Question

Suppose there are two countries. In the rich country, the representative consumer has Hr units of human capital, and total factor productivity is zr. In the poor country, the representative consumer has Hp units of human capital, and total factor productivity is zp. Assume that b and u are the same in both countries, Hr > Hp, and zr > zp. (a) How do the levels of per capita income, the growth rates of per capita income, and real wages compare between the rich and poor countries? (b) If consumers could choose their country of residence, where would they want to live? (c) If each country could determine immigration policy, what should they do to maximize the welfare of the current residents? (d) What is the immigration policy that maximizes the welfare of the citizens of both countries? (e) Explain your results. Do you think this is a good model for analyzing the effects of immigration? Why or why not? (f) During the NPC & CPPCC, the State Councilor Wang Yong claimed when he was introducing the plans of institutional reform of the state council to the congress that, they are planning to establish the state immigration administration, which will be responsible for foreigners’ stay and residence, and the management of permanent settlement, refugees and nationality, etc. Explain what this means referring to the model in the textbook.

Answer 1

Ans(a) The real wages , per capita income and growth rates are higher in rich country as compare to poor country because the resources in poor country are not fully utilized, in poor country much amount not spent in human capital as the resources are lacking behind the demand because of low per capita income in this country so the growth level, real wages both are low as compare to rich country.

Ans(b) If consumers can choose they will prefer rich country as above said that real wages, growth rate both are high in rich country and every consumer want their income high , they want to invest in human capital to further raise their income or of their future generation.

Ans(c) If the country can determine their immigration policy then they would have decided the policy which will benefit their citizen first then foreigners for eg: America has issued policies regarding H1visa this will control the immigrants from different countries as a result will benefit Americans first in jobs education area then foreigners. So the country will decide or put their people first then foreigners.

Ans (d) The immigration policy that benefit both countries like; promoting MNCs in their country or helping foreign business in home country this will benefit consumer of both the country as this will increase real wages of both country, by giving profit to foreign country and providing employment services to host country. So this type of policy can benefit both country.

Ans(e) I don't think that this is a good model of analyzing the effect of immigration as there are benefit also from immigration. People in the home country learn their culture and wants to enjoy their way of living. Immigrants in business creates the environment of competition that will motivate other businessman to compete with them and earn profit in long run. From immigration policy the consumer of both country can take benefit, by increasing real wages, growth rate in the economy overall growth.

Ans(f) If country is planning for permanent settlement for refugee, immigrants then it will benefit the particular country to some extent but in long run it will harm the country as this will reduce the employment opportunities for citizens of country but it will benefit the country if it will increase the amount of settlement for refugee, or immigrants.