adv and disadv to intl capital and labour flows

Question 1

3 types of capital?

Answer 1

1. FDI (LT)
2. portfolio investment (LT) → intended for financial gain only
3. hot money (ST)

Question 2

+ve impacts of capital flows on govt

Answer 2

1. FDI → sustained EG + decreases unemployment + tech transfer to ELDCs (affects LRAS) → macroeconomic goals

Question 3

+ve impacts of capital flows on producers

Answer 3

1. able to relocate to countries w lower wage costs → decrease COP
2. able to outsource parts of the production process → decrease COP
3. FDI → higher rev by tapping on potential mats
4. indus w intense FDI → high labour productivity → decrease cost per unit → increased profits

Question 4

+ve impacts of capital flows on consumers?

Answer 4

1. lower COP for firms → lower prices for consumers (not guaranteed)
2. intense FDI → higher labour productivity → higher wages → greater purchasing power → increased mSOL

Question 5

-ve impacts of capital flow on govt?

Answer 5

1. increased I speculation → destabilise currency → bc hot money is volatile
2. widens income inequality over diff sectors of econ

Question 6

-ve impacts of capital flows on producers?

Answer 6

1. DCs pump more capital into LDCs → local firms have greater foreign competition → lose mkt share & power + may be priced out

Question 7

-ve impacts of capital flows on consumers?

Answer 7

1. domestic firms are less competitive to MNCs → driven out → industries dominated by foreign firms → competition decreases → PED<1 → higher prices
2. industries dominated by a few large firms → decreased choices

Question 8

+ve impacts of intl flow on govt?

Answer 8

1. diversification of econ → influx of foreign talent to LDCs to devt niche areas → higher value added g&s
2. alleviation of skill shortages → influx of foreign talent → increased QQ of labour + increased I → increased LRAS + AD → sustained EG
3. increased income lvls for migrant workers → increased flows in remittances → increased disposable income for families of migrant workers → increased purchasing power → increased C → increased AD

Question 9

+ve impacts of intl flow on producers?

Answer 9

1. greater mobility of labour → firms in DCs able to employ migrant workers who command lower wages → decrease avg COP → higher profits

Question 10

+ve impacts of intl flow on consumers?

Answer 10

1. migrant workers employed overseas → higher pay + better living conditions → increased mSOL and nmSOL

Question 11

-ve impacts of intl labour flow on govt?

Answer 11

1. brain grain → outflow of skilled labour from LDCs to DCs → decrease QQ of resources in LDCs → decrease LRAS → -ve PEG
2. increased unemployment in LDCs → DCs set up companies in LDCs → high-skilled positions taken by foreign workers from DCs
3. increased unemployment in DCs → increased supply of labour due to inflow of labour from LDCs → decreased wages (esp for low-skilled jobs)
4. no incentive to climb value chain → firms who use cheap migrant labour are less driven to adopt new tech

Question 12

-ve impacts of intl flows on producers?

Answer 12

1. cheaper migrant workers → less incentivised to improved method of production/ improve labour productivity via automation

Question 13

-vw impacts of intl labour on consumers?

Answer 13

1. influx of foreign workers → loss of jobs among domestic workers → decreased income → decreased pruchasing power → decreased mSOL