Consider the following thought experiment regarding foreign direct investment and specific factors.
(a) In the pure specific-factors model in the text, suppose that a wave of foreign direct investment suddenly increases the availability of capital in the cotton cloth sector. How would that affect the distribution of income in the United States? Specifically, what would it do to the real incomes of U.S. workers and capitalists in the cotton cloth industry, and workers and farmers in the tobacco sector? How would it affect the distribution of income between workers in the North and in the South?
(b) Now, answer the same question for the mixed specific-factors model, explaining the reason for any differences from the answer in (a).