Immigration

Part ]wo Tr’rJ.’ I’liici

.. .-:..::.:-.,.. ::. :,t1.:1 1.: .a: l’. :-:
.-;’r-:r’:;-l.i,ir , – .-1 . ,;=ilL”l-;l :

. :
‘

..1. -]

195t1*1 952: Foliowing the Scirurrtan Plar:, “the
six” (Belgiunt, F:ranca, West Germarty, italy;
the Netherlarrds, and Luxernbourg) set up
the furopean Coal and Steel Community.
Mean,u.rhile, tsenelux is forrned by Belgium,
the Netireriarrds. arid Luxembourg- Both
formations provide instructive early
exantples of integration.

1L]57-1958: lite six sign the Treaty of Ronle
5etiing uP the EuroPean Economic
Comniunity (EEC, r:r “Common Market”).
l$port rJuties amc;ng them are dismantled
ansl their exte rnal barriers are unified in

_ staqes between the end of 1958 and’
mirj-1968. Trade preferences are given

ta a fiost of developinq co(lntries, most
of them fcrrner colonie: of EFC members.

1960: The Stockholm Convention createt the

furo5:ean Free Trade Area {EFTA) arnong
seven nations: Auslria, Denmark, Nor!x’ly,
Portugai, Sweclen, Switzerlancl, artd the

Urrited Kingdonr. tlarriers arrong tiiese
nat;{ins are removed in :tages, 1960*1 966.
Finlancl joins EFTA as an agsociate member
in 196.i. iceland becomes a memtrer in 1970,
Finland becorne: a fuil member in 1986, and
Lichtenstein becontes a nlenlller in 1991.

1967: lhe Iuropean Cornn-runity (FC) is formetJ
by the merger of the F[C, the [uro;:ean
Atornic Fnergy Cotrntission, and tlte
European Ccal and Steel Community”

1972-1973: Denmark, irelancl, anci the United
Kingdom join the EC, convertinq the six into
nine. Denntark and the United Kingciom leavet
EFTA, I’he lJnited Kingcloitt agretrs to abandon
many of ils Cornmonvvealth trade preferences.
Also. OrJe to ioy fr*ln Beetiroven’s Nirrth
Symphony is chasen as the EC’s anthem’

1973*1977: Trade barriers ate removed in

steges, boih among ttre nine EC members
and betr,,,reen them and the remairrirrg Ei’-lli
natir:ns. Meanrvhile, the FC reaches irade
preference agreeinents wi tir rnost nonni enber
Medlterranean countries along the lines of
earlier aqreements with Greece (1961). Turkey

{1964), 5pain {i970), and Malta {1970)’

19/!: furopean Monetary Systeitt begins to
operate basecl on the European currency
Unit. l-he IL]ropean Pariiament is first elecled
by ciireci PoPular vote”

1981: Greece joins the EC as its 1Oth member’

1986: The admission oi Portugal anci Spain irrings
the nurnber of members in the E( to

-i 2′

suppliers. {)verlll. u,e think ilte gairrs iire lal’get’trhatt the lossi:s }’-siiniates ol tlre
ccorromjc clltcts 0f this eulargerricnt indicate that the ttat” lligltthers sL’c it llt.’t 1:’ltin
i’ u,ell-bei*g of 2 ro S lierce’f of tlei’ GDP. *’ith a stnall gai’ lb. tite otlter l5 I’ilj
c0t”lntlies.

lhc i..U sitccessi’rtlly grew Dvel’titne l’Lotrt 6lnetirbeLs to 2J itr 200’i .’t’he orttlooi”
irl| iill.ther expansion ls’less ciear.

-I’lte courttl’ies cf the Balkarrs lYallt lo -ioin’ trut’
tYiih ihe exception of cr.oatirr- the oihers {se|bia. Motttenegro. Rosttili. iv’,lacccloitiri.

lncl r\lbarlilt} are far. liorrr clLralitying. Ptlssible L-ntr},- ()1. sttC}r cortttlril,.s irs Ukr.ainr.

Mr:iclr.r’a. unr,l {ieorgia. }raster.n F:uropean courrtries thaf rvere part olthr: SoYitlt LJttitlti”

is even molc clislant.
il1.rrkcr, is eagei to.jorri. birt thr’: Irrl-i corttintles 1o bc skr:ptir’:a1 0f

-lirrkrl,,’s rviililgness tci niaie the ueci:ssary politiclll.atrel ect’inottrit: pillicy cll*ngcs’

,nrl ir is crlcctle{i aborri iis own abilitv ta gainiirily inlegrate suelt a laige anri i:oot’
c0ilnir)’.

9fr3
Chapter 12 l-;,rJr lll,,r.i,rtt.l l’,

198{i-1987: Mernber governments approve and
eltact the Singte European A(t, calllng for a
fuily unified market by 1992.

i 989*1 990: The eollaps* cf the East Gernran
llovernrnent brings a sudden expansion
of {ierrnany and lherefore of th* EC. East
Gerrnans are given generous eniitlements to
ihc social progranr5 cf Germany and tlre EC.

‘i 991*i 995: Terr countries from Ceniral
and Iasienr turope establislr free-trade
agreerxeilts with tire EU. All become EU
mer:bers in 2004 and 2007.

End of 1!:92: The Singie European Act tak€s
effect, integratinq iabor and capital
rnarkets throughout the EC.

1993:-1-he Maastcicht Treaty is approved, making
the EC into tire Iuropean Union {El.l), which
calls for unification of foreign policy, for
ccoperaiion in fighting crime, and for
m{]lretary Union.

1994: l’he European Eronomic A,rea is formecj,
bringing the tFTA ccuntries (exceprt
Sinitzerland) irrto the EU’s 5ingle European
Market.

1995: Follou;irig votes v:iith majority appro,ial
in each r,ountry. ,A,r-rstria, Sweden, and

Finiand join the IU, bringirtg the nufi]bui” to
15. As it hacl done in 1972, Norway relecis
membership in ;t5 1994 voie.

1996: l’he IU forms a tustoms union with Turkey.

1999: Fleven EU countries estfiblish the er:ro as a
common curren(y, initially existing along uritit
each (ountry’s own currency. Greece becotnes
the ‘t2th memiier of the euro area in 2001.

2002; The euro replaces the national currencies
of the 12 countrier.

2004: Ten couritries iEstonia, Lilhu,:nia, Latvia,
Poland, Czech Republic, Slovakia. Hungary,
5lr:venia, Malta, and Cyprus) jcirr the IU,
bringing the total number to 25.

2007: Romania and Bulgaria join the EU,
bringing the totai number t0 27.
5lovenia joins the euro area^

20t)8: Cyprus and Malta join the euro a.ea.

2009: Slovakia jcins the euro area.

2011: Estonia joins the euro area, bringing the
total nuilrtler of IU courrtries using the euro
as lheir cltrrency tc I 7.

l-1rc Nriltlr.:\nrerican ljlce ll-aeic;1rca u’eli {i’orn irnpossibility io lealitv in r feq, }’ears
durirrg the iatc 198{is and carl_!’ lt}!X}.’s.’j ire filsf. steir rvas the l’anacia 1;.S. Fret-‘ll’acle
Arc’a (CUSFTA). an ieiea tlut l:ari becn clelrated since t]re 19tlt centLrly. As laie as 1986.
t’hen tht: t*o countries hail a rnirrol trad* tvar clr.er llrmbel and corir plrrs artoiher ti11-
ovel Alctic navicational rights. tlrere seetrcr{ tc; [rr: iittlc chance ol fbrming a tladc
hloc. \’tt thc uroocl suruug quickll’. anci negotiatirlu-s that began in i986 lerl to a fiec-
tr:rcle at’ea tltat clnre inio frrrcr’t)tt.Ianlialy l. 1989.-firc secorrcl step ,.r’us blingirrg Vlexico it”rto tirc 1-rictr.rre. Stalting in 1985, tiie
l’4crican govelrlrltellt becarne- irrcleasingly deterrnirted trr break dou.rt its o*’tt bitt’t’iers
to it tl’ccr. rntlr’c I,rri\’ailizL'(l more e’flicient i\4cricait euononry. A sslies ol’t’e lirt’ttts clelcg-
rrlllc’r1 busirress lud r'”-direeci lilrriels to irnports o1-goods. fulexieoi tali{it h*cl bccrr
higlr anil u’ele raisetl e’\ill l.lisirer atirtr tire 1c)82 debt crisis lbrceci i\iit–xico to tightc’n

368 lnternational Economics – Vol. i

Part lwo lr.r,i.. j-,,];it

Our discussion in the text slresses that
multinationals sur_ceed b,y using their firrn-
5pecific advantages throughout iheir qlobal
operations. We have also noted that most foreign
direct investments are made by {irms based in
the industriallzed countries. This is the story of
CEMEX, a firm that rapidly has become nrulti-
national since 1990. The reasons for its multina-
tiontl success fit very well with the advantages
stresred in llre eclectic approar:h. What makes the
firm unusual is that it is hased fn Mexico. CEMEX
is an example of a growing qroup of multination-
als hrased in developing countries.

CEMEX iiegan business in 1906. For most of
its life this {ement cornpany focused on selling in
the Mexican market. Cenlent is a product that is
expensive to ship, especially overland, so cement
plants ihip mostly to customers within 300 miles
of a plant. Shipment by water is moderately
(but not prohibitively) expensive. Most cement
producers in the 1980s were local producers
rryith traditional business practi.es. New manag-
ers et CFMEX Lrroke !.rith tradition by introduc-
ing exiensive use of automation, information
technology, anri a satelliie-ba:ed communica-
tion netr,rrork into CEMEX operations. They Ltsed
ihe technology to improve quality control and
to provide detailed information on production,
sales, and distribution to top manaqers in real
tinre. Delivery of ready-mix e oncrete is particularly
challenging in cities. Traditionaliy, cement firnrs
coulcl ensure delivery only within a time period
cf about tlrree hours. Cf MEX pioneered the use
of conrpuiers and a global positioning systen to
guarantee delivery to construction sites within
a 20-rninute window. ‘fhese innovatiorrs becarne
the conpany’s firm-specific aclvantages,

Also in the 1980s CFMEX began to expoft more
aggressively to the United States r-rsing sea trans-
port, and it rrras increasing{y successful. Horrve,rer,
competing U.5, cement producers conrpiained to
the U.S. governrnent, and in 1990 CffllEX exports
to ihe United States were hit by a 58 Dercent
antidumping duty. With exporting to the United
States iimited by ihe antidumping order, CEir4EX
looked for other fcreign opportr-rnities.

ln 1991, it tiegan exporting to Spain, and in
1992 it made its first foreign direct investrneni
by acquiring two Spanish centent producers.
CEMEX rninimized its inherent disadvantages by
investing first in a foreign country i,vith the sanre
language as the firm’s horne country and a limi-
lar cullure. ln addition. CEMEX used ils expansion
into [urope as a competitive response to the pre-
vious move by the Sr.viss-based firrn Holcirir irito
the Mexicayi cemerlt indusiry.

The managentent team sent iiy CEMEX to
reorganize the acquired companies was amazed
to find conrpanies that kept handwritten
records and useci almost no personal tomputers.
They upgraded the Spanish affiliates to CEMEX
technoiogy and manage ment pra{t;ces. The
improvenrent in affiliate operations frorn this
internal transfer CIf CEMEXS intangible assets was
remarkable-profit margins irnproved from 7
percent tc ?4 percent in two years.

5ince then. CEMEX has made a series of {or-
eign direct investments by acquiring cement
producers in Latin America (including Venezuela,
Panama, the Dominican Republic, Coionrbia,
and Costa -Rica), the Unit?cj States, Britain, the
Philippines, lndonesia, and Egypt. CEMEX used
the same tyoe of process that it used in Spain to
bring its technology and managernent practices
into its new foreign affiliates, and generaliy
achieved similarly irnpressive irnprovements in
performance.

By 2000, CFMEX was the third largest cemeni
producer in the world. behind Lafarge of France
and Holcim. More than 60 percent of its physieal
astets were in its foreign effiliates. lt uvas also ihe
largest exporter of cement in the world {a fact
consirtent with the proposition discussed in the
text that FDI and trade are often complenlen-
tary). C[MEX is considered one of the best net-
worked companies globally by computer industry
experts, rvell ahead of its rivals. lt i5 also highly
profitable, with a profit rate on sales thai was 10
to 15 percentage points higher than its rivais in
the’late 1990s. Its investments in developing and
enhaneing ils firm-specific advantages have been
paying off qlotrally.

ffi3
ffi,V14

Chapter 15 1::r..i:ri tl; jt:tittl,rti,,tl,tl Jiiiarl’ lvlrtt’.;tt,’ttfr

OLir analvsis of the latrol malket jhou’s ll:at thr seitdiirir cotlllti,v., loses ecotiotrtic rvell-

being because o1’emigration. Entpli1,ei-( i;.,.;rC cLutiitt.t’tei’s oi the prodLrcts producerl
tr-v tirese f irms) lose uiore than tlie rem*iuing u’oikirs gain. llelbre cleciding that this
lneaus that the sending counli’ies shauirl irr,ir; r’c’strict L)ut-ttligration. it is ilnportalit ttl
look ai several other irtrportant costs and hcneiits of ertrigraticti fot’thr: sending colinlrv.

First. ieti look at the cfttcts olt rh* goven.unerli bridget. “fhe senciing-coulltry
go\,ernnent loses the firture tax pavntenis thirl tlte euttglants rvorikl have ttlade (ancl

ltt-rhaps alsLr their rnilitar,v serr,,icr.). r\t t[e sarne 1inie. ihose u,[io etnigrate tio lt;nger
l’equit’e go\jefnlllellt goocls. SL-rvices. and pubiic assislance’ so governlllettt sirr:nding
also goes elos,u. iJorvever. inanv public-ex1:endirule itetns are lrue “public gttcids” irt

th* econornic sense that orrc pe|soir’s r’njo,vntent does tiot itltrt’ease if ihel’e are ftl\\’er
other users. l’hat is. to providc’ tl:e saure ler,cl of Lrenef its to the peoplt rdtc; tlo ttot etli-
urate. the governltlent liirs to coutinLre spending tlte sante atltouit of trlone-v. L’xarnples
of true public goods include national clefeuse anri llood-cctntrol le\rerls.

Ilecause solue govenrment spending is f”or true ptr[:lic goods. tlrc {ts:;s d t’iffut’t lrit
(.ontt’i|>uti{)tt.t i,y lil;elj, ttt ht !trrg;t:t’ thun tht retltrt:titttt ist /itlure golt’t’ltttt(ttt ,uTtcttditt14
ri;; peoltlt’tnigtute.fiorn tlte senrlhtg{‘oturtt’..’. The iikc’iihood ol’a nel liscal cirain fi”ottl
enigration is raised by’the life-c_vc1c pattet’n of migratiott. I’eople tclld ti) tttisrate itr

ear ly adulttroocl. This treirlts that eil]igrai-Its are concettit’ated itt ttte age groilp thfll has

.jusi rcceii’eci soine- public schooling llnderl by the goverllltlr’Ilt, ),et the itiiglants t’ill
ruot be arounr1 to pay taxes on their adult earuittgs. Fix tltis age group. tlte trct los-s
to tlre sending corultry is likely to be laigest for highl.v skilled t:rlligranls* tbe lti’ttitt
tlrziiit.’1’trc.v have Leceived substantial etlucation at public expeilsc. and the1, t’oulelpa1′
substantial raxes on thcir abor.e-ilycrage earnings if tirel’ starred. For exatlple , irr sotttc
snrali rleveloping countries. iuchiding tiit,v-ana, i{aiii. iarriaica. Senegal. Mozaltlbiqtte.
anelTrinirlacl and Tolrago. over iiaif oL the college-edttr,rated people ltave eurigrateci.

‘llere is one liotletai’1, beneiil to the sending colrntrv that is not capture(l in tlte
exanrination o1′ the labor nrarkct eflects of nrigratioti. Those ti,lto entigr.lle ollelt
sent! r,oiuntary rr:mittauces back to relafives and fi’iends itr their honle cotttltry. Otle
estii:rate is that global1y einr-rrants send home at least S,125 billion itr rcrnittatrces per
yeai’. lterliitarlces adtl over 20 percent to the uational itrcotues of srtch coutttries as
lJaiti. Le-hanoii. n-icaragLra, Nepal. TeJikistan. attd ‘fottga. Senrlin,g t’rttrtlt’it’.t tlutt rkt
ttol t'(t’eit,e uutt’lt itt tltt: vctt’ ol’r’trttitruttt’r.t’ ltruhahlt’ ktsc x’ell-lteing, lntf tlto’tt tltut
re rv i t’ u’t’ u lt’t lr t t t t i u I re n i I f tt n t’ a s pt rc h u b l.t’ gr t i t r *’e I l’ h e i t r g’

What cgulcl the senrlirrg cotuttl’y do to try to restrict emigratiort or its uegirtivr:
et-fecrs’l it cou.lcl srmply block departlres. Holvever. this rvor,tlcl lrrolralriy l’equilc
se\iere restrictions on ally fbreign travel. rvith all of the losses that suclt travel restric-
tions rvoulcl irnpose on lhe businesses ancl people of the cottlttrv. A tlore delensible
polic-v rvould be a tax on elrrigratrts that is roughly equal to llte net conlrjbtrtions
the countrv has rnacle to thcm throu-eh public sclrooling ancl the like. An alternative
polic}, apploach is to eucoiirage return after tlre ernigrartt lias bectt .qotte fot’ a u&ilc,
b-v-. appealing ro natioiral pr:ide. ollbling good ernployutenl. and so t’ortir. I’airvan and
Soutii Koreil have encouraged the return of tlieir scietttists and engitteers tr.r i,vcrk ilt
their rapidlv cleveloping high-tech itrciustries.

384 lnternational Economics – Vol.

I

Part Two liirrlr 1irlt.,’

ouI analysis of the Iahor nlarket sltou’s that the receiving countrv gains econorriciveil-beilrg becartse olirnmigration. even if u’e ignore the g’ains to the nrigrants t6enr-
selves, Etnplo5,r:rs (ancl consurrrers ol tlre prrrriircts prodircecl by {6cse: f.ir,,s1 gri,r
1]lorc thall tlt* ttafiVc rvorkers lose. Be1’ote rlecicling tliat rhis nre.urs that t5e receiying
cotintries shoLtlcl not l’esh”ict in-ntil:ration^ nc shor-rlel look ar r*r,.-*t .irt.ri,:r,,.rp,,,:tr,rl
cosis a:rd benefirs *r’inrmigntio* ri:r fhe receir.irig r:r:untr1,.

Effects on the Government Budget
I’hc eifbcts ht-‘l’il rrc syttltllett’ical to thrlse notecl fol the sencling countr),’. ininrigi.iipts
paY tAxcs irt {hcit’ ll(]11r country. anci thev use so\.ei’rilnent goocls ancl ser.r,icc.s. Sc;nrc
o1’tlte.gtlvet’nlncllf goocls anclservices are purL’1;irblic good*r. so u,t-. btrgin ryit6 ir pre-
sritrprion that the’ tax pavillents a:’e latger than the *”frrlt,,u*,rrnienr speirdurg i-cquirecl
to sel”vL’ the irttitiigt’ants. Hotl,ever^ there is a conccln ininan;,receir.ing couirtrics that
ittttttigrants tlse golel’nnlent social scrvices clisprtiporticunt.lu. 1’his suipicion g,as the
hasi,s ,ro;’;: 1996 Il.S. Jall’lhal,’nad.’cren ,le’g:ai rnrrnigrnnrs i,.,.cl,.grbl”: fi;,’$iiirir filrriis
o1’public assisiance.

Tlte tt’rte f’iscnl efli:cts of irnnrigrarlts are hard to Incasure. as clisr:usserl in tire 5gx
“Ate lmtl]igrallts a !’iscal llurcien’.)” !:or irntligration into the Unit*d States trel,ore
i 980 ol so” therr: is t-:Onsenstrs thal irrunigrants generallt lyere major.uel ta.\paycrs. l)ot
a fiscal drain.-fliere is also colrsensus tliat the f iscal effects of an inrniigr:anirlcpend
on tlte skill lcYel of the imtnigranf. fulore-cciucatecl rnore-skrllecl inrnrigrants lar,e
Itiglre| earniitgs. pay larger taxes. and are less-iikely to use public assisraricre. For.the
I,Jnited Siates since 1970. the f iscal bahncc is shifiing ior,r,ard illrnigrants being r 1,is-
cal brtrrletr^ becatrse tlre average ski1l level of irltligralts is eiecllling relative ta that
o1-natives. BLtt fhele is tto consensus that the ntix hal; shified u-nolrgh il, result in a net
rlegative eilect on the govertrrrri-‘nt budget fi’orl current innrigration into thrr LJnited
Stitfc:s.

External eosts and Benefits
Other’ Ptlssible eftects ol rr-iiuration elucle both labirr-narket anal_vris alcl fiscal
accotttltittg. N4igration lllay generate external cosls and belrefits outside priyate and
public-f iscal marketplaces. l-hlec kirrc{s of possible externaiities rnerit nrerition:
l. Ktttttr’ e

eclge liils ccottoutic valtre. be it tricks of the trade. l’oricJ recipcs” arlistic talent.
tat’rnint ill’actices. cr advancerl teclurology, Arnericarr exaurples inclucie ntigrants
Andt’er,r'{-“arnegie. Aibert Einstein. artd ttran.r virtucsi oiciassical music. f}ftcn i;n11,-
part oltlie ecotromic benej’its of this knowleclge accrlies to the nriglalits and ihcis*
to rvltott’t the ntigrants selis ilieir services. Part often spills ovcr to others. especially
iifhr:rs in tlte sume coLllttrv. Migrrrtiou rriay iirus lranslbr extenlal burr:i’its Lri’knorvl-
edge ii’otn the seniling to the receiyitrg countrr’.

2. Oott,qt’.s’tiotl (:Qsfs. Itlrtnigt’ation^ iike any olher sr>urce ol itclpuiatir:rn grou.llt. nta1,
bring e-xrenial cosls associaterl rvith crnwelitlg: exti” lroise, corrf’lici. atrd crinre. if
so. ihen fhi.s is a parri*l ofl-\et to tire gains of the receiv’ng counrry.

3rb*
zY?

Chapter
.i 5 \iiritiii,itiirnuls riilri \li,{rirta{ir1: I:ttl’itr;li|it,ri iri1.l()i l1i}i.’nlLrlll\

3. S*clal .fi.ir:ti(}fi. ltntnigrirrrts a1’e oiten gleeted \i’ith
bigoll:i atlrl harassnlelli-‘–eYi:11

l.rom native gfoups ttr”at rvoultt be[efit li’oil ilie ilrimigration’ Lorlg-lastirtg
restric-

tious on the tt’eedorn ta migmte. sitch as Americatr cliscrirninatiotl ag:rinst
Asiatl

inr’rigra*ts ir..gl,,uing in thJiiltr’ 19th ce’tlrr-v” the sweepirtg. t’estrictiotts tigi’ing
tilr-‘

.,rerl scilre”‘ oltlte cariy lg2t)s itr rire unitecl Siatc:s. al]d Britairt’s r*\iot]t11ion
o1’ttllttt–v

florntrionrvealth passpo|f priviicges siuce the 19{rtls’ itave been nt”rtivated
largell’

by si*rple rlislike fr-rr the ir,-ntigrating nationalilics. Aithough thc Lllost appt’opt’iittt’

forrn of social response to this kirrcl 3f prejLrcllcc rs !o u’ofk on chiritging tlre
prer;ril-

ing attitucies thetlseli,es, irolicyttlaket’s mirst also

*4ren juciging horv ur.,.h inuiligrntion ancl *’hat knrd ol ilrmigration to allotv’

l-here is at least inclireci support for the irlea that ac|nitting imllrigt’atrts
gracltraliY

u,oulcl gcl lar to retroving |iniiul tiirtions atril corlgestion cosis’ The ljnitecl
Stafcs

cxperierrcecl lis wo1st srirle ol iinti-imnrigrani f-eeling rn tlie earl-V l!)20s’ rl4ten.
iltc

iruruigrirtiot] rate \Yas i*c,r6asing io*’rlrd fhe pcnk “t*
tt l.tutl reachecl just Sefore-\\br’ld

\\,:rr l. The imrnigration ratc’ *,is higher tlei, jrist beforc ancl a{ter World W:ir i’ tltatr
il ts ioday, er,en il rve adcl reasonaiile estim;rtes of’the nutnber of ltttrecolrled illegal

irnilrigrants. il,r,eu ihough soille cl the historic reas0!1s ibr thc attti-itrttrti;lt’atlt
sr.ltli-

‘rent
ol.that tine (e.g.”ilie Ilolshe’jk Revolutiort)transcend econotlics. the higlt

ratc

of imrnigration itseli rnust havc cgrrtribute

Ainericans u4rose families hacl migriited eatlier’

What Policies to Select lmmigrants?
‘fhc. nrajor inciustrialized countries liave policres to limitlile rais 0f ittttrtig|aticn’ 11’a

.ount,.ri’is going to lirnit imnrigratiort, on rvirat basis should it sclect thc’itruriigranls

that tt arcepts’J Out econotnii arialysis otfeLs sotle irrsights’
‘hl’tl f’eatut’es of the

analysis are proninent. First. the types o{‘ii:tntigra;rt rvol’kels arinlitteil
u’ill affect

$,hich grolrps r.vilhin the native popiriation rvin arid t4rich gl’olrps iose 1s.
a re.sttlt of

rhe irnmigration. For instance. ilirelatir,ely less-eciucllted and less-skillc’d irnrnigrallts

are aclntitted. these inrnrigrant l{olkers wiil conrpete ibr jo$s against l*ss-skiliecl

‘ative
*,orkers. {trrtlier rJr,r-i,tg therr ah’ead.r- loiv earnings’ Secorld fhe typi’s C{‘

imiaig,rants adinitted rvrli ai{ecr the net fiscal benefit or burden o1-itilnliglaliou
‘fr-r

gain lreare’ fiscal benei’its. the coun6y shoriid arlt’rit
ycrntg arluils rvilo irave st-;me

college erl,.tcatiott. lrt adclilion. admitting highly educatecl and skilii’rel inimigratlts
is

likellillv euhattce the exlernal krio*’lecige trenefits “\e
just trtentirltre’d’

ALrsfl.alian policies to\\,atd iurnrigraiiol see111 io ilrarv fl’.nr fliese (:ctxtottric ies-

S0ris. Arrstl’atlia ltas iiseil a poiiii systerll to scleetl applicants’ lbcusirig on tlicse

rvhose agL. and skills are likel1′ to be beneficial fo thc. Airstraiian econotlt\” NctY

ZealancJ tlses a sirllilar poini s1’stent’ atrel Britain began otie itt 2008′ [‘anada
also

IrSeS a pOifit Systeln to screen some of its applicants’ b-ut about tltree-fottrths
o1′

iui*rigrants intr: Calad:t ertrter baseil on iittrrill, iinkt ot relirl:ee stilttis.{‘ lttitnigraticit

into fle Unrred States is el,eil rnore heavily skex’erl toli/artJ lamilY and refttgees. rl’ith

itlloLlt one-1euth etrtering baseci i.rtr their rr,’ct’kc’r skills. For botlt the LJnitert Statt:s attci

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388 lnternational Economics – Vol. 1

Part lwo liiLlrI’ulrar

Summary

a
“{

i

Canada. the lesults of these policies are ttrat the average skill levels of tlieir immi-
grants irave been declining.

Economic analysis cau make a strong c:rse for a corllltr), Iike the United States
or Canada to tilr its immigration policies torvard encouraging and selecting more-
skilled immigrants while reducin-e the number of less-skilled immigrants that it
admits. Of course. econonric objectives are not the only national goals. A shift
to’uvarri pursning national economic gain wonld come at a cost of achieving less
toward other worthy goals, including promoting f’aruily reunification and providing
hunranitalian assistance to refugees. And the shift towiild pursuing econornic oLiec-
tives rvsuld urake the brain drain worse anrl leave mote people in the test of the
world rvitl: lor.ler income levels.

d :rr, r: . :, r ‘, :,, :;r.ii”ii-: is a l’irrn that owns alrd conlrols operatiotts irt
more thau one country. Multinatiorrals usuaily send a burrdle of {‘inaucial capital and
i*angible assets like tecitnology, rnanagerial capabilities, and rnatketing skills to their
i:l:i1:iijit : ;i:,1ri:lrir:a;, i.:,.:i;jt’ ,:rtr’.’. i ;tiv.’:?l*1.r.’*’r if:tiii iS any flou’r:f lending tO, Of
purchase.of orvnersl-rip in, a foreign firrn that is largely owned by residents of the invest-
ing, or home. cotrntry.

FDI grerv rapidiy fbr severai decades after World \Var II. rvith the Uttited States
being the largest soltrce countr). FDI grew more slor.vly fi’om the micl-1970s to the
rnid-1980s. but since the n’rid-t980s, FDI has gl’owrl rapidly. From the mid-1970s to
the early 1990s. direct investment florvs into developing countries slorved but these
florvs then increased substantially. Norietheless. most direct investment is from one
inclustrialized country into auother industrialized country. In the 1980s. the Uniled
States became an irlportant host country. leaving Japan as the only tnajor irotrle coutr-
ffv that is not also a rnajor host to clirect investment,

Explaining why multinational enterprises exist reqriires ns to go beyond a simple
competitive rnodel. Multinationals can overcome the ii:i’rijii’.:1.;; ,l.ii:’i:li.’;.:;;:l-;1,’;;r1 3f
being fbreign by using their ir r’lri -:;,rii ! ,iir- ,:t! riri’!i..:’,.?{…r’. Still ” there are at least two
alternatives to direct investment. The firm could export from its honte country, but
i.:;1 ,:tii:t:lrj i.,;i, j.i.!!”,, oflen fbvor lbreign production. The firtns coulct rent or sell their
acivairtages to tbreign firrns using licenses. Multitratiotlals see,, i ‘ . r”r’

,? j’,,,,;:;1 .ri;i;::, to fuli control of tire ftrreign use of their f it’m-specific advatttages,
especially their intangible assets like proprietary technology. rnarketing capabiii-
ties. brand names. and managefilent practices. Negotiating ii:.”riJF-” .’ rvitlt indepen-
dent foreign finns for them to use these assets would be costly and risky. Large
multinatiorrals are often involved in oligopoli,:;tit: (:oilryetiliott amollg thetnselves.
For instance^ orre mnltinational attempts to gain an advautage by entering a lbreign
collntry first, and the others I’ol1orv quickly to try to lleutralize any aclvantage to
the first firrn.

The profits ol tbreign affiiiates are taxed by the host-country governntent. but gen-
erally not taxed or taxetl little br- the home-courttry governtnent. Whetr multinationals
shop around the globe for the iou.est-cost sites, tltey favol lou’lax l’ates. Part of decid-
ing rvhich countty to invesr in involr,’es the desire to keep taxes dort’n. in addition.
‘l’jrrls can LlS€ i: ,:,:,i,” ,:, ir :, ,, lo shifl sonre reported profits to lolr’-tax cottntries.

o cases. In txre, fbnning tiie’ fi’arle bloc is cristly becaus* too rrirrch trarie is
ciii’ertecl f-t”otti krlvet-cost to higher-eost suppliers. in rhe otiter. f-*r’ining rhe tracle bloc
is Lrenel-icial Lrecause it creates rnole lou’-cosi trade.

Irt FigLrre 1?-.2A, tire Br:itish could bLry.Tapancse cils at t5,000 if thele werg lto
tarifT. Thc’tlext cheapest altertrirlir,,c is to bur. Lieruran cars cltlijvelccl at {-5.50Li. {lthr:re
wcrt’ fi’ee tlacle” :rt point C” Brititrn rvouicl impolt onl_v- Japanerie ciirs aud noue liorn
(,ienitanv.
Belble its etttrv intri the tracle blcc, horvel’er. Br:itain clid not har.’e l’ree trarle in auto-
lltobiles, It harl a uniiorm farif}. irragined here. to be f l.fi00 per car’. rvhich rriarks up
tlte cost ot intported.li4ranese cars il’onr S-5,f)0ll to 16.000 in t;igLrre 1.2.2. No Lh’itons
brry the iclentical {;L:nnan cars l-:t:cause thev rvouicl cost {6,5{}0 (ecJrial to tli* Ji5,5(l{)
pr”ice chiirg’^rl Lry the fiet”tttan ploclilcers plr”rs the li,U00 tarifl’;.’T.hc stiu’tiug puint 1’or:
uur discussion is thrrs the larifl-ridden pcinf l. with the Biitish goyernnlent collecf!ng
({l.{}00 tintes 10.0C0 : f l0 ntillion} in tarilTrevenues.
g’eb oi discrittlittatory agleelttcrtts. ‘Ihild” fbrrning blocs rlay carise iulernalir-xral 1l-ic-
tion siinpll,’becnuse letting solneone into the bloi rvill shut srthers ort.
For all these reasolts. lVorld Trarle Organization iwTO) rules are opposerl to tra4t’
disc|iminatiotl iIt principle. A basic Wl-O principle is that tr:acle barriers shoulcl be
lorvet’eci eqLraily attd ri’itltout cliscr:irnination fbl all ibleign tr.acling llilttners.
-l-5at
is, tlrr.
IYTO cspolises tlie most tavorerl nation (MI.N; principle.’ftris principb.. dating back
to {he ntid- I9lh-centttt’,r/ \\/ave of fl’ee tracli: Ieci bv Britain. stiirLriates ihat a1}, .i,,,..,,-
siotr given to ally lirreign natiolt rnust be gir.en to all naiions lravirrg l\4Flr{ staius. IVTO
rLrles say that all contmctins parties are entitieci to tirat status.
Horvei’er. other parts of W’I’O nrles perrnit deviations lrorn MFN 6nr1er spgcif)c
cottt’litions. One cleviatir-trr is spr.:cial fi’eatltelt 1br iier,eloping coutrtries. Deyelapirrg
cctrtlttries ltaYe the right to excitan-ee pref’erences anrong tlteutsclvr:s and receii,e lrrel:-
ereutial access fo rnarkets in the indLrstrializecl countries.
Arlother rlevialion pertnits trarle biocs invo!ving indusri-ializeci cttu:ttries if the tracle
bloc rettroves tarifls artd other tracie restrjctions on rnost of the tratie am*ng rts rnelr-
Lrers- and if its trade barriers against nonrnembers do not increase orl fl\.erage. In l-act.
the !V’fO” and rhe GAT’I’ bi_.fore it. has applic:uti{)tt.t i,y lil;elj, ttt ht !trrg;t:t’ thun tht retltrt:titttt ist /itlure golt’t’ltttt(ttt ,uTtcttditt14
ri;; peoltlt’tnigtute.fiorn tlte senrlhtg{‘oturtt’..’. The iikc’iihood ol’a nel liscal cirain fi”ottl
enigration is raised by’the life-c_vc1c pattet’n of migratiott. I’eople tclld ti) tttisrate itr
ear ly adulttroocl. This treirlts that eil]igrai-Its are concettit’ated itt ttte age groilp thfll has
.jusi rcceii’eci soine- public schooling llnderl by the goverllltlr’Ilt, ),et the itiiglants t’ill
ruot be arounr1 to pay taxes on their adult earuittgs. Fix tltis age group. tlte trct los-s
to tlre sending corultry is likely to be laigest for highl.v skilled t:rlligranls* tbe lti’ttitt
tlrziiit.’1’trc.v have Leceived substantial etlucation at public expeilsc. and the1, t’oulelpa1′
substantial raxes on thcir abor.e-ilycrage earnings if tirel’ starred. For exatlple , irr sotttc
snrali rleveloping countries. iuchiding tiit,v-ana, i{aiii. iarriaica. Senegal. Mozaltlbiqtte.
anelTrinirlacl and Tolrago. over iiaif oL the college-edttr,rated people ltave eurigrateci.
‘llere is one liotletai’1, beneiil to the sending colrntrv that is not capture(l in tlte
exanrination o1′ the labor nrarkct eflects of nrigratioti. Those ti,lto entigr.lle ollelt
sent! r,oiuntary rr:mittauces back to relafives and fi’iends itr their honle cotttltry. Otle
estii:rate is that global1y einr-rrants send home at least S,125 billion itr rcrnittatrces per
yeai’. lterliitarlces adtl over 20 percent to the uational itrcotues of srtch coutttries as
lJaiti. Le-hanoii. n-icaragLra, Nepal. TeJikistan. attd ‘fottga. Senrlin,g t’rttrtlt’it’.t tlutt rkt
ttol t'(t’eit,e uutt’lt itt tltt: vctt’ ol’r’trttitruttt’r.t’ ltruhahlt’ ktsc x’ell-lteing, lntf tlto’tt tltut
re rv i t’ u’t’ u lt’t lr t t t t i u I re n i I f tt n t’ a s pt rc h u b l.t’ gr t i t r *’e I l’ h e i t r g’
What cgulcl the senrlirrg cotuttl’y do to try to restrict emigratiort or its uegirtivr:
et-fecrs’l it cou.lcl srmply block departlres. Holvever. this rvor,tlcl lrrolralriy l’equilc
se\iere restrictions on ally fbreign travel. rvith all of the losses that suclt travel restric-
tions rvoulcl irnpose on lhe businesses ancl people of the cottlttrv. A tlore delensible
polic-v rvould be a tax on elrrigratrts that is roughly equal to llte net conlrjbtrtions
the countrv has rnacle to thcm throu-eh public sclrooling ancl the like. An alternative
polic}, apploach is to eucoiirage return after tlre ernigrartt lias bectt .qotte fot’ a u&ilc,
b-v-. appealing ro natioiral pr:ide. ollbling good ernployutenl. and so t’ortir. I’airvan and
Soutii Koreil have encouraged the return of tlieir scietttists and engitteers tr.r i,vcrk ilt
their rapidlv cleveloping high-tech itrciustries.