In the short-run (specific factors) model, FDI will cause _______________ in the return to capital and land and _______________ in the return to labor in the recipient country.
A) an increase; a decrease
B) a decrease; an increase
C) no change; an increase
D) a decrease; no change

Question

Quizplus · Accepted Answer

According to the short-run (specific factors) model, FDI will cause a decrease in the return to capital and land because foreign investors will increase the demand for these specific factors of production, driving up their prices. On the other hand, the return to labor will increase because there will be an increase in demand for labor due to the expansion of the foreign investment projects.

In the Short-Run (Specific Factors) Model, FDI Will Cause _______________