ood is free and competitive, new investment will occur only in the poorer economy, and this will continue to be true until capital-labor ratios, and hence wages and capital returns, are equalized. Within the set-up of Lucas' statement – output produced by capital and labor with constant returns to scale and the same technology being accessible to all countries – how can models of international trade explain why capital flows do not occur the way Lucas argues they should?
ood is free and competitive, new investment will occur only in the poorer economy, and this will continue to be true until capital-labor ratios, and hence wages and capital returns, are equalized. Within the set-up of Lucas' statement – output produced by capital and labor with constant returns to scale and the same technology being accessible to all countries – how can models of international trade explain why capital flows do not occur the way Lucas argues they should?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In Lucas paradox, that if trade in capital good is free and competitive, new investment will occur only in the poorer economy, and this will continue to be true until capital-labor ratios, and hence wages and capital returns, are equalized.
Within the set-up of Lucas' statement – output produced by capital and labor with constant returns to scale and the same technology being accessible to all countries – how can models of international trade explain why capital flows do not occur the way Lucas argues they should?
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