In the short-run (specific-factors) model, foreign direct investment is expected to cause a(n) ________in the production of the capital-intensive good and a(n) ________in the production of the land-intensive good in the receiving country.
A) decrease; decrease
B) increase; decrease
C) decrease; increase
D) increase; increase

Question

Quizplus · Accepted Answer

In the short-run (specific-factors) model, foreign direct investment is expected to cause an increase in the production of the capital-intensive good and a decrease in the production of the land-intensive good in the receiving country. This is because foreign direct investment often involves the transfer of technology and capital to the receiving country, which allows for more efficient production of capital-intensive goods. However, this may lead to a displacement of labor and a decrease in the production of land-intensive goods, as resources shift towards the production of capital-intensive goods.

In the Short-Run (Specific-Factors) Model, Foreign Direct Investment Is Expected