Question

What do the basic models of international factor movements between two countries predict with regard to the impact on factors from each country and overall output? In reality are the results the same as would be predicted in this model? If they are different, explain why this is the case.

Answer 1

International Factor Mobility
The models which suggests international factor mobility refers to the movements of factors like labour, capital and other factors of production. The exchange or the movement of factors occur through emigration, immigration, capital transfers and foreign direct investments. As the models suggest, the easy movable factors would stimulate foreign trade and exchange of goods with improved productivity with freely moving factors. The idea was to promote domestic and international trade through movement of factors from one country to another. Any two countries having advantage in different factors of production could exchange their factors with another having less of the same. Thus they could stimulate the production having additional advantage with movement of factors of production. A labour intense country may export its abundant factor labour to other country where the factor is less abundant.
But the result as the model suggests is considered more unreal and impractical at least for short run. The free movement raise the basic concern of movement without obstacles. The policies of different nations could control the movements of factors. Immigration, emigration policies and duties on imports may not always be supportive with free movements. Free movements may reduce the productivity of one while the other may take advantage from this. Also, foreign investments through capital movement may not be effective with all nations. The ability to manage the variability in factors may differ with different nations. Countries with similar abundance of factors cannot be participated to exchange the factors. Also, a one sided exchange, benefitting one among the two are all the drawbacks of free factor movements.