Question

Suppose an American buys stock issued by an Argentinian corporation. The Argentinian firm uses the proceeds from the sale to build a new office complex. This is an example of foreign ___________ in Argentina.

1. Which of the following policies are consistent with the goal of increasing productivity and growth in developing countries?

a. Protecting property rights and enforce contracts
b. Providing tax breaks and patents for firms that pursue research and development in health and sciences.
c. Increasing taxes on income from savings
d. Imposing restrictions on foreign ownership of domestic capital.

2. In less developed countries, what does the brain drain refer to?

a. The emigration of highly skilled workers to rich countries
b. Lower productivity due to a malnourished workforce
c. Rapid population growth that increases the burden on the educational system
d. Rapid population growth that lowers the stock of capital per worker

Answer 1

Suppose an American buys stock issued by an Argentinian corporation. The Argentinian firm uses the proceeds from the sale to build a new office complex. This is an example of foreign PORTFOLIO INVESTMENT in Argentina.

1. Which of the following policies are consistent with the goal of increasing productivity and growth in developing countries?

• a. Protecting property rights and enforce contracts
• b. Providing tax breaks and patents for firms that pursue research and development in health and sciences.

Both A and B are essential for increasing economic growth. E.g. if Coke was not able to keep its formula secret in certain country, it will not engage in business there. Investment in R&D is essential for future economic growth.

2. In less developed countries, what does the brain drain refer to?

• a. The emigration of highly skilled workers to rich countries

Brain drain refers to the immigration of highly skilled workers from poor countries into rich countries. E.g. a doctor moves from mexico to the US because he/she can earn a much higher salary. But at the same time, all the money and time spent educating the doctor is lost by Mexico and its economy.