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The middle-income trap (MIT) describes systemic growth obstacles shared by various countries that occur typically at the middle-income level of their development. The following analysis relies on Rostow’s classification of the stages of economic development. We focus on Rostow stages three and four, where moving from labor intensive, import and foreign direct investment (FDI) driven growth to reliance on high value-added output and exports with embedded high content of capital and technology can render sustainable long-term growth problematic. To examine MIT we study Poland, which has relied on relatively low labor costs, imported technologies, funding from the European Union and FDI to attain middle-income status. A recent slowing in Poland’s growth may signal that it has exhausted some of these growth factors and is more vulnerable to MIT. To assess this vulnerability, we analyze changes in Poland’s factor productivity, investment patterns, FDI, labor force educational attainments, new technology/product development, imports, export diversification, product complexity, and other factors. We conclude that certain conditions consistent with MIT are gaining importance in Poland and represent a challenge to its future economic growth.

The purpose of this study is to investigate the influences that international factor movements have on the environment in developing country under agricultural dualism. By using a general equilibrium model that incorporates a modern agricultural sector in different stages, we analyse the effects of international factor movements on the environment. At the beginning of the modern agricultural sector, international labour movement has no influence on the environment; if the modern agricultural capital share in the economy increases to a certain level, international capital inflow improves the environment in the developing countries whereas international capital outflow harms the environment, otherwise, international capital inflow harms the environment whereas international capital outflow improves the environment. However, after the popularization of modern agriculture, international labour movement and international capital movement affect the environment in the same direction: factor inflow harms the environment, whereas outflow improves the environment. Thus, it is possible for the international factor movement be compatible with the environmental protection in a developing country.

This chapter attempts to explore the relationship between international trade and international factor movements in the sphere of economics and situate it in the realm of politics. It argues that the explicit prescriptions and the implicit neglect of economic theory both conform to the compulsions of political reality. The chapter traces the origins of the free-trade doctrine in classical political economy to set out the fundamental propositions of orthodox trade theory which provide the basis for the prescription that free trade would lead to both efficiency and equity. It endeavours to analyse the relationship between international trade and factor mobility in the abstract world of economic theory. However, it considers not only international trade in goods and international capital movements, which have been the subject of attention, but also international trade in services and international labour movements, which have been the object of neglect.

This paper investigates how the international factor movements affect the unemployment and skilled–unskilled wage inequality with the existence of a modern agricultural sector. Our research has the new feature that we not only consider that the rural labor migrates to the urban sector but also to the modern agricultural sector. The main conclusions are that the unskilled labor outflow certainly decreases the wage inequality and unemployment rate and the influences that skilled labor movement and capital inflow have on wage inequality and unemployment rate are dependent on the factor intensity between the urban and modern agricultural sectors.

This paper is a preliminary attempt to analyze information as a factor of production in international trade. It is a first attempt to get a handle on the direction and balance of information flows. We have obtained quantitative data about Web-related data flows between countries, and we explore how those flows are correlated to trade in goods . Using Telegeography data on “Server Location as a Percentage of Top Websites,” we found that 2/3 of all web traffic is transnational. More than half of the top 100 web sites in 9 of the world’s 13 sub-regions are hosted in the United States. Central Asia and Eastern Europe, for whom 37% and 41% of their most popular websites, respectively, are requested from the US. Even well-developed Western Europe makes almost half of its top 100 web site requests to US-based sites. For US users, on the other hand, only about 26 of the top 100 websites are hosted outside the country, and 20 of them are in Europe.Ironically, East Asia, which has a huge goods trade surplus with the developed economies, particularly with the US, has the largest negative balance in the relationship between incoming and outgoing Web requests. Indeed, we found a very strong negative correlation (-0.878) between web traffic balances and the balance of trade in goods across all subregions. Once these aspects of transnational data flows are quantified, the paper discusses the implications of these findings for policy, especially trade policy. It raises the question whether the goal of a free and open digital economy is best advanced by placing information exchanges in the trade paradigm and pushing for free trade, or by asserting a more general human right to free and open information exchanges across borders, which has social and political as well as economic consequences. These two approaches are not mutually exclusive, of course, but by making these distinctions we clarify the debate over international policy in the digital world.

This chapter surveys natural resource-based growth in three types of economy in the period 1870–1914: regions of recent settlement (Canada, United States, Australia, Argentina) tropical countries (Brazil, Colombia, Costa Rica, Ceylon, Burma, Siam, the Gold Coast) and mineral-rich economies (Bolivia, Chile, South Africa). What all of these had in common was that they had an economic frontier—horizontal and agricultural in the first two cases, an open range or a virgin selva, and vertical in the case of mineral economies. The chapter makes use both of the Christopher Columbus model and the frontier/staples model to explain why some of these countries, but not all, managed to develop and industrialize. All three types of economy rested on the interplay between international trade, international factor movements and the existence of a frontier. This served to increase incomes and growth rates, but all the examined countries did not make the right choice of economic policy, either not industrializing or industrializing on an inappropriate basis.

German Abstract: Die soziale "Hangematte" -, wer hat nicht bereits solche Argumente gehort? Obwohl die ILO in ihrem jungsten "ILO-Weltsozialschutzbericht 2014/2015" deutlich darauf hingewiesen hat, dass der Sozialschutz eine wichtige Rolle bei der Verwirklichung des Menschenrechts auf soziale Sicherheit fur alle spielt, fur die Verringerung der Armut und Ungleichheit, und dass er integratives Wachstum unterstutzt, gibt es eine nicht enden wollende Diskussion um angeblich zu groszugige Sozialschutzausgaben, insbesondere in Europa. Die deutsche Bundeskanzlerin Angela Merkel hat vor kurzem diese Argumente geausert, indem sie behauptete, dass die Europaische Union einen Anteil von nur sieben Prozent der Weltbevolkerung habe, aber zur gleichen Zeit mehr als 40 Prozent der weltweiten Sozialausgaben ausgebe. Solche Perspektiven ubersehen die Erfolgsgeschichte der kleinen, weltmarktorientierten Sozialstaaten, die eine Kombination von Sozialpartnerschaft, umfassenden Gewerkschaften und Lohnzuruckhaltung mit einem engen sozialen Netz nach 1945 bedeuteten. 16 der 20 weltweit fuhrenden Lander nach dem Weltbank Regulatory Quality Index entsprechen diesem Modell. Basierend auf der veroffentlichten Literatur uber die Effizienz und Effektivitat der Sozialausgaben entwickeln wir eine klare empirische Methode, basierend auf der Analyse von Daten der ILO, von Eurostat und der OECD, die die Berechnung der Regressionsresiduen aus der Armut vor und nach Sozialtransfers als Mas fur die Effizienz der Verringerung der Armut interpretiert, und die Berechnung der Regressions-Residuen aus Sozialschutzausgaben und diesem neu abgeleiteten Mas fur die Effizienz der Armutsbekampfung als neues, endgultiges Mas fur die Effizienz der Sozialschutzausgaben in der Armutsbekampfung. Die empirischen Ergebnisse unserer Bemuhungen kann man/frau dann in den folgenden sechs Hauptthesen zusammenfassen: 1) Unsere Re-Analyse der Angela Merkel-Hypothese auf der Grundlage von 169 Landern, fur die wir die letzten ILO Sozialschutz-Daten und Weltbank uber das GNI nach Kaufkraft verwendeten, zeigt, dass die 27 EU-Lander mit vollstandigen Daten nur 33% der globalen Weltsozialschutzausgaben ausgeben, wahrend die 13 nicht-EU-OECD-Mitglieder, darunter die grosen anderen westlichen Demokratien, 40% der weltweiten Sozialschutzausgaben ausgeben, die BRICS 18% und der Rest der Welt 9%. Ein Thema fur die Reflexion auf der Tagesordnung von Bundeskanzlerin Merkel konnte somit der relativ erfolgreiche Sozial-Keynesianismus der angelsachsischen Demokratien in Ubersee sein, die im krassem Gegensatz zur Sparpolitik im Rahmen des europaischen "Fiskalpakt" stehen. 2) In diesem Artikel werden wir auch einige empirische Bestatigungen fur die ILO-Thesen finden, nach denen die soziale Sicherheit eine wichtige Rolle bei der Verwirklichung des Menschenrechts auf soziale Sicherheit fur alle spielt, fur die Verringerung von Armut und Ungleichheit und zur Forderung eines breitenwirksamen Wachstums. Er verbessert Humankapital und Produktivitat, unterstutzt die Binnennachfrage und erleichtert den Strukturwandel in den Volkswirtschaften. 3) Unsere Ergebnisse zeigen, dass die folgenden Mitglieder der EU zurzeit (2012) die effizienteste Nutzung der Sozialschutzausgaben in der Armutsbekampfung hatten: Tschechische Republik; Irland; Ungarn; Niederlande; Slowakei; Slowenien; Luxemburg; Finnland; Danemark; und Malta. Dies repliziert die in fruheren Studien des Verfassers beschriebene Rangliste und insbesondere betont die Untersuchung erneut, dass die Tschechische Republik ein sehr effizientes Sozialmodells hat. Der "kranke Mann am Bosporus" der Sozialpolitik in Europa war dagegen Griechenland; Italien; Spanien; Bulgarien; Portugal; Kroatien; Deutschland; Lettland; Polen; und Frankreich, auch teilweise in Replikation der Ergebnisse aus fruheren Studien. 4) Ausreichende Datenwahrend der Zeitspanne von 2005 bis 2013 in der Zeitreihe stehen nun zur Verfugung um zuverlassige Ergebnisse uber jene Lander zu erzielen, die die Effizienz in diesem Zeitraum verbesserten. Die Superstars der Verbesserung der Effizienz des Sozialschutzes in der Armutsbekampfung uber die Zeit waren Osterreich; Litauen; und die Niederlande. 5) Unsere makro-quantitativen Vergleiche zeigen, dass ein effizienter Sozialschutz in der Tat ein wichtiger Garant fur eine zufrieden stellende Gesamtentwicklung in den Bereichen Geschlecht, Bildung, EU-2020 Performance, Demokratie, gesellschaftliche Toleranz, Lebenszufriedenheit, Happy Life Jahre, Stabilitat der Demokratie, und Verringerung der Differenz zwischen den armsten und den reichsten Schichten darstellt. 6) Unsere Ergebnisse zeigen eine grose Ubereinstimmung zwischen den Ergebnissen, basierend auf Daten von Eurostat, und denen der OECD.English Abstract: The "welfare hammock" - who didn't hear already such arguments? Although the ILO in its recent "ILO World Social Protection Report 2014/2015" has clearly pointed out that social protection plays an important role in the realization of the human right to social security for all, for the reduction of poverty and inequality and that it supports inclusive growth, there is a never-ending debate about supposedly too generous social protection expenditures, especially in Europe. The German chancellor, Angela Merkel, has recently taken up these arguments, by claiming that the European Union accounts for only seven percent of the world population, but at the same time it consumes more than 40 percent of global social spending. Such perspectives overlook the analysis of the success story of the small, world-market oriented welfare states, combining social partnership, fairly encompassing trade unions and wage restraint with a fairly tight social net after 1945. 16 of the 20 global leading countries according to the World Bank Regulatory Quality Index correspond to this model. Based on the published literature on the efficiency and effectiveness of social spending, we develop a clear empirical method based on the analysis of data from ILO, Eurostat and the OECD data, calculating the residuals from poverty before and after social transfers as the measure of the efficiency of poverty reduction, and calculating then the residuals from social protection expenditures and this newly derived measure of the efficiency of poverty reduction as the new final measure of the efficiency of social protection expenditures in poverty reduction.The empirical results of our efforts then can be summarized in the following six main theses:1) Our re-analysis of the Angela Merkel hypothesis based on 169 countries for which we have recent ILO Social Protection data and World Bank GNI PPP data reveals that the 27 EU countries with complete data spend only 33% of global world social protection expenditures, while the 13 non-EU-OECD members, among them the major other Western democracies, spend 40% of global social protection expenditures, the BRICS 18% and the Rest of the World 9% of global social protection expenditures. A theme for reflection on the agenda of Chancellor Merkel thus could be the current relatively successful social Keynesianism of the Anglo-Saxon overseas democracies, which are in stark contrast to the savings agenda in the framework of the European "fiscal pact".2) In this article we will also find some empirical confirmation for the ILO's thesis according to which social security plays an important role in the realization of the human right to social security for all, for reducing poverty and inequality and for the support of inclusive growth. It indeed improves human capital and productivity, supports domestic demand and facilitates structural change in economies.3) Our results show that the following members of the EU currently (2012) had the most efficient use of social protection expenditures in poverty reduction: Czech Republic; Ireland; Hungary; Netherlands; Slovakia; Slovenia; Luxembourg; Finland; Denmark; and Malta. This replicates the ranking described in earlier studies by the present author, and in particular emphasizes again that the Czech Republic has a very efficient social model. The "sick man on the Bosporus" of social policy in Europe by contrast was Greece; Italy; Spain; Bulgaria; Portugal; Croatia; Germany; Latvia; Poland; and France, also partially replicating results from earlier studies.4) Sufficient data are now available in the time series in order to present reliable results on which countries improved their efficiency and which countries did not during the time period from 2005 to 2013. The superstars of improving efficiency of social protection in poverty reduction over time were Austria; Lithuania; and the Netherlands.5) Our macro-quantitative comparisons show that an efficient social protection is indeed an important guarantee for a satisfactory overall development in the areas of gender, education, EU-2020 Performance, democracy, societal tolerance, life satisfaction, Happy Life Years, stability of democracy, and reducing the difference between the poorest and the richest strata. 6) Our results show a large concordance between findings, based on data from Eurostat and from the OECD.

Since their opening up to international capital markets, the economies of Estonia, Latvia and Lithuania have experienced large and persistent capital inflows and trade deficits. This paper investigates whether a calibrated two-sector neoclassical growth model can explain the magnitudes and the timing of the trade flows in the Baltic countries. The model is calibrated for each of the three countries, which we simulate as small closed economies that suddenly open up to international trade and capital flows. The results show that the model can account for the observed magnitudes of the trade deficits in the 1995-2004 period. Introducing a real interest rate risk premium in the model increases its explanatory power. The model indicates that trade balances will turn positive in the Baltic states around 2010. (Copyright: Elsevier)

The paper develops a general–equilibrium model with layoff unemployment to examine the effect of different unemployment insurance policies on international capital mobility. Conditions are derived under which capital will flow to the high–benefit country. Incentives for international capital movements are unaffected by how the burden of financing unemployment benefits is distributed between workers and firms. It is shown that capital outflows might have positive welfare effects for workers. This contrasts with results from standard models of international factor movements.

Spain's 1986 entry into the European Community was followed by a dismantling of restrictions on international capital flows. Initial trade deficits and real exchange rate appreciation were followed by trade surpluses and real exchange rate depreciation. This paper analyzes Spain's financial liberalization using a dynamic general equilibrium model with a traded and nontraded good where a capital poor country opens itself to its capital rich neighbors. A carefully calibrated model has trouble accounting for the large changes in relative prices observed given the small changes in quantities. Variants of the model with frictions in factor mobility between sectors fare better.

This paper investigates convergence for a group of seven countries during the period 1870–1914. A standard empirical growth model which includes physical and human capital accumulation proves unsatisfactory in this setting. An alternative neoclassical open-economy factor accumulation model is proposed, which admits capital and labor migration, and may be extended to include a moving frontier. The model explains the observed convergence pattern in the sample and suggests that factor accumulation patterns were the prime sources of labor productivity convergence from 1870 to 1914.

The following issues need to be examined when considering the historical links between international factor movements and international trade, and whether increases in factor flows stimulated trade or vice versa: the extent to which increased trade and factor mobility foster economic growth and development, how different factor flows are related, whether labor movements induce capital flows or vice versa, whether alternative types of factor mobility substitutes or complements, and whether trade liberalization promotes factor mobility or there are alternate types of international transactions substitutes as argued by those who ascribe to the classic Heckscher-Ohlin-Samuelson factor-price-equalization tradition. Accordingly, the historical links between international factor mobility and the extent of international trade are analyzed over the long term for Australia, Canada, and the US, high labor immigration countries; and the UK, a high labor emigration country. Time series data are used. Current international openness is assessed. International factor market integration has increased over time with trade liberalization, suggesting that traditional Heckscher-Ohlin thinking cannot be readily used to account for long-term trends in several important economies. Both trade and factor mobility have an episodic character which makes it misleading to assess current international openness only in terms of post-World War II economic trends.

This paper studies the connection between social security policy and international factor movements within a two-country overlapping-generations model with production. Incentives for factor movements emerge because one country relies on private savings while the other country operates a social security system. The pattern of migration depends on the steady-state capital–labor ratios compared with the Golden Rule capital–labor ratios. Incentives to migrate do not vanish in the long run and one country might empty out. Capital always moves to the social-security country. Without compensation neither labor nor capital mobility represents a Pareto improvement for the economy.

Nowadays not only goods and services move across national borders but factors of production also. Firms deliver goods and services to foreign markets more through their foreign direct investment operations (foreign affiliates) than through traditional forms of international trade, like export. Labour is also moving from one country to another and that replaces the need for trade in services. The activities of transnational enterprises caused the main distortions in the gathering and analysing of statistical data on international trade, so traditional foreign trade statistics are not longer a good framework for the analysis of international trade flows. New approach in international trade analysis must include new forms of indirect export of goods and services on international markets – sales through foreign affiliates and the movement of labour across national borders. New statistical tools are Foreign Affiliates Trade Statistics (FATS) and Value-Added trade recording that represent a solid base for facilitating economic policy decisions.

This paper examines the macroeconomic impact of migration on income convergence in the EU's New Member States (NMS). The paper focuses on cross-border mobility of labor and examines the implications for policymakers with the help of a general equilibrium model. It finds that cross-border labor mobility provides ample benefits in terms of faster and smoother convergence. Challenges, however, include containing wage pressures and better mobilizing and utilizing resident labor that does not cross borders.

In this qualitative sociological and quantitative economic policy paper, we show the trade-off between social expenditures and absolute poverty, and construct a non-parametric efficiency indicator, combining the residuals from the trade-off between social expenditures per capita and absolute poverty from recent EU-Commission and UNDP data (% of the population below 10 Euros, 5 Euros, and 13 Dollars a day, as well as % of the population dying before age 60). Among the older EU-15 members, Germany is among the least efficient systems, while the Czech Republic again leads the field, thus replicating recent results reported by Heshmati et al.

The multinational enterprise's relationship to wages and income distribution raises questions at two levels of analysis. In general equilibrium, the MNE reallocates capital between nations. That transfer can alter the income distribution within the source and host countries. In the individual industry (partial-equilibrium analysis), the MNE can affect the labor-management bargain. We shall take up these two levels of analysis in turn; the concluding section will suggest some propositions about the relationship between them. Income Distribution in General Equilibrium In the early 1970s, U.S. labor unions campaigned strenuously to restrict foreign investment by U.S. corporations, in the name of saving American jobs. Nearly two decades later Glickman and Woodward (1989) argued that, while U.S. investment abroad destroys American jobs, foreign MNEs' investments in the United States do not create very many. Similar issues arise periodically in other countries, as in Japan's concern in the 1980s that foreign investment was “hollowing out” its manufacturing sector. Economic analysis does not accept the popular view that foreign investment permanently changes the level of unemployment, but it does affirm that short-run changes in unemployment and permanent changes in real wages can result. Exactly what changes are predicted depends sensitively on assumptions about the nature of direct investment and the structure of the economy. We start with the long-run effects on income distribution and wages and then treat employment effects as their short-run counterparts. Theoretical Models International-trade theory offers several models that relate international factor movements to the distribution of income.

We introduce international labor mobility in a three-sector general equilibrium model with rural-urban migration. We demonstrate that under some reasonable conditions an inflow of foreign skilled labor (capital) can reduce skilled-unskilled wage inequality.

In a world of increasing globalization and increasing importance of all channels of international factor movements, the theoretical understanding of the relationship between migration, capital movements, and trade is necessary for both empirical analysis and policy advice. Economists have devoted some effort to the analysis of the relationship between trade and foreign direct investment (Brainard 1997, Blonigen 2001, Markusen 2002) and trade and migration (Gould and Findlay 1994) but less so to the relationship between different types of factor movements. However, the question how FDI affects international labor migration is an important one, since whether capital and labor movements are substitutes or complements yields different policy implications.

The 1990s produced a large literature on foreign trade and the environment, including both theoretical and empirical contributions. The paper surveys this literature. It starts by looking at the traditional Heckscher–Ohlin type models of international trade and then moves to noncompetitive models and the strategic use of environmental policy in open economies. A shorter section is devoted to public-choice approaches to environmental policy. Moreover, the paper deals with factor mobility and interjurisdictional competition, with intertemporal issues such as renewable resources and foreign indebtedness, with the empirical evidence, and with institutional issues related to the World Trade Organization and international environmental agreements. Basically three questions are addressed from different points of view: – Are trade liberalisation and increased factor mobility good or bad for the environment? – Are there larger incentives to relax environmental policies if economies are more open? – Do we have to expect a race towards the bottom in environmental regulation if trade and international factor movements are liberalised? The answers to all these questions are ambiguous. Since many of the recent contributions to the theoretical literature model second-best worlds, in which the environmental externality is only one of several distortions of the economy, the results depend crucially on the nature of the other distortions. This survey paper gives an overview of this literature and explains the contradictory results. On the empirical side, the results are inconclusive as well. The link between environmental policies on the one hand and international trade and factor movements on the other is much weaker than one might have expected given the intensity and controversy of the policy debate at the turn of the century. Based on the theoretical results and on the empirical evidence, the paper finally tries to identify promising areas of future research. In spite of much progress made in the last decade, much remains to be done.

This paper examines the implications of unemployment resulting from efficiency wages for international factor movements in a standard Heckscher-Ohlin model where the relative size of the endowments of skilled and unskilled workers and the efficiency wage induced unemployment level in the unskilled labour market are simultaneously determined given the population, supply of capital and its distribution in the economy. Capital in the economy is used only to train individuals for the skilled labour market, where workers are fully employed. It is shown that the optimum labour inflow in the market with domestic distortion and the optimum capital inflow are always positive because they reduce the severity of distortion by raising employment and income for the residents. The income and employment of foreigners also increase. Under this situation the optimum labour or capital outflow on the other hand is always zero. These conclusions directly contradict the result obtained for international factor movements in th...

Most people would agree that it makes sense to tax a company that pollutes in a way that directly reflects the amount of environmental and social damage it has done. Yet in practice, such taxes are fraught with difficulty and have far-reaching implications. A company facing a new tax may lay off workers, for example, exacerbating an unemployment problem. This volume focuses on such external issues and examines in detail the trade-offs involved in designing policies to deal with environmental problems. Reflecting the broad nature of the subject, the contributors include leading economists in the areas of public finance, industrial organization and trade theory, as well as environmental economists. Integrating both theoretical and empirical methods, they examine environmental policy design as it relates to location decisions, compliance costs, administrative costs, effects on research and development, and international factor movements. Shedding light on an extraordinarily complex and important topic, this collection should be of interest to all those involved in designing effective environmental policy.

Foreword 1. Trade and migration an introduction Riccardo Faini, Jaime de Melo and Klaus F. Zimmermann Part I. Insights from Theory: 2. Trade liberalisation and factor mobility: an overview Discussion Andre Sapir 3. Regional integration, trade and migration: are demand linkages relevant in Europe? Rodney D. Ludema and Ian Wooton Discussion Giorgio Basevi 4. Beyond international factor movements: cultural preferences, endogenous policies and the migration of people: an overview Arye L. Hillman and Avi Weiss Discussion Francesco Daveri 5. Trade liberalisation and public-good provision: migration-promoting or migration-deterring? Konstantine Gatsios, Panos Hatzipanayotou and Michael S. Michael Discussion Ignazio Musu Part II. Quantifying the Links Between Trade and Migration: 6. Trade and migration: a production-theory approach Ulrich Kohli Discussion Marzio Galeotti 7. Migration, dual labour markets and social welfare in a small open economy Tobias Muller Discussion Rudolf Winter-Ebmer 8. Globalisation and migratory pressures from developing countries: a simulation analysis Riccardo Faini, Jean-Marie Grether and Jaime de Melo Discussion Alessandra Venturini Part III. Historical and Contemporary Evidence: 9. Were trade and factor mobility substitutes in history? William J. Collins, Kevin O'Rourke and Jeffrey G. Williamson Discussion Gianni Toniolo 10. Liberalisation and incentives for labour migration: theory with applications to NAFTA James R. Markusen and Steven Zahniser Discussion Pasquale M. Sgro 11. East-West trade and migration: the Austro-German case Rudolf Winter-Ebmer and Klaus F. Zimmermann Discussion Marina Schenkel.

Thus far we have studied the principles behind international trade: what motivates the flows of goods between countries, and what are the welfare effects of these flows to individuals, countries and the world as a whole. Without any doubt international trade is still the major force promoting economic integration in the world. But it is not the only one: the international movements of resources may serve equally as well or, in some cases better, to integrate economies. Our attention now turns to the international flows of the two most used resources: labour and capital.

This paper develops a two-country model of trade and factor mobility, in which capital is sector-specific but internationally mobile. The model avoids the indeterminacy and propensity to specialize of Heckscher-Ohlin models and exhibits a rich variety of responses to exogenous shocks, including transfers, capital taxes, and tariffs. The results throw light on the relationship between goods and factor trade, reconciling the conflicting views of previous writers. It is argued that the model holds out the possibility of a new paradigm in international trade theory in which international factor movements play a central rather than a peripheral role.

The models of trade we have considered so far have had in common the assumption that factors of production cannot move between countries. This is of course a simplification, intended to codify the observation that while factors of production do move internationally, they do so less freely than do goods and services. In this chapter we shall consider some of the causes and consequences of international movements of labour (migration) and capital (foreign investment) when there are no market imperfections. In Chapter 22 we shall consider the role of foreign investment when imperfections in markets lead to the establishment of multinational enterprises.

Publisher Summary Although it is conventional for trade theorists to regard multinational corporations (MNCs) as international factor movements, Helpman, and Helpman and Krugman have developed an innovative approach to MNCs. While differences in factor endowment proportions may be one determinant of MNCs, this chapter presents an alternative determinant, namely, technological superiority possessed by MNCs. As the Ricardian model is the simplest tool to analyze technological differences, the chapter presents the two-country, two-good Ricardian model under perfect competition. In this model, MNC superiority is interpreted as absolute advantage. The chapter discusses headquarter services through the concept of labor coefficients divided into two parts, namely, coefficients for headquarter activity and those for plant activity.

The purpose of this paper is to analyse the impact of international factor movements on the personal distribution of income. In order to get clearcut results we use a simple model of trade and migration in which there are two traded goods and three factors. For any given country one of the traded goods corresponds to exports and the other to imports. The three factors include capital and two types of labour--skilled and unskilled. We focus mainly on the alternative results of international migration of the two types of labour. The geographical focus is worldwide. (EXCERPT)

This paper questions the feasibility of Pareto-type gains from international factor movements without lump-sum compensation, when taxes (subsidies) on factors and con- sumers located within the same country cannot discriminate on the basis of national origin. As the analysis shows, no incentive-compatible scheme of taxation based on location (versus nationality) is a feasible mechanism for ensuring that free factor mobility always raises every home national's welfare above the autarkic level. This result introduces a note of pessimism about the possibility of avoiding distributional problems associated with factor movements between countries. Gains derives de mouvements internationaux de facteurs sans compensation forfaitaire: fiscalite par localisation versus fiscalite par nationalite. Ce memoire remet en question la

In a succinct but classic article appearing in Economica in 1968, Ramaswami put forth an argument supporting the superiority of a policy that attracts foreign factors over a policy that allows a relatively abundant factor to emigrate. In each case the active home country is assumed to levy taxes on factor flows so as to capture for itself the discrepancy in return to the same factor at home and abroad. The asymmetry reflected by this policy ranking rests on a basic propeity of production functions-the convexity of technology-plus the ability of the active home country to hire (or rent out) factors at wages or rentals prevailing in the foreign country.' Briefly put, the Ramaswami argument proceeds as follows. Suppose the active home country is capital-abundant and has levied on optimal tax on earnings of its own capital operating abroad. Now consider repatriating this capital, and allowing, for the first time, some inflow of foreign labour. In particular, suppose the home country allows a level of immigration identical to the labour force previously employed with the home capital that is being repatriated. Such a transfer of (home) capital and (foreign) labour out of the foreign country leaves factor proportions abroad undisturbed, and thus does not alter the wage that must be paid to attract the requisite bundle of foreign workers. Although the home country thus avoids any increase in factor costs in foreign markets, it can increase output since the capital/labour ratiooriginally employed at home at high home wage rates is greater than the ratio in the freshly acquired bundle from abroad. By adopting a uniform capital/labour ratio over all factors now employed at home, output, and thus real income, rises. There may be even further gains to be had by allowing yet a different (optimal) level of immigration in the home country, which has now banned capital exports.2 Essential to the Ramaswami argument is the ability of the home country to extract a bundle of factors previously employed abroad without disturbing factor prices in that country. Indeed, Jones, Coelho and Easton (1983) have suggested that, in the context of the Ramaswami discussion, the original argument could be pursued to suggest that the home country gains not only from repatriating its own capital but from actually encouraging foreign capital to be employed at home. Such a capital flow is admittedly "uphill"-the home country would have to pay out more in rentals than such capital can earn at home. Despite this fact, such an import of capital and labour, in the same proportions found abroad, does not alter foreign factor prices but does, via the same Ramaswami-type argument on the convexity of the technology, result in gains at home. Although Ramaswami's own discussion starts with a repatriation of home capital previously invested abroad, his argument can be applied directly to the foreign autarky factor endowment bundle. If technology exhibits constant returns to scale, and if all (both) factors are indeed internationally

This paper examines the optimal taxation of factor movements in a three factor model where two factors are potentially mobile. Results emphasize the role of substitutability or complementarity between factors in determining the optimal pattern of factor flows. In particular, a result analogous to the Ramaswami result on the desirability of factor-importing over factor-exporting will hold if factors are complements, but may not hold if they are substitutes. Also, a capitalexporting country that cannot tax imported labor should allow labor imports when capital and labor are substitutes, but may not allow labor imports if they are complements.

Two events in the decade of the 1970s had a major impact on world trade and factor movements: the collapse of the Bretton-Woods fixed-exchange rate system and OPEC’s success in raising petroleum prices. The enormous current account surplus accruing to some of the OPEC members was successfully recycled by the international capital markets to, among others, the oil-importing developing countries. In addition, the vastly increased tempo of investment in the capital-rich labour-poor OPEC members in West Asia attracted migration of labour (skilled as well as unskilled) to these countries from some of the oil-importing developing countries. The remittances from these workers in turn eased the problem of the labourexporting countries in adjusting to the increased cost of oil imports. Thus, both borrowing from private capital markets and export of labour became very important elements in cushioning the oil shock for a number of countries. The post-OPEC movements of labour and financial capital, while dramatic, are only the more recent instances of a phenomenon of much greater antiquity. The seventeenth and eighteenth centuries saw vast migration of people out of Europe, though these movements were the result of conquests and colonization rather than movements from one sovereign state into another. But the nineteenth century, particularly the latter half, saw migration of the latter kind from Europe to countries of North and South America, as well as capital investment by residents of Europe in these

To the basic model of international factor mobility is added a third, immobile factor. Unlike the basic model, the factor flows that result from a policy of free mobility are now uniquely determined. Additionally, a large variety of privately optimal national policies is predicted, each dependent upon the country's endowment pattern and the fiscal instruments available to it. Several of the predicted policies, e.g. subsidies paid to migrant factors and simultaneous restrictions on the export of both factors, are incompatible with the basic model.

In this paper I study the welfare gains from free and restricted international movement of factors in the presence of free and restricted trade in goods. In moving from an equilibrium with trade in ...

This paper analyzes two different ways of allowing foreign capital inflow: introducing it into the domestic economy and introducing it into a duty-free zone. It shows how the ranking of the two policies depends on the production patterns in the duty-free zone and the rules of factor income repatriation. The result can be used to explain the discrepancy between the rankings of these policies in two recent papers. The analysis also shows how the way of repatriating factor income could affect the equilibrium of factor movement, the welfare of the factor owners and the welfare of the countries concerned.

Publisher Summary This chapter discusses international factor movements in today's world such as labor, capital movements, and direct investment and examines the appropriate conception of capital movements. Physical capital is transferred abroad through a trade surplus and corresponds to the accumulation of ownership claims against capital located in a foreign country. Hence, the appropriate concept of international capital movements simply involves a change in the location but not the ownership of physical capital. In growth models, the trade surplus corresponding to the transfer of capital must be taken into account. In static models, there is a one-time stock adjustment in which a portion of a fixed stock of physical capital simply moves abroad. The chapter discusses income distribution and factor movements in a general setting of r factors and n goods. International factor movements alter the relative domestic supplies of productive factors and, hence, should change the internal distribution of income. The MacDougall–Kemp model is useful for making illustrative calculations of the impact of immigration on income distribution. The model is limited by the fact that it uses only two productive factors though it is easy to extend the model to more than two factors at the cost of losing its sharp predictive powers.

This paper extends the standard (two-factor, one-good) model of international factor movements, to include unemployment due to a minimum-income guarantee within the capital-abundant country. From this country's perspective, we establish important departures from previous (full-employment) results. Most notably, our analysis shows that: (1) free factor mobility is worse than no mobility; (2) the optimal degree of labour migration is zero; and (3) national welfare can always be maximized by an optimal flow of capital. The analysis is then extended to examine: (1) illegal migration; (2) subsidization of employment; and (3) alternative views of unemployment.

The author critically examines an article by Kar-Yui Wong concerning "two important, well-known propositions on international factor movements--namely, first, finite international factor movements are beneficial to the nationals of the destination-country but detrimental to those who are left behind in the source-country; and second, marginal movements do not have such welfare implications.... The present paper, by utilizing the indirect trade utility function, derives...results in a manner that is both direct and at once intuitively transparent."

This paper studies the welfare losses from tariff protection in a small open economy when some factors are internationally mobile. Our principal result is that international fictor mobility must raise the cost of protection. More specifically, the welfare loss resulting from a uniform increase in tariffs in a competitive small open economy is greater when tariff-induced international factor movements take place than when factors are internationally immobile. By contrast, an exogen1ous inflow of factors in the presence of tariffs may increase or reduce the welfare loss associated with protection, depending on whether or not the protected commodities use the foreign-owned factors intensively relative to domestically-owned factors. These results are proven for a very general specification of the economy's technology: in particular, no restrictions are placed on the degree of vertical integration in production, on the sectors into which factors are internationally mobile, or on the number of goods and factors. Our main result holds whether or not an increase in tariff rates leads the economy to specialise. In addition, we show how our results relate to earlier work on immiserising capital inflows and on negative shadow prices for factors of production, thus synthesizing a number of recent results within a common framework. The paper is organised as follows. In Section 2, we explain our framework and derive expressions for the welfare effects of tariffs when all factors are domestically owned and when some factors are foreign-owned but not internationally

Reprint of a paper presented to the 1st postwar World Population Conference in 1954 in Rome addressing the issue of the uses of international trade for overcoming inequalities in world distribution of population and resources. Many underdeveloped countries have failed to derive either from trade or from international factor movements the advantages that would have been expected on the basis of prevailing economic theory and the author is not sanquine about the prospects of lessening the resulting international income inequalities.

This note examines and extends the following two propositions: that finite international factor movements are beneficial to the nationals of the destination country but detrimental to those left behind in the source country and that marginal movements do not have such welfare effects. Using some newly developed techniques the propositions are found to be valid irrespective of the number of goods and factors if the economy starts from the autarky position. When only one factor can flow the gain of the nationals (loss of those left behind) will be positively dependent upon the amount of inflow (outflow). However if goods trade and/or factor flow are initially present the propositions are in general not true. (SUMMARY IN FRE) (EXCERPT)