[1] International factor movements also raise political and social issues not present in trade in goods and services.
[3] For example, many industries in the United States are heavily dependent on legal and illegal labor from Mexico and the Caribbean.
[3] The United Nations estimated that more than 175 million people, roughly 3 percent of the world’s population, live in a country other than where they were born.
[5] The subject is equally contentious among academics who have espoused numerous theories for the effects of immigration, both illegal and legal, on foreign and domestic economies.
Traditional international economic theory maintains that reducing barriers to labor mobility results in the equalization of wages across countries.
First, the wage rate in a particular country can be shown graphical by looking at the marginal product of labor (MPL).
[6] A number of scholars who study the effects of international labor mobility have argued that complementary immigration, which deviates from the outcome predicted by the above model, is a common phenomena.
The above model would predict that illegal immigration in the United States would cause the wages of domestic unskilled workers to fall.
Illegal immigrants would move to the United States seeking higher wages than in their home countries.
[7] The central difference may be immigrants willingness to work in particular occupations that are shunned by domestic unskilled workers.
In open economies with free trade, factor price equalization is likely to occur, so even if immigrants affect native national wages, the uneven distribution of immigrants across the nation may not result in long run cross-sectional wage differences.
[5] Another issue is that immigrants may selectively move to cities that are experiencing high growth and an increase in wages.
However, George Borjas, of Harvard University, and several other economists have used time series studies and looked at wage inequality data and found that immigration does have a significant effect on domestic laborers.
[1] Countries that borrow from the international market are, therefore, those that have highly productive current investment opportunities.
For example, Honda has factories in multiple countries, including the United States, but the firm began in Japan.
The U.S. Department of Commerce has defined FDI as when a single foreign investor acquires an ownership interest of 10% or more in a U.S.
[10] The number 10%, however, is somewhat arbitrary, and it is easy to see how the Commerce Department's definition might not capture all instances of actual foreign control.
For example, a group of investors in a foreign country could buy 9% of a U.S. firm and still use that ownership to exercise some measure of control.
However, Krugman and Graham, through a survey of the relevant literature, concluded that industrial organization considerations are more likely than cost of capital concerns to be the driving force for FDI.
According to the United Nations Conference on Trade and Development's World Investment Report from 2007, as of 2005 there were over 77,000 parent company MNEs and 770,000 foreign affiliates.
[1] The second central question regarding MNEs is why certain firms decide to produce multiple products—why they internalize other areas of production.
One possible reason for internalization is to insulate MNEs from opportunistic business partners through vertical integration.