If the production functions of rich and poor nations are NOT identical, resulting in lower marginal products of capital for poor nations, then:
A) capital markets are basically dysfunctional.
B) it must mean the labor productivity for poor nations is higher.
C) capital markets cannot be relied on to bring about convergence.
D) capital markets may be functioning efficiently and correctly after all.

Question

Quizplus · Accepted Answer

Capital markets may still be functioning efficiently even if the marginal products of capital differ between rich and poor nations. This variation can be due to numerous factors such as differences in technology, infrastructure, or institutional quality, rather than a dysfunction of capital markets.

If the Production Functions of Rich and Poor Nations Are