MIGRATION AND FDI

Effects of migration in the short run

Capitalists and Land owners better off

Workers worse off ( wages of workers in the countries receiving new labor decreases, and in countries from which are leaving it increases

Effects of migration in the long run

Input prices, wages and real income unchanged

Welfare effects: no change

Capitalists: no change

Rybczynski Theorem

An increase in the amount of a factor found in an economy will increase the output of the industry using that factor intensively and decrease the output of the other industry.

FDI increases output of K-intensive industry and decreases output of L-intensive industry.

Immigration increases output in L-intensive industry and decreases output in K-intensive industry.

Effects of FDI in the Short Run

Land owners: worse off

Workers real wage: better off

Capitalists welfare: worse off

Effects of FDI in the Long Run

Extra K can be absorbed in the K-intensive industry without changes in wage or rental

In the long run, mobile K and L, so:

Additional L from immigration will be absorbed by the L-intensive industry, and it will also absorb extra L and K from the K-intensive industry.

K/L does not change in the long run: factor price insensitivity

In the short run, K and L fixed, so:

Immigration reduces wages and increases rentals.