In the short-run (specific-factors) model, foreign direct investment is expected to ________the marginal product of labor and ________wages in the receiving country.
A) decrease; decrease
B) increase; decrease
C) decrease; increase
D) increase; increase

Question

Quizplus · Accepted Answer

In the short-run specific-factors model, foreign direct investment increases the capital available in the receiving country, which raises the marginal product of labor. As the marginal product of labor increases, wages in the receiving country also increase.

In the Short-Run (Specific-Factors) Model, Foreign Direct Investment Is Expected