May anybody help me with this question, thanks! 1. a) Explain how direct investm
ID: 1217633 • Letter: M
Question
May anybody help me with this question, thanks!
1. a) Explain how direct investment in Mexico by MNC’s located in the US can be explained by the Heckscher-Ohlin model of trade.
b) Explain how the Heckscher-Ohlin model of trade can explain the movement of labor from Mexico to the United States.
c) What effect will the movement of labor and capital have on real returns to these two factors across countries?
d) Suppose movements of labor and capital are restricted, but goods and services trade freely. What effects will these restrictions have on the real returns to labor and capital across countries?
Explanation / Answer
(a)The Heckscher-Ohlin model of trade shows that the country has the ability to trade the product it can produce more from the country itself. The trading is due to availability of abundance of raw material which helps in keep cost of production less expensive which helps in getting more revenues. The cost of production when available at less expensive rates helps in increasing revenues such as cheap labour in labour-intensive countries makes the country to set up their firm in foreign land so that they could incur less cost of production due to large scale manpower. This is shown by the US which is able to set up its companies in Mexico where there is abundance of cheap labour which helps the former country to produce its output at less cost of production which it could not find in its own country.
(b) The movement of labor from Mexico to the United States would help the former country to immigrate its manpower and earn revenues from the consultant companies in return. This would be estimated with the exchange of foreign currency where the US dollar is stringer than Mexico's currency. The trade of labours from Mexico to the US would help them to earn revenues from the supply of manpower to countries which requires them in abundance. The Heckscher-Ohlin Model shows that the export of services and products found in abundance from a country would earn more revenues turning stable economy in the nation.
(c) The effects with the movement of labor and capital on real returns across countries would show exchange of currency from one country to another which is going to increase revenues of both the country. The country which requires manpower would recruit it from country having cheap labour in abundance. It shows that the transaction of capital would benefit both the countries. The other factor which is set up of US MNC in Mexico would help in the development of the US MNC as they require low cost of production. This would help Mexico to increase the revenues earned in their domestic market gained in the form of tax by foreign MNC due to exchange of foreign currency. It would develop the economy of Mexico even better.
(d) When the supply movement of labour and capital are restricted but goods and services are allowed to trade freely then it would show certain changes in the real returns to labour and capital across countries. The country want sto set up its firm at location where cost of labour is cheap and availbility of raw materials is present. This is going to make the company relocate to foreign land. It shows that the revnues would be earned more due to factor of production costing less. There would be rise in savings and investmetn on future projects. It leads to expansion of business. The restriction of supply of labours from foreign countries would restrict the availbility of cheap immigrant labours but the set up of the company to foreign land would be another alternative.