In the short-run (specific-factors) model, foreign direct investment is expected to ________ the marginal product of labor and ________ wages in the receiving country.Question 6Answera.decrease; decreaseb.decrease; increasec.increase; increased.increase; decrease
Question
In the short-run (specific-factors) model, foreign direct investment is expected to ________ the marginal product of labor and ________ wages in the receiving country.Question 6Answera.decrease; decreaseb.decrease; increasec.increase; increased.increase; decrease
Solution
In the short-run (specific-factors) model, foreign direct investment (FDI) is expected to increase the marginal product of labor and increase wages in the receiving country. This is because FDI often involves not just capital inflow, but also transfer of technology and skills, which can enhance the productivity of labor. As labor becomes more productive, it becomes more valuable, leading to an increase in wages. Therefore, the correct answer is c. increase; increase.
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