Two reasons why capital may not flow to poor countries are that the poorer countries may:
A) have economies unlike those described by a Cobb-Douglas production function and not be subject to diminishing returns to capital.
B) have already accumulated high levels of capital relative to labour and may already have access to advanced technologies.
C) legally prevent the inflow of foreign capital and provide strong legal protection of private property.
D) have inferior production capabilities and not enforce property rights.

Question

Quizplus · Accepted Answer

Poorer countries may not attract capital because they have inferior production capabilities which limits their ability to use capital effectively. Additionally, they may not enforce property rights, which makes investors wary of investing in these countries.

Two Reasons Why Capital May Not Flow to Poor Countries