B Quicksilver Capital 10points The authors in the textbook a

B. Quicksilver Capital (10points) The authors, in the textbook and in the online readings for Chapter 6, present both the potential advantages and the potential disadvantages of increased capital mobility. These arguments are relevant from both a domestic (companies shopping for subsidies and tax breaks from governments as a condition for relocating) and international (outsourcing of productive activities and relocating headquarters to another country) point of view. Based on what you have read, do you think that this increasing mobility of capital will, on net, be a good or a bad thing for the competitiveness of business and of government? Be sure to tie your answer to the points made in the textbook and the readings.

Solution

In this age of globalization capital flows , multinational companies , foreign direct investments are common terms in every economy . Capital mobility takes place both in and out of a country . Every phenomenon has their own set of advantages and disadvantages .

Increased capital mobility , or inflow of capital in a country helps in increasing productive capacity , increasing revenue earnings of the government , helps to balance payments , helps to increase aggregate demand , employment generation in the economy .

Disadvantages of capital mobility is increased competition for already existing companies , outsourcing of work creates unemployment in home country . Government loses revenue from taxes when home companies relocate .