Suppose that the United States initially has a lower capital
rental rate (r) than Mexico.
What would be the direction of foreign direct investment
(FDI)?
Use a world-capital-market graph to show the effects of FDI on
the two countries’ rental rates of capital, GDP, and total return
to labor owners.
Identify the net change in world output in the above
graph.
If the source country restricts the amount of outward FDI, how
would the net change in world output identified...