According to the shortrun (specificfactors) model,
How will FDI affect the return to capital and the return
To land in the recipient nation?
A)The returns to land and capital will both decrease.
B)The return to land will decrease; the return to capital will increase.
C)The return to land will increase; the return to capital will decrease.
D)The returns to land and capital will both increase.

Question

According to the short­run (specific­factors) model,
How will FDI affect the return to capital and the return
To land in the recipient nation?
A)The returns to land and capital will both decrease.
B)The return to land will decrease; the return to capital will increase.
C)The return to land will increase; the return to capital will decrease.
D)The returns to land and capital will both increase.

Quizplus · Accepted Answer

In the short-run model, FDI will increase the demand for the specific factors (including capital) that are used intensively in the industries where FDI is directed. This will cause an increase in the return to capital. However, the demand for land will decrease as the industries using land will face more competition from FDI. Therefore, the return to land will decrease.

According to the Short­run (Specific­factors) Model

According to the Shortrun (Specificfactors) Model