When FDI occurs, what are the long-run effects of FDI on industry output in the recipient nation?
A) There is no change in either the output of the capital-intensive or the labor-intensive industry.
B) The labor-intensive industry expands; the capital-intensive industry contracts.
C) The capital-intensive industry expands; the labor-intensive industry contracts.
D) Both capital- and labor-intensive industries expand in the same proportion.

Question

Quizplus · Accepted Answer

Foreign Direct Investment (FDI) often involves the transfer of capital-intensive technology from developed countries to recipient nations. As a result, the capital-intensive industry typically expands with the introduction of new technology and machinery, while the labor-intensive industry may contract due to the replaced labor force. However, the long-run effects of FDI on industry output can vary based on the specific circumstances of the investment and the economy of the recipient nation. Therefore, choice C, which states that the capital-intensive industry expands while the labor-intensive industry contracts, is the best answer.

When FDI Occurs, What Are the Long-Run Effects of FDI