Answer to Question #98623 in Macroeconomics for annie

Question

Starting with 2000’s capital in the world became increasingly mobile. According to the mainstream labor market model, assuming labor costs are the only factor the capital owners take into account, which countries are the ones capital will move from, and which countries are the ones capital will move in? Explain your answer.

Answer 1

Capital will move in countries with low labor costs, where producing of goods will be cheaper, consequently, owners of capital will be able to get higher return on invested capital. At the same time, capital will move from countries with excess money supply and savings (most of them are developped countries).