Labor Economics 5th Edition by George Borjas

Exercise 10

Suppose the Cobb-Douglas production function given in Equation 4-1 applies to a developing country. Instead of thinking of immigration from a developing to a developed country, suppose a developed country invests large amounts of capital (foreign direct investment, or FDI) in a developing country.
a. How does an increase in FDI affect labor productivity in the developing country How will wages respond in the short-run
b. What are the long-run implications of FDI, especially in terms of potential future immigration from the developing country
Reference Equation 4-1