International Factor Movements

International Economics 1, Prof.Dr. Elif UÇKAN DAĞDEMİR, Editör, ANADOLU UNIVERSITY PUBLICATION, Eskişehir, ss.211-237, 2024

In contemporary discourse, the notion of a static world where production factors remain constant over

time, production functions (technology) do not evolve, and consumer preferences (tastes) stay unchanged

is no longer tenable. Economic landscapes are characterized by dynamic changes: population growth leads

to an increase in the labor force, capital accumulation progresses with economic growth, and inefficient

production methods are continuously supplanted by more efficient ones.

These changes significantly impact countries’ consumption patterns, production capacities, demand

for imported goods, and factor prices. Such developments hold particular significance for developing

countries, such as Türkiye, which are navigating these economic transformations.

Equally important as the free movement of goods and services and economic growth in the globalized

world is the mobility of labor and capital. The trade models discussed thus far share the common

assumption that factors of production cannot move between countries. This simplification reflects the

reality that, while international factor movements do occur, they are less fluid compared to the movement

of goods and services.

Despite the substantial reduction in restrictions on the free movement of goods and services under the

GATT/WTO and GATS frameworks, the international mobility of production factors remains constrained.

International migration, in particular, stands out as one of the most significant economic phenomena of the

century. Currently, millions of individuals worldwide live as immigrants, and this number continues to rise

due to factors such as poverty, climate change, armed conflicts, and oppressive regimes.

While restrictions on the free movement of labor persist, restrictions on capital mobility have markedly

decreased over time. In this chapter, we will explore the causes and consequences of international labor

migration and capital movements (foreign investment) under the condition of perfect market conditions.

By examining the interplay between these factors and their influence on economic performance, this

analysis aims to provide a comprehensive understanding of the complexities associated with production

factor mobility in the modern world.