International factor flows tend to lower incomes of those factors in host countries that most directly substitute for that factor,and to raise the incomes of other factors.

Question

Quizplus · Accepted Answer

This statement is true according to the Heckscher-Ohlin model, which suggests that factors of production that are abundant in a country will be relatively cheaper in that country, while factors that are scarce will be relatively more expensive. When a country engages in international trade, the relative prices of goods and factors will adjust to reflect the new opportunities for production and consumption. In general, factors that are abundant will see their incomes rise, while factors that are scarce will see their incomes fall, as production shifts towards industries that make intensive use of the abundant factor.

International Factor Flows Tend to Lower Incomes of Those Factors