Question

Which model would you use to advise a government on immigration policy and why? (600 words max)

In paragraph form, compare the key differences between Ricardian, Specific Factor, and Hecksher-Ohlin models.

What question(s) or economic truth(s) does each model help us understand?

What happens in each model with a permanent increase in labour?

Answer 1

Immigration can be understood as the process which involves the movement of people from one country to another where they are not the citizens but they immigrate for work etc. in other countries. The people who immigrate are not natural citizens nor they can possess the right of permanent residency into the country in which they are moving. Immigration has an economic effect on both the home country which is called the sending country and the host country which is termed as the receiving country as the people generally go to another county for doing work. So the sending company gains money as its citizens earn the foreign currency which contributes to the economy and strengthens it. The receiving country gets skilled labor and they manage to do the work with full capability. Immigration also helps the developing countries to remove the barrier of unemployment as the developed country provides employment and they pay in their own currency. This currency difference helps in learning to the people who have immigrated and it also helps in reducing poverty too.

The immigration policies basically deal with the fulfillment of the requirement of the labor market as the growth of the economy depends upon the well-established industries and infrastructure and for this, the developed countries require huge labor to perform the tasks. The government takes decisions on the immigration policies by keeping in mind the labor requirement and other such requirements. The policies are made in order to make a balance between the requirement of skilled labor, how much volume can be immigrated and the level of skilled laborers as unskilled labor can reduce the efficiency of the host country. So, the government must follow that model which helps in increasing the efficiency of the industries and also use cheap labor to increase the profit margin for their country. This has a positive impact as this will boost the economy. In my view, the Ricardian Model should be adapted by the government.

The Ricardian Model focuses on the labor between both countries. It emphasizes the production of goods on the basis of a single factor which is labor. It also uses constant returns to scale for the production of goods.

Hecksher-Ohlin model can be understood as a long-run model that focuses on the export of those goods which are produced in abundance in a country. This helps in increasing the sale of the products which are produced in a large quantity and uses factors of production for the export of the goods.

The specific factor model is considered as a short term process which is based on treating land and capital as a fixed factor for production and the labor is treated as a variable factor which is required for increasing the production. It is obvious that laborers cannot be fixed as the number is not exactly the same each time.  

Each model helps in understanding the fact that labor is the main factor for increasing production in the country. Rest factors like machinery, capital are also required but labor in the prime requirement without them the machinery and the capital is of no use.

The permanent increase in labor will increase the production in each model as labor is treated as the prime factor and without them, it is not possible to increase the production. This ultimately helps in making the economy strong of both the countries.