Chapter 15
Multinationals and Migration: International Factor Movements This chapter provides a survey of the economics of foreign direct investment (FDI) and the economics of labor migration. Foreign direct investment is a flow of funding provided by an investor (usually a firm) to establish or acquire a foreign company or to finance an existing foreign company that the investor owns. Ownership is important because the investor has or acquires the power to have a substantial influence on the management of the foreign company.
Knowledge Points
This chapter provides a survey of the economics of foreign direct investment (FDI) and the economics of labor migration.
Multinationals and Migration: International Factor Movements
Are Immigrants a Fiscal Burden?: These characteristics matter for the (current) fiscal effects of the immigrants. Because they are young, immigrants will pay relatively large amounts of social security taxes while drawing few social security (pension) benefits. Because they have low wage rates, they will tend to pay low income taxes (and similar taxes like sales or value added taxes).
What explains why MNEs exist? Purely financial theories cannot explain MNEs because they cannot explain why managerial control over the foreign affiliates, with its focus on production and marketing, is necessary if the goal is only to move capital from one country to another in pursuit of higher returns or diversification of risk.
Economic analysis suggests that the host country gains from inward FDI, even if the profits of the local affiliates do not belong to the host country, and even though some local competitors may be harmed by the competition from the affiliates. There is some case for the host-country government to tax or restrict inward FDI, because of fear of the local political power of the foreign multinationals, or to impose an optimal tax on the affiliate’s profits.
Multinationals and Migration: International Factor Movements
Cases
The latter part of the chapter examines international migration, including the benefits and the costs to the migrants, the effects of migration on other groups and on the sending and receiving countries overall, the fiscal effects of migration, and government policies toward migration. For the United States and Canada, immigration was relatively large until the 1920s, was low in the 1930s, and has been higher since the 1950s.
The latter part of the chapter examines international migration, including the benefits and the costs to the migrants, the effects of migration on other groups and on the sending and receiving countries overall, the fiscal effects of migration, and government policies toward migration. For the United States and Canada, immigration was relatively large until the 1920s, was low in the 1930s, and has been higher since the 1950s. For the shorter history of the European Union, immigration was curtailed in the mid-1970s and early 1980s, but has increased again since the late 1980s.
10.Agree or disagree, depending on whether you think the import-reducing effects or the import-increasing effects are larger. As Chinese companies expand their FDI into the United States, the growing operations of Chinese companies in the United States are likely to have several effects on U.S. imports from China. On the one hand, U.S.
10.Agree or disagree, depending on whether you think the import-reducing effects or the import-increasing effects are larger. As Chinese companies expand their FDI into the United States, the growing operations of Chinese companies in the United States are likely to have several effects on U.S. imports from China. On the one hand, U.S. imports would tend to decrease, because U.S. production in the U.S. affiliates of Chinese companies could replace some products that otherwise would have been imported from China. On the other hand, two effects would tend to increase U.S. imports from China. U.S. production in the affiliates of Chinese companies could lead to importing machinery, components, and materials from China. And, the U.S. affiliates of Chinese companies could improve the marketing of the Chinese companies’ products in the United States. If some of these products are not made in th
11.First, in 1924, the United States passed a law that severely restricted immigration, using a system of quotas by national origin. Second, the Great Depression, with its very high rates of labor unemployment, probably reduced the economic incentive to immigrate because potential immigrants would expect that it would be very difficult to find employment.
11.First, in 1924, the United States passed a law that severely restricted immigration, using a system of quotas by national origin. Second, the Great Depression, with its very high rates of labor unemployment, probably reduced the economic incentive to immigrate because potential immigrants would expect that it would be very difficult to find employment.
The analysis has implications for the policies used by receiving countries to limit immigration. First, the types of immigrant admitted have an impact on which native group suffers loss. Second, the types of immigrants admitted have an impact on the net fiscal effects. To gain greater fiscal benefits (and to minimize the negative impact on low-skilled native workers who already have low earnings), the receiving country should skew its immigration policies to favor young adults with some college education.
The analysis has implications for the policies used by receiving countries to limit immigration. First, the types of immigrant admitted have an impact on which native group suffers loss. Second, the types of immigrants admitted have an impact on the net fiscal effects. To gain greater fiscal benefits (and to minimize the negative impact on low-skilled native workers who already have low earnings), the receiving country should skew its immigration policies to favor young adults with some college education. However, for countries like the United States, this would mean shifting away from other worthy goals pursued by their current immigration policies, including family reunification and assisting refugees. Tips
Exercises
Which of the following is an example of foreign direct investment?
正确答案：D | Ford buys a controlling interest in Peugeot Citroën, a French automobile company.
难度：2 Medium Bloom's：Understand
Foreign direct investment (FDI) refers to
正确答案：A | the flow of funding provided by an investor or lender to establish or acquire a foreign company or to expand or finance an existing foreign company that the investor owns and controls.
难度：1 Easy Bloom's：Remember
A firm that owns and controls operations in more than one country is a(n)
正确答案：B | MNE.
难度：1 Easy Bloom's：Remember
Which of the following is true for a multinational enterprise (MNE)?
正确答案：D | It usually provides intangible assets to its affiliates for their usage.
难度：1 Easy Bloom's：Remember
Financing from the parent company to its foreign affiliates is generally a small percentage of total funding because
正确答案：B | the parent firm wants to reduce the risks to which its foreign activities are exposed.
难度：2 Medium Bloom's：Understand
Which of the following ways can a multinational enterprise (MNE) adopt to reduce its exposure to political risks in its host country?
正确答案：C | By equating its physical assets in the host country with its local borrowings
难度：1 Easy Bloom's：Remember
At the end of 2016, most of the United States' foreign direct investment was in
正确答案：C | the European Union countries.
难度：1 Easy Bloom's：Remember
Most foreign direct investment is in
正确答案：D | the service sector.
难度：1 Easy Bloom's：Remember
Which of the following statements is true concerning the global flow of foreign direct investment (FDI) since 1990?
正确答案：A | The proportion of global FDI that flowed into developing countries increased.
难度：1 Easy Bloom's：Remember
Which of the following provides a good explanation of why multinational firms exist?
正确答案：C | Internalization advantages that favor direct investment over contracting with independent foreign firms
难度：2 Medium Bloom's：Understand
Which of the following is an inherent disadvantage to being a multinational enterprise (MNE)?
正确答案：A | An MNE does not initially have the native understanding of local laws, customs, procedures, practices, and relationships.
难度：2 Medium Bloom's：Understand
How can an MNE overcome its inherent disadvantages?
正确答案：D | By owning one or more assets that are not owned by its local competitors in the host country
难度：1 Easy Bloom's：Remember
Manual Preview
Multinationals and Migration: International Factor Movements
This chapter provides a survey of the economics of foreign direct investment (FDI) and the economics of labor migration.
Foreign direct investment is a flow of funding provided by an investor (usually a firm) to establish or acquire a foreign company or to finance an existing foreign company that the investor owns. Ownership is important because the investor has or acquires the power to have a substantial influence on the management of the foreign company. The share of the equity of the foreign company that the investor must own to have substantial influence on management is probably less than 50 percent. The standard (arbitrary) minimum amount used by most countries to define FDI is 10 percent of the equity of the foreign company. (FDI may also refer to the stock of such investments in existence at a point in time.)
A multinational enterprise (MNE) is a firm that owns and controls operations in more than one country. Thus, FDI is a way that the parent company of the MNE can finance its foreign affiliates. However, an MNE is more than just a way to move financial capital between countries. The foreign affiliate (subsidiary or branch) often receives managerial skills and methods, technology and trade secrets, marketing capabilities and brand names, and instructions about business practices from its parent company. Often much of the financing of the affiliate is raised locally, perhaps to reduce exposure to exchange rate risk or to the risk of expropriation by the host-country government.
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