In the globalizing economy of the late 20th and early 21st centuries, liberalized trade has been sought by way of regional trade agreements and broader global trade liberalization. The policy choice between these two approaches has created debates among economists and politicians concerning which is a better strategy for various countries, for the global economy as a whole, and whether the two approaches are complimentary or contradictory.
Begin by reviewing pages IV and V in the Module 9 lecture on developing an annotated bibliography through the structure of a research system.
Using the Saudi Digital Library, the Web, and/or other sources of scholarly literature, begin your research into regional trade agreements versus global trade liberalization by locating professional and academic journals, and select current research articles published within the last five years on the topic.
Create an annotated bibliography
from your research with a
minimum of eight
well-written APA-formatted entries.
Then,
using the resources from the bibliography, develop a two-page paper summarizing and contrasting the main arguments on both sides of the issue.
Directions:
- Your essay should be at minimum two- pages in length, which does not include the title page, abstract, or required reference page, which are never a part of the content minimum requirements.
You must include at minimum eightcrediblebibliographic sources.
Microsoft Word - Module 9 material .docx Nahlah Hajla Module 9: International Factor Movements and MNEs • Chapters 9 in International Economics 1. Multinational Enterprises (MNEs) So far in the course we have examined flows of goods and services across borders. Now let's begin to look at the movement across borders of one of the three factors of production: capital. Carbaugh's Chapter 9 considers the role of transborder capital investments in productive enterprise through multinational enterprises and suggests an economic equivalency between international trade in capital-intensive goods, on the one hand, and international flows of financial capital, on the other. Multinational enterprise (MNE), a slightly broader category than multinational corporation (MNC), is an enterprise or corporation that undertakes production and/or delivers services in more than one country and accordingly is associated with capital originating on one country invested in another. MNEs rely heavily on foreign direct investment (FDI)–the acquisition of a controlling interest in an overseas company or facility. MNEs tend to divide and diversify their operations, splitting productive and distributive processes into separate components that may be integrated in several different ways: • Vertical integration: foreign subsidiaries produce intermediate goods or inputs that go into the production of finished products. • Horizontal Integration: a parent company sets up a subsidiary or subsidiaries to produce products in the host country identical to what is produced in the home country. • Conglomerate integration: an MNE diversifies into nonrelated markets. Why MNEs? What are the economic motives for foreign direct investment? On the demand side, MNEs move across borders to sell products abroad, sometimes acquiring foreign enterprises that would otherwise be competitors. Auto manufacturers frequently employ this strategy. On the supply side, cost factors are a frequent motivation as MNCs set up overseas production units to tap low factor costs (low-wage labor), transportation efficiencies (to specific markets), and favorable government policies on taxation, environment regulation, and labor regulation. Additionally, MNCs that are exporters avoid paying tariffs by locating production in export markets. Nahlah Hajla 2. Trade theory and MNEs The crux of the economic theorization of, and justification for, MNEs lies in the theory of trade based on comparative advantage. In short, management within MNEs seeks to bring the comparative advantage principle within organizations to enhance profits by exploiting specialization in access to factor inputs, new technologies, and managerial know-how. Carbaugh emphasizes the importance of factor inputs in his explanation of the trade theory perspective on MNCs: From a trade-theory perspective, the multinational enterprise analysis is fundamentally in agreement with the predictions of the comparative advantage principle. Both approaches contend that a given commodity will be produced in the low-cost country. The major difference between the multinational enterprise analysis and the conventional trade model is that the former stresses the international movement of factor inputs, whereas the latter is based on the movement of merchandise among nations. International trade theory suggests that the aggregate welfare of both the source and host countries is enhanced when MNEs make foreign direct investments for their own benefit. The presumption is that if businesses can earn a higher return on overseas investments than on those at home, resources are transferred from lower to higher productive uses, and on balance the world allocation of resources will improve. Thus, analysis of MNEs is essentially the same as conventional trade theory, which rests on the movement of products among nations. Of key importance here is Carbaugh's conclusion—drawing on classical trade theory that posits both trading partners benefit from trade—that multinational enterprise leaves both the home and host country better off in economic terms. Students are no doubt aware that critics of multinational enterprise argue otherwise, positing that MNEs exploit and therefore exacerbate lax labor and environmental regulations and sometimes stifle potential competition within host countries and hence development. In the real world, economic outcomes hinge on complex systems of non-economic factors. In short, critics suggest that MNCs disproportionately capture the benefits of specialization in their dealings both at home and abroad. With respect to an empirical examination of some of the potential conflicts of interest between MNCs and various parties within both home and host countries, see the section of Carbaugh's Chapter 9 entitled Multinational Enterprises as a Source of Conflict. From a classical trade theory perspective, remember that gains on both the home and host sides can be obtained from multinational enterprise. Nahlah Hajla Carbaugh allows one key difference between the analysis of international trade between companies versus within multinational enterprises: The conventional (trade) model presupposes that goods are exchanged between independent organizations on international markets at competitively determined prices. "But MNEs are generally vertically integrated companies whose subsidiaries manufacture intermediate goods as well as finished goods. In an MNE, sales become intrafirm when goods are transferred from subsidiary to subsidiary. Although such sales are part of international trade, their value may be determined by factors other than a competitive pricing system" (Carbaugh 2013, p. 306). And therefore, in theory, the benefits of intrafirm trade may be disproportionately (compared to the case of interfirm trade) captured by the vertically integrated MNE. In this respect, the activities of MNCs challenge the optimistic conclusions about MNC activity derived from classical trade theory based on comparative advantage. 3. International factor movements Most of Carbaugh's Chapter 9 focuses on the movement of factors of production across borders, in good part as they relate to multinational enterprises. In particular, be sure to carefully read the sections entitled: • Employment • Technology Transfer • National Sovereignty • Balance of Payments • Taxation • Transfer Pricing • Effects of Migration With respect to the welfare effects of migration, the author provides a welfare analysis of migration from Mexico to the United States that illustrates economic outcomes and sheds light on the associated political issues. See Carbaugh for a detailed explanation, but a summary of the economic effects of this particular example of labor mobility between a relatively low-wage to a relatively high- wage country is as follows: Nahlah Hajla • Migration equalizes wage rates in the two countries (increasing wages in Mexico and decreasing wages in the U.S.) • Migration creates a net gain for the world economy because differing wage levels and marginal product of labor attract workers to those areas where they will be most efficient. • Migration creates a net gain for the world • Migration affects the distribution of income within the U.S. with losses by native U.S. workers offset by gains to Mexican immigrants living in the U.S. plus gains by U.S. employers who employ immigrants. • Migration lowers wages to some US workers, which are offset by gains to U.S. producers • Workers in Mexico gain relative to Mexican owners of capital. • Lower wages in U.S. result in lower equilibrium prices, which benefit consumers. 4. Annotated bibliographies as a research tool Regional trade groups create patterns of alliance and competition. Alliances shift as economies react to new pressures and opportunities. One system that scholars and professionals use to conduct practical research on topics pertaining to regional and global trade is the construction of annotated bibliographies. This final portion of the lecture defines the annotated bibliography, describes its purpose, and takes the reader step by step through a system of construction. Annotated Bibliography: What Is It? An annotated bibliography is a list of citations to books, articles, and documents. Each citation is followed by a brief (usually about 150 words) descriptive and evaluative paragraph, which is the annotation. The purpose of the annotation is to inform the reader of the relevance, accuracy, and quality of the sources cited (Cornell University Library, 2011). Nahlah Hajla Annotations vs. Abstracts Abstracts are descriptive summaries often found at the beginning of scholarly journal articles and periodical indexes. Annotations are descriptive and critical; they expose the author's point of view, clarity and appropriateness of expression, and authority (Cornell University Library, 2011). In the creation of an annotated bibliography, we will be using a variety of skills that include detailed searching and a review of library research as well as a post-review analysis. The next goal is to create a research system, which you will use to gather information that will go into your annotated bibliography. 5. Creating a research system Step 1: Prepare Nahlah Hajla Step 2: File System Step 3: Database search Nahlah Hajla Step 4: Keyword search Nahlah Hajla Step 5: How to use the sources you’ve found?