If we use the short-run (specific-factors) model to model FDI movement from one nation to another, then wages in the recipient nation:
A) decline absolutely.
B) rise as a result of an increase in the marginal product of labor.
C) are not affected.
D) decline relatively, as capital competes with labor but not absolutely.

Question

Quizplus · Accepted Answer

According to the specific-factors model, FDI causes an increase in the demand for the specific factor (usually capital) in the recipient nation, which increases its marginal productivity and hence results in higher wages for that factor. Therefore, wages in the recipient nation rise as a result of an increase in the marginal product of labor, which is the best choice.

If We Use the Short-Run (Specific-Factors) Model to Model FDI