resources  These factors combine to produce goods & services (G&S)

  6. We begin with a very large assumption: there is mobility.There is mobility both across borders and between industries.

  7. International Mobility • Low cost transfer of goods, services, and factors across borders • Some Exceptions: • Real Estate (e.g. Pebble Beach) • Some services: Fitting a cast (but not reading the X-ray!)

  8. Inter-Industry Mobility • Low cost transfer of factors of production across industries • Some Exceptions: • Unskilled labor to skilled jobs • Factories reconfigured (e.g. Ford  computer production)

  9. Lec 17: People & Capital on the Move • Our Variables and Assumptions • Trade and Factor Relocation as Substitutes • Capital Movement • Migration as Labor Relocation

  10. The Logic of Trade

  11. But, as Robert Mundell suggested, trade is only one way to realize the gains of economic integration. Robert Mundell (1931--)

  12. Rather than transferring finished goods and services across borders, we could, instead, transfer the productive inputs(labor and capital) from one country to another.

  13. Economically speaking, trade of finished goods and the relocation of the factors of production are economic substitutes…

  14. From the standpoint of prices of G&S and the returns on factors…It doesn’t matter whether we import/export G&S or the people and capital to produce them.

  15. But that’s in narrow economic terms: prices, wages, returns on capital.In a lot of other respects, though, there are big differences between trade and moving factors around.

  16. Lec 17: People & Capital on the Move • Our Variables and Assumptions • Trade and Factor Relocation as Substitutes • Capital Movement • Migration as Labor Relocation

  17. Our definition of capital was rather broad: “resources required to produce additional resources.”This definition can be traced back to Adam Smith’s conception of “saving” in The Wealth of Nations (1776).

  18. Smith’s notion was that investing capital into production—by mixing it with labor—would create greater quantities of capital which could then be reinvested.

  19. We have both differenttypes of capital and differentforms of investment.

  20. Types of Capital • Conventional • Cash/Money • Land • Machinery, Equipment, Facilities • Less Common • Social Capital (connections, family name) • Individual Capital (singing voice) • Entrepreneurial/Organizational Capital

  21. Forms of Overseas Investment • Foreign Direct Investment (FDI) • 10% investment stake  controlling interest • MNCs [MNEs]: Multinational Corporations/Enterprises • Portfolio • Less than 10%  stock ownership • E.g. Your IRA

  22. Implications of FDI vs Portfolio Investment • Long-term vs short-term interest • FDI comes/goes more slowly • Portfolio investment is volatile--“flighty”  FDI is more long-term • FDI brings additional benefits (buildings, training, &c.) • But foreigners also have more influence with FDI

  23. Richard Caves asks: why do we have multinational corporations (MNCs)? Why not just trade?

  24. Caves’ Answer • Impacted Information: Firms have trouble pricing some products/inputs • Response: firms integrate (rather than trade) • Vertical Integration: acquire inputs • Horizontal Integration: leverage firm’s proprietary assets

  25. What does this have to do with international politics….?

  26. Susan Strange • Econ integration has given states options beyond their home countries • States have to compete to attract FDI • MNCs now have more power to shape state policy  Associated with “dependency theory”

  27. David Fieldhouse • Response to Dependency Theory • Conclusions • Dependence turns on ability to manage relations with MNC • Consider each case separately

  28. …And there is a lot more we could say about “speculative capital flows” chasing portfolio investment. We’ll talk about that next week when we turn to money.

  29. Simply put, moving firms and jobs around is not the same as simply trading finished G&S.

  30. Lec 17: People & Capital on the Move • Our Variables and Assumptions • Trade and Factor Relocation as Substitutes • Capital Movement • Migration as Labor Relocation

  31. What is International Migration? • International Migration: the movement of people across political boundaries • Duration of Stay • Temporary: tourists, students, medical patients, religious pilgrims • Permanent: immigrants, refugees, migrant workers • Direction • Immigration: movement/relocation into a country • Emigration: movement/relocation from a country

  32. Naturally, people relocate for all kinds of reasons: social, political, religious, economic, &c…

  33. Whatever the motivation, migration creates economic as well as social and political effects.

  34. IV. MIGRATION AS LABOR RELOCATION • Economic Effects • Social & Political Effects

  35. Effect on Labor Markets • Changes in Composition of Labor Pool: Skilled vs Unskilled • Competition for Jobs • Complementary Skill-Sets • Change in Quantity of Labor  Change in Wage Rates • Emigration  higher wage rates • Immigration  lower wage rates

  36. Fiscal Implications of Migration • Immigrants • Need more schooling, health care, & unemployment assistance • Support social security, work more hours, pay considerable taxes • Emigrants: how to make them pay income tax? • All US citizens must pay income tax no matter where they reside or earn income  Over all fiscal effect is unclear but most likely positive effect for host countries

  37. And, of course, there’s the issue of remittances.

  38. A remittanceis the transfer of money across space, often internationally.

  39. Remittances Then and Now • Originally developed to finance overseas purchases and investments • Remittances have become a major means by which individuals support families overseas • Remittances for everyone • Wealthy: British “remittance man” supported by family • Poor: Migrant workers supporting family back home

  40. Kapur & McHale on Remittances • Totaled $80bn in 2002; more than foreign aid! • Some countries’ largest export is labor • Infusion of wealth traded for brain drain • Reconfiguration of international relations • Symbiosis • Antagonism

  41. IV. MIGRATION AS LABOR RELOCATION • Economic Effects • Social & Political Effects

  42. The social implications of increased migration garner at least as much attention.Sam Huntington has inserted himself at the center of this debate…

  43. Huntington: Latin-Amer Immigration is Different • Contiguity • Scale • Illegality • Regional concentration • Persistence • Historical presence

  44. Huntington suggests that the implications are profound…

  45. “In the end, the results could be similar: the creation of a large, distinct, Spanish-speaking community with economic and political resources sufficient to sustain its Hispanic identity apart from the national identity of other Americans and also able to influence U.S. politics, government, and society.” – Samuel Huntington, The Hispanic Challenge

  46. This position has deep roots in American political discourse…

  47. “They will bring with them the principles of the government they leave…These principles, with their language, they will transmit to their children. In proportion to their numbers, they will share with us the legislation. They will infuse into it their spirit, warp and bias its direction, and render it a heterogeneous, incoherent mass” – Thomas Jefferson, Notes on the State of Virginia 1784

  48. These views may be more prevalent than we immediately suspect…

  49. Nick Griffin • Chairman of the British National Party (BNP) • Member of the European Parliament for North West England (Griffin explains his surreptitious strategy. YouTube)

  50. Discussion Questions • Are we better off liberalizing trade or our factors of production? Do we have a choice? • Are multinationals evil? • Is L.A. Immigration a threat, as Huntington claims?

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