In the shortrun (specificfactors) model, foreign direct
Investment is expected to cause a(n) ________ in the
Return to capital and a(n) ________ in the return to
Land in the receiving country.
A)decrease; decrease
B)increase; decrease
C)decrease; increase
D)increase; increase

Question

In the short­run (specific­factors) model, foreign direct
Investment is expected to cause a(n) ________ in the
Return to capital and a(n) ________ in the return to
Land in the receiving country.
A)decrease; decrease
B)increase; decrease
C)decrease; increase
D)increase; increase

Quizplus · Accepted Answer

According to the specific-factors model, foreign direct investment (FDI) causes an increase in the return to the specific factor that is complementary to the capital used by the foreign firm and a decrease in the return to the specific factor that is used in conjunction with the foreign capital. In this case, FDI would cause an increase in the return to capital and a decrease in the return to land in the receiving country. Therefore, the best answer is C, decrease in the return to land and increase in the return to capital.

In the Short­run (Specific­factors) Model, Foreign Direct

In the Shortrun (Specificfactors) Model, Foreign Direct