Suppose that FDI has "spillover" benefits for the recipient nation (such as spurring technological innovation, more FDI, or growth in labor productivity). These spillover effects might help explain why:
A) in Singapore, wages fell in the short run.
B) in Singapore, wages fell and returns to capital rose in the long run.
C) in Singapore, wages rose and, depending on the calculation used, returns to capital were close to original levels in the long run, which contradicted the Heckscher-Ohlin model.
D) in Singapore, absolutely nothing changed in either the short or the long run.

Question

Quizplus · Accepted Answer

Spillover benefits from FDI, such as technological innovation and growth in labor productivity, can lead to increased wages. The Heckscher-Ohlin model, which predicts outcomes based on countries' relative endowments of factors of production, might not fully account for these dynamic effects of FDI, hence the observed outcomes in Singapore where wages rose and returns to capital remained close to original levels in the long run.

Suppose That FDI Has "Spillover" Benefits for the Recipient Nation