Taiwans Recent Dilemma

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Taiwans Recent Dilemma

• Part Two
• Global Factor Mobility

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The biggest lesson of the French riots is that
more jobs are needed

• many young people see nothing ahead but
  unemployment after they leave school, they end up
  rebelling.

France's failure Nov 10th 2005, The Economist
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International factor mobility

• International factor mobility increases welfare
  since factors are rewarded depending on their
  marginal productivity.
• Production factors will only move abroad if they
  get a higher reward. wd MPLlt wfMPL
• Expected income differentials between host and
  source countries is an important incentive to
  migrate.

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Table 1 Per capita income in source relative to
host countries (current PPP, 1997)
Based on immigration flows between 1995-98,
immigration data for the UK refer to 1998 only.
Source OECD (2000), p. 191.
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Example Labor migration from Nigeria to France

• Assuming a declining marginal productivity
• In Nigeria LN ? ? MPL ? ? wN ?
• Labor becomes scarce and, therefore, more
  expensive to hire.
• In France LF? ? MPL ? ? wF ?.
• The overall production increases in the two
  countries combined will increase as a result.
• Nigerian workers become more productive
  immigrating to France, since more amount of
  capital per worker available there.

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Overall impact of the international migration

• Overall production increases. Increase in the
  welfare in both countries.
• The wage rate will increase in source country
  (Nigeria).
• The wage rate will decrease in host country
  (France).
• The reward of a unit of capital (interest rate)
  will decline in Nigeria.
• The marginal productivity of capital will
  decline if the amount of labor per unit of
  capital decreases.
• The marginal productivity of capital in France
  increases.
• Different positions about the freedom of
  international labor migration between employers
  and unions.

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The income-distribution problem

• Examples of questions
• Japanese capital flows to the US and Japanese
  firms buy American companies and real state is
  that favorable or threatening to the US?
• An increase in the flow of immigrant workers and
  asylumseekers from Africa and Asia to the EU
• Is that a threat to jobs of other people in
  Europe and how does it affect wages and profits?
• What factors decide whether the home country from
  which the migrants originate is better off or
  not, in the end?

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Complications of the distribution question

• Production factor such as labor is heterogeneous.
• Huge differences in the human capital part of
  labor.
• Changes on one market in a country affect others
  markets ? General Equilibrium approach.
• We need to know about all relevant economic
  interrelations within the economy in order to
  fully grasp the overall impact of the change in
  one market.
• How much of the income earned abroad will be
  transferred back by the migrants to their home
  countries.
• 10 or 15 on average of their earnings come back
  to the home country.

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Table 2 Worker remittances in selected
emigration countries, 1998
Data refer to 1997 Source International
Monetary Fund (IMF), Balance of Payments
Statistics Yearbook, Part 1, Washington D.C.,
1999.
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Case1 The new German Immigration Act

• Germany faced giant skilled labor shortages,
  especially in IT business in the End of 1990s.
• They introduced the green card (temporary
  residency permit).
• The authorities appointed the Commission
  Sussmuth. (permanent solution).
• Commission Sussmuth recognizing the fact that
  Germany is an immigration country suggested
• Open Germany for 50.000 workers from outside the
  EU.
• At that moment, the IT sector had already 75,000
  vacancies.

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Case 1 The new German Immigration Act

• Presentation of the Immigration Act (03/08/2001)
• Ease immigrations of specialists, to stimulate
  integration and to sharpen asylum regulations.
• Despite the skilled labor shortages and ageing
  problems, Commission Sussmuths recommendation
  was rejected
• Reason 9 of unemployment rate.

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Case 2 Fruit that falls far from the tree
11/3/2005, The Economist

• Brain Drain highly trained workers in developing
  countries tend to leave their home country for
  the higher income they hope to earn in the
  industrialized countries.
• All 11 members of the champion Senegalese team of
  2002 football World Cup had played for European
  clubs. They were not alone.
• the departure of the poor world's doctors,
  nurses and teachers to more lucrative job markets
  in the rich world. Ghana, for example, has only
  6.2 doctors per 100,000 people.

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Case 2 Fruit that falls far from the tree
11/3/2005, The Economist

• So, have greedy European clubs deprived Senegal
  of its best footballers, or has the prospect of a
  lucrative career in Europe encouraged more
  Senegalese to take up the beautiful game?
• The true question is whether the second effect
  dominates the first, leaving the game in Senegal
  stronger or weaker than it otherwise would be.

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Brian Drain or Brian Gain?

• The net effect of the brain drain is similarly
  ambiguous argued by some economists.
• Brain gain
• The prospect of securing a visa to America or
  Australia should tempt more people in poor
  countries to invest in education.
• if the temptation is strong enough, and the
  chances of landing a visa low enough,
• the poor country could gain more qualified (if
  disappointed) doctors and engineers than it loses.

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Brian Drain or Brian Gain? Conceptually speaking

• Education is not free, and some of those who
  gambled on a diploma as a ticket overseas will
  regret their decision.
• In a recent paper, Mr Stark and his co-authors
  assume that people in poor countries tend to
  demand too little education.
• A person's productivity depends on the skills of
  those around him, as well as his own. Because of
  these spillovers, an individual's education is
  worth more to the economy as a whole than it is
  to himself, and he will underinvest in it as a
  result.
• Mr Stark sees limited emigration as one way to
  fix this market failure.

A Gain with a Drain? Evidence from Rural
Mexico on the New Economics of the Brain Drain,
by Steve Boucher, Oded Stark and J. Edward
Taylor. August 2005.
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Brian Drain or Brian Gain?Example India's
software engineers

• Indian students had little reason to learn
  computer coding before there was a software
  industry to employ them. But such an industry
  could not take root without computer engineers to
  man it.
• The dream of a job in Silicon Valley, however,
  was enough to lure many of India's bright young
  things into coding, and that was enough to hatch
  an indigenous software industry where none
  existed before.
• According to recent World Bank study there were
  1.04m Indian-born people living in the 30
  relatively rich countries of the OECD in 2000.
• It can be a source of know-how and money, and
  provide valuable entrées into foreign markets and
  supply chains.

International Migration, Remittances and the
Brain Drain, edited by Maurice Schiff and Caglar
Ozden, World Bank, 2003.
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Empirical Evidence of Brian Gain

• Mr Stark and his co-authors investigate internal
  migration due to the limitation of data sources.
• The rural villages of Mexico lose many of their
  brightest sons and daughters to jobs in cities or
  border towns.
• Those Mexicans who leave their home villages tend
  to be better educated than those who stay. But
  despite this, the example the leavers set (and
  the job leads they provide) raises the average
  level of schooling of those left behind. Because
  they can aspire to a world beyond the village,
  even if they never reach it, young Mexicans have
  an added reason to stay in school beyond a ninth
  year, the authors show.

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The Potential Benefit of Taiwan as an Emigration
Economy

• Why dont university graduates in Taiwan study
  abroad any more?
• Is the wage gap not wide enough to lure our
  university graduate? Taiwan a victim of its own
  success
• the success the government has had in building
  up Taiwan's higher education system. BW
  reporters
• Dose the opportunities of study abroad reduce due
  to Chinas rising?
• A High-Tech Capital Runs Dry On Engineers BW,
  Nov 7, 05

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The Potential Benefit of Taiwan as an Emigration
Economy

• Is it a gain or loss to our economy?
• externality of education
• sources of know-how and money, and provide
  valuable entrées into foreign markets and supply
  chains
• Fewer Taiwanese are going to study overseas,
  fewer experienced people for Taiwan companies to
  lure back home
• Talent shortage threatens to delay Taiwan's
  transition to the next phase of tech development,
  which is crucial to maintaining the ability to
  serve big multinational customers.

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Second Essay

• Topic Short essay about cases of globalization
  of either local or international enterprises
• Deadline 17/11/04 1130hs at my mailbox.
• At most 5 pages, EXCLUDING tables and figures and
  bibliography.
• Structure
• 1. Brief introduction with the motivation of the
  case study why you think it is relevant to study
  it. Do not be vague, give a clear reason and
  motivation
• 2. Presentation of the cases being studied
  regarding global companys position in the GPN
  and its China strategy. Try to provide as much
  data as you can. Try to organize it in tables and
  figures.

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Second Essay Structure

• 3. Description of the case.
• Here the use of tables and data is obligatory.
• 4. Conclusion of the essay.
• From the data, tables and previous analysis,
  conclude your essay.
• 5. Bibliography.
• Obligatory to include the authors and books that
  you looked for.
• Obligatory to include a list of sites, journals
  and magazines that you looked for, even for
  prepare the tables and figures.
• Try to make it in the same format as in books and
  papers.
• 6. Tables and Figures
• Do not forget to define precisely the notation,
  magnitude and to numerate them.
• Do not forget to describe precisely the source
  where did you get the data.
• It is not necessary to print the web-page where
  did you get the data.

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Suggestions for final projects

• Extend one of the second or third essay
• Analyze deeply a multinational company.
• GPN China strategy
• Analyze the international macroeconomic situation
  of your country describing the cost advantages
  and disadvantages of it.
• Analyze one international sector of the economy
  of your country, showing how the Porters diamond
  behaves in this case Analyze the immigration or
  emigration situation in your country.
• Analyze the immigration (or emigration) situation
  in Taiwan.

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Suggestions for final projects

• Analyze the immigration (or emigration) situation
  in Taiwan.
• Make a table showing what are the three main
  countries which exports this labor force for
  your home country.
• Try to show the amount of immigrants or in
  absolute values and in percentage of the total
  population. (Print the page from where you got
  the data.)
• If you find data, show which are the main
  activities of these immigrants. Elaborated
  products or not???
• Show the ratio of source GDP/capita to host
  country GDP/capita for the three largest amount
  of immigrants.
• Reproduce Table 1 for only Taiwan.