III. International factor migration
B. International investment (cont'd.)

    ? Hypothesis--comparing rich and poor countries, who should borrow and who should lend on balance?

Examples:

Note: To join the EU, must budget deficit and current account deficit cannot exceed 3% of GDP

Result 1: NFI is determined by a country's (1) savings rate and (2) domestic investment opportunities
    Some poor countries have very high investment but even higher savings rates--China
    Some rich countries have low savings rates, such as the US and Greece

Result 2: Economic analysis => foreign investment returns are not a net drain on the borrower country welfare
    (vs. popular criticism of profit remission by transnational corporations)

(1) NFI: $ flow in     (2) Interest and dividends => paying for use of foreign capital => $ flow back out In theory, the result should be a win-win situation. + foreign investment --> + output and revenue --> + profits for DC investors &   + wages for LDC workers

IV. The overall results of globalization

    Recall the Image contrasting North and South Korea:
    But to say globalization beats isolation doesn't get us very far--our goal then becomes how to make globalization work as well as possible

    Globalization and the real world
    What kinds of complications can arise?
    What does the evidence say?

    Issues:
        Efficiency: Growth
        Equity: Income distribution

    Conclusions from trade models:
        Efficiency: Globalizers increase their national welfare
        Equity: Not everyone gains, including unskilled labor in MDCs

    We have seen how trade affects DC wages.
    Consider trade and factor migration combined: worksheet