Question

If a country relaxes its trade rules, which form of capital will become more readily mobile across its borders, and which will remain comparatively restricted?

Options

• Physical capital will move more freely, while human capital remains restricted by nationality and cultural factors

• Human capital will move more freely, while physical capital remains restricted by nationality and cultural factors

• Both will move freely, since neither faces mobility barriers

• Neither will move, since both are inseparable from their owners

Answer 1

Physical capital is highly mobile across countries, subject only to trade rules—so relaxing these rules increases its mobility. Human capital's movement is hindered by nationality and cultural factors, which trade rules cannot remove, so it remains less mobile.