Question

Using the Rybczynski Theorem,

1. If you were a Capital owner, would you support foreign direct investment coming into your country? Why or why not?

2. If you were a worker, would you support immigration policies that increase the number of workers in your country?

Answer 1

The theorem states that increase in the quantity of some resource, the industry that uses that resource most intensively will increase its output while the other Industry will decrease its output.

Increase in the Foreign Direct Investment will lead to the potential increase in Business activities and establishments. As a capital owner , if there is a situation where FDI has increased, then so would increase the demand for capital stock for the purpose of production and service rendering. Thus Capital Stock Owners would support in FDI into domestic country, as then there is a market demand for their Capital Stock Holdings.

In context to the theorem , with increase in availability of one resource, will drive production process involving more amount of that resource. Say if capital stock increases and with that , so did production process become more capital focused. But with that increase, more numbers of labor force is required to meet the requirements of the new production process. This will thus lead to a decrease in the availability of labor forces in those industries that are primarily labor focused.

With changes in immigration process that would enable the market to increase labor force, as a worker and a labor service provider, this immigration policy would affect the potential earnings of the workers all combined. With the increase in labor availability, there is bound to be a decrease in the wages earned by each individual labor , due to the increase in competition in finding work . This type of policy thus favors Capital Stock Holders and Industrialists to acquire more number of cheap labor at lower wages, and as a worker , this type of policy cannot be supported.