Question

escribe two factors of the factors that Freeman identifies in his piece on “People Flows” as important factors in determining the number of workers migrating.
b) Official statistical data indicate that the US is, on net, a large debtor to the rest of the world. However, net returns on international investment (that is net factor payments associated with capital) are positive for the US. How is this possible?
c) Briefly describe three of the main accomplishments of the Uruguay Round of GATT/WTO negotiations. (Recall that the Uruguay Round, begun in 1993 is the latest completed round of negotiations.)
d) In the Eurozone Crisis chapter (Baldwin and Giavazzi) what do the authors argue were the two main imbalances leading up the Eurozone crisis?

Answer 1

1. Factors that Freeman identifies in his piece on “People Flows” as important factors in determining the number of workers migrating:

1. economic conditions in recipient countries are the strongest determinants of immigration flows. Economic factors motivate the huge levels of illegal immigration, as well, producing a multi-billion-dollar illegal industry that transports some four million people across borders annually worldwide
2. Level of education of the migrants matter next. Most of the migrants consisted disproportionately of less-educated workers, who had greater chances of employment at higher earnings on the new country. Shorter distances make it easier for these less-educated immigrants to come to the United States, for eg.

2. Early in the nation’s history, as the United States made the transition from being a developing economy to being a major economic superpower, foreign investment flowed into capital development projects such as railroad and canal construction, which aided the westward expansion and the development of heavy industries. The U.S. net debtor status continued to grow through the 1990s and into the 2000. However, the heavy investments made earlier is deriving the high net returns now.

3. The three main accomplishments of the Uruguay rounds are:

• It reduced protection in agriculture through conversion of all trade barriers to tariffs; reduction over six years of budgets for agriculture by 36 per cent; and reduction of budgets for export subsidies by 36 per cent and reduction of the volume of produce exported by 21 per cent;

• Converted all barriers to trade in clothing and textiles to tariffs over 15 years

• Imposed new restrictions on subsidies, involving the phasedown of more direct trade-distorting subsidies

4. Two main imbalances leading up the Eurozone crisis

• Given the Eurozone design, governments who got in trouble had no lender of last resort. Which meant their euro denominated borrowing was akin to foreign currency debt in traditional sudden stop crises. The natural lender of last resort, the ECB, was explicitly forbidden from playing the role. This ruled out one of the classic ways out of avoiding government default – having the central bank print the money needed to service the debt.
• The predominance of bank financing was another amplifier of problems. European banks were thinly capitalised and extremely large relative to the countries’ GDP. They were so large that they had to be saved, but their size also created a ‘double drowning’ scenario. This is exactly what happened in Ireland. In what might be called a tragic double-drowning scenario, Ireland’s banking system went down first, and the government of Ireland went down trying to save it. Spain and Belgium flirted with, but ultimately avoided the same fate.