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Suppose country A has the following Cobb-Douglas production function q = AKαE 1−α . Suppose country...

Suppose country A has the following Cobb-Douglas production function q = AKαE 1−α . Suppose country A receives large foreign direct investments in capital (FDI)

(a) How does an increase in FDI affect labor productivity in country A? How would wages respond in the short-run?

(b) In the long run, what are the implications of FDI on potential future immigration out of country A?

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