College Political Science Quiz: Distributive Effects Of Policy
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Distributive Effects Of PolicyQuestion 1 of 20

A developing country with a domestic industry that produces generic versions of essential medicines agrees to fully implement the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), significantly strengthening patent protections.

What is the most likely short-to-medium-term distributional consequence of this policy change within the country?

Domestic innovation will surge, benefiting local research firms and leading to lower prices for consumers.
Foreign pharmaceutical corporations will gain market power, while domestic consumers face higher prices and local generic manufacturers lose business.
The government will earn significant revenue from new patent registration fees, allowing it to cut taxes for all citizens.
Both domestic and foreign pharmaceutical firms will thrive equally in a more predictable legal environment, fostering intense competition.
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College Political Science Quiz

College Political Science Quiz: Distributive Effects Of Policy

Practice Distributive Effects Of Policy in College Political Science with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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This quiz focuses on Distributive Effects Of Policy, giving you a quick way to practice the rules, question types, and explanations that matter most for College Political Science.

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Question 1

A developing country with a domestic industry that produces generic versions of essential medicines agrees to fully implement the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), significantly strengthening patent protections.

What is the most likely short-to-medium-term distributional consequence of this policy change within the country?

  1. Domestic innovation will surge, benefiting local research firms and leading to lower prices for consumers.
  2. Foreign pharmaceutical corporations will gain market power, while domestic consumers face higher prices and local generic manufacturers lose business. (correct answer)
  3. The government will earn significant revenue from new patent registration fees, allowing it to cut taxes for all citizens.
  4. Both domestic and foreign pharmaceutical firms will thrive equally in a more predictable legal environment, fostering intense competition.
Explanation: Strengthening patent protection, as required by TRIPS, grants monopoly rights to patent holders, who are overwhelmingly large multinational corporations from developed countries. This allows them to charge higher prices without competition from local generic producers. Consequently, domestic consumers face higher costs for medicine, and the local generic drug industry is harmed. While the long-term goal is to spur innovation (A), the immediate effect is a wealth transfer to foreign patent holders.

Question 2

Fearing capital flight during a period of economic instability, a developing country's government imposes strict controls on capital outflows, making it difficult for citizens and firms to move their savings abroad.

A major distributional effect of this policy is that it benefits domestic firms that borrow from local banks by...

  1. encouraging multinational corporations to bring more capital into the country.
  2. protecting domestic savers from the risks associated with volatile foreign markets.
  3. trapping domestic savings within the country, thus keeping local interest rates lower than they would be otherwise. (correct answer)
  4. causing the domestic currency to appreciate, which lowers the cost of imported machinery for firms.
Explanation: Capital controls on outflows act like a dam, preventing domestic savings from seeking higher returns abroad. This larger pool of trapped domestic capital increases the supply of loanable funds within the country, which puts downward pressure on domestic interest rates. This benefits domestic borrowers, such as firms, but harms domestic savers, who are denied the opportunity to earn higher returns elsewhere. Such controls typically deter, rather than encourage, foreign investment (A).

Question 3

A government wishes to provide protection to its domestic textile industry. Which of the following policies would most directly benefit domestic textile producers while imposing the LEAST direct cost on the government's treasury?

  1. A direct subsidy paid to domestic textile firms for each unit they produce.
  2. A tariff on all imported textiles. (correct answer)
  3. An import quota administered by granting licenses to importing firms.
  4. A government-funded 'Buy Domestic' marketing campaign for textiles.
Explanation: A tariff raises domestic prices, benefiting producers, while actually generating revenue for the government (negative direct cost). A direct subsidy (A) and marketing campaign (D) require direct government expenditure. An import quota (C) has minimal administrative costs but no revenue generation. Since the question asks for the LEAST direct cost on the treasury, a revenue-generating tariff represents the lowest net cost to government finances.

Question 4

The United Nations imposes comprehensive economic sanctions on a country ruled by an authoritarian regime, banning all trade in oil, its primary export, and freezing the regime's financial assets abroad.

Within the target country, the economic costs of these sanctions are most likely to be distributed in which manner?

  1. Borne exclusively by the ruling elite, who control the oil revenues and are the intended targets.
  2. Distributed equally among all citizens, fostering a sense of national unity against foreign intervention.
  3. Absorbed entirely by foreign corporations, which lose their investments and access to the country's oil resources.
  4. Concentrated on the general population through unemployment and inflation, while the elite may exploit control over black markets. (correct answer)
Explanation: When analyzing the distributional effects of economic sanctions, you need to consider how authoritarian regimes typically operate and who has the resources to adapt to economic pressure. Economic sanctions create scarcity and disrupt normal market mechanisms, but authoritarian elites rarely bear the brunt of these costs. The correct answer is D because sanctions typically hit the general population hardest through job losses (especially in sanctioned industries like oil), reduced government services, and inflation from supply shortages. Meanwhile, ruling elites often maintain their wealth through existing reserves and by controlling emerging black markets for sanctioned goods, sometimes even profiting from the artificial scarcity they help create. Option A fails because authoritarian leaders typically insulate themselves from economic hardship through accumulated wealth, state resources, and preferential access to remaining goods. Option B is unrealistic because economic hardship rarely distributes equally—those with political connections and existing wealth can better weather sanctions, while ordinary citizens face unemployment and rising prices. Option C misses the target entirely, as the question asks about distribution within the target country, not effects on external actors. This distributional pattern explains why comprehensive sanctions often fail to achieve regime change—they tend to weaken the general population (who might otherwise pressure for reform) while leaving the intended targets relatively unscathed. Remember that authoritarian regimes are specifically designed to concentrate resources and power among elites, making them naturally resistant to broad economic pressure that affects the whole society.

Question 5

A country signs a trade agreement that dramatically lowers tariffs on imported steel but opens new foreign markets for its advanced robotics exports. The steel industry employs capital and labor that are not easily transferred to other sectors, while the robotics industry requires highly specialized skills and equipment.

According to the Ricardo-Viner (specific-factors) model, what is the most likely distributional outcome of this agreement?

  1. All owners of capital across all industries will benefit, while all workers will experience downward pressure on wages.
  2. Capital owners and workers in the robotics sector will benefit, while capital owners and workers in the steel sector will suffer losses. (correct answer)
  3. The country as a whole will experience uniform economic gains, with no significant domestic groups being made worse off.
  4. Workers will move freely from the declining steel sector to the expanding robotics sector, leading to an equalization of wages between them.
Explanation: The Ricardo-Viner model argues that the effects of trade are determined by the industry in which factors of production are employed, because factors are 'specific' and not easily moved. In this case, trade liberalization benefits the export-oriented sector (robotics) and harms the import-competing sector (steel). Therefore, both capital and labor employed in robotics will gain, while both capital and labor employed in steel will lose. Distractor A incorrectly applies a class-based (Stolper-Samuelson) logic. Distractor D ignores the core assumption of factor specificity.

Question 6

Two neighboring countries actively compete to attract a multinational auto assembly plant by offering the investing firm generous corporate tax breaks and promising to keep labor regulations lax.

This competition to attract mobile capital is most likely to alter the national income distribution within both countries by...

  1. increasing the share of income going to capital relative to the share going to labor. (correct answer)
  2. increasing overall national income, with the benefits being distributed evenly across society.
  3. decreasing the share of income going to capital, as firms must spend heavily on lobbying governments.
  4. benefiting labor in the country that wins the investment, while harming labor in the country that loses.
Explanation: This scenario describes a 'race to the bottom.' When governments compete for mobile capital by lowering taxes on capital and suppressing labor's bargaining power (lax regulations), they shift the distributional balance. Capital owners benefit from lower taxes and labor costs, increasing their share of national income. Labor's share, conversely, is suppressed through lower wages and fewer protections. Even in the 'winning' country, labor's overall bargaining position is weakened by the dynamic, meaning both groups of workers are in a weaker position than before the competition began.

Question 7

Two neighboring countries actively compete to attract a multinational auto assembly plant by offering the investing firm generous corporate tax breaks and promising to keep labor regulations lax.

This competition to attract mobile capital is most likely to alter the national income distribution within both countries by...

  1. increasing the share of income going to capital relative to the share going to labor. (correct answer)
  2. increasing overall national income, with the benefits being distributed evenly across society.
  3. decreasing the share of income going to capital, as firms must spend heavily on lobbying governments.
  4. benefiting labor in the country that wins the investment, while harming labor in the country that loses.
Explanation: This scenario describes a 'race to the bottom.' When governments compete for mobile capital by lowering taxes on capital and suppressing labor's bargaining power (lax regulations), they shift the distributional balance. Capital owners benefit from lower taxes and labor costs, increasing their share of national income. Labor's share, conversely, is suppressed through lower wages and fewer protections. Even in the 'winning' country, labor's overall bargaining position is weakened by the dynamic, meaning both groups of workers are in a weaker position than before the competition began.

Question 8

A government wants to protect its domestic sugar industry from foreign competition. It can either impose a tariff that raises the domestic price by 20%, or it can issue a limited number of import licenses (a quota) that restricts supply sufficiently to also raise the domestic price by 20%.

From a distributional standpoint, what is the primary difference in the outcome between using a tariff versus a quota to achieve the identical price increase?

  1. The tariff generates revenue for the government, whereas the quota generates 'quota rents' for the firms that hold the import licenses. (correct answer)
  2. The quota is more harmful to domestic consumers because it creates a greater degree of scarcity than a tariff.
  3. The tariff provides a larger benefit to domestic producers than the quota because it is a more direct form of financial support.
  4. The tariff creates a net economic welfare loss for the country, while the quota does not distort the market in a way that creates loss.
Explanation: Both tariffs and quotas raise domestic prices, benefiting domestic producers and harming domestic consumers to the same extent if the price increase is identical. The key distributional difference lies in who captures the revenue that is created. With a tariff, the government collects the difference between the world price and the domestic price as tax revenue. With a quota, the private importers who are given the valuable licenses to import can buy at the world price and sell at the higher domestic price, capturing that difference as profit, known as quota rents.

Question 9

The central bank of Country A, a major exporter of manufactured goods and an importer of energy and raw materials, engineers a significant devaluation of its currency.

Which of the following describes the most likely coalition of domestic winners and losers from this policy?

  1. Holders of foreign-denominated debt will benefit financially, while the domestic tourism sector will be harmed.
  2. Export-oriented manufacturing firms will benefit, while domestic consumers and firms reliant on imported inputs will be harmed. (correct answer)
  3. All domestic producers will benefit from increased competitiveness, while only consumers of luxury goods will be harmed.
  4. The government's budget deficit will shrink due to increased exports, while importers of all goods will see their profits increase.
Explanation: A currency devaluation makes a country's exports cheaper for foreigners and its imports more expensive for domestic consumers. This benefits export-oriented firms by increasing their sales. However, it harms domestic consumers who face higher prices for imported goods and domestic firms that use imported raw materials or components, as their costs rise. Holders of foreign debt are harmed because it takes more domestic currency to pay back the debt. The tourism sector benefits as the country becomes a cheaper destination.

Question 10

A heavily indebted developing country accepts an International Monetary Fund (IMF) structural adjustment program. The conditions of the loan require the government to privatize state-owned enterprises (SOEs), slash food and fuel subsidies, and liberalize its trade regime.

Which group within the country is most likely to experience immediate, concentrated losses as a direct result of these conditions?

  1. Rural farmers who produce cash crops for export.
  2. Foreign investors and domestic business elites connected to international markets.
  3. Urban public-sector employees and low-income consumers. (correct answer)
  4. International financial institutions and creditor nations who proposed the program.
Explanation: Privatizing SOEs often leads to layoffs, directly harming public-sector employees. Slashing food and fuel subsidies immediately raises the cost of living for consumers, with the largest impact on the low-income urban population who rely on these subsidies. While trade liberalization may eventually benefit export-oriented agricultural producers (A) and is designed to attract foreign investors (B), the immediate, sharp costs are borne by those dependent on the previous state-led economic model.

Question 11

A country implements a complex new food safety regulation requiring all imported produce to undergo an expensive and lengthy certification process. The stated goal is public health, but the domestic produce industry, which already meets these standards, lobbied heavily for the new rule.

This non-tariff barrier is most likely to distribute economic benefits to the domestic produce industry primarily by...

  1. enhancing its international reputation for safety, thereby increasing its export opportunities.
  2. raising the costs for foreign competitors, thus shielding the domestic industry from import competition. (correct answer)
  3. generating substantial revenue for the government through certification fees, which can be used to support farmers.
  4. ensuring genuinely safer food for consumers, who will reward domestic firms with increased loyalty and sales.
Explanation: While stated as a public health measure, such regulations often function as non-tariff barriers (NTBs) to trade. By imposing costs and delays on imports that domestic producers do not have to face, the policy's primary effect is protectionist. It raises the effective price of foreign goods, insulating domestic producers from competition. This benefits the domestic industry at the expense of domestic consumers (who face higher prices) and foreign producers (who lose market access).

Question 12

Country A is a high-cost producer of automobiles. Country B is a medium-cost producer, and Country C is the world's lowest-cost producer. Initially, Country A has a uniform tariff on all auto imports. Then, Country A forms a free trade area with Country B, eliminating tariffs on auto imports from B but keeping the tariff on imports from C.

This regional trade agreement leads to 'trade diversion'. Who are the primary losers from this specific effect?

  1. Automobile producers in Country A, who now face increased competition from Country B.
  2. Consumers in Country A, who must now pay higher prices for automobiles than before the agreement.
  3. The government of Country A and the low-cost producers in Country C. (correct answer)
  4. Automobile producers in Country B, who are forced into a market they cannot efficiently serve.
Explanation: Trade diversion occurs when a regional trade agreement causes a country to shift from importing from the most efficient global producer (Country C) to a less efficient producer within the trade bloc (Country B). The losers are: 1) Producers in Country C, who lose market access to Country A. 2) The government of Country A, which previously collected tariff revenue on imports from the low-cost producer (C) but now collects no tariff on imports from the new partner (B), resulting in a loss of revenue. Consumers in A may get lower prices than before, but the country as a whole loses efficiency.

Question 13

A high-tech multinational corporation (MNC) establishes a new research and development facility in a developing host country. The facility primarily hires local university-educated engineers and scientists, paying them wages significantly above the national average.

Within the host country, this form of foreign direct investment (FDI) is most likely to increase the income gap between...

  1. the urban and rural populations.
  2. high-skilled and low-skilled labor. (correct answer)
  3. owners of capital and all forms of labor.
  4. the host country and the home country of the MNC.
Explanation: This type of FDI specifically increases the demand for high-skilled labor (engineers, scientists). This increased demand will bid up the wages for such workers. Because the investment does not directly increase demand for low-skilled labor, the wage premium for skilled workers will grow, widening the income gap between high-skilled and low-skilled labor within the host country. While it might also affect the urban-rural gap (A), the most direct and theoretically significant effect is on the returns to different skill levels.

Question 14

The United States provides large subsidies to its domestic cotton producers. This policy leads to a significant increase in U.S. cotton production and exports, which in turn depresses the global price of cotton.

What is the most significant distributional effect of this U.S. policy on a country like Benin, whose economy is highly dependent on cotton exports and does not subsidize its farmers?

  1. It transfers wealth from Beninese farmers to U.S. taxpayers and the U.S. government.
  2. It forces Beninese farmers to become more efficient, ultimately strengthening Benin's position in the world market.
  3. It transfers wealth from Beninese farmers to U.S. cotton producers and to cotton consumers worldwide. (correct answer)
  4. It has little effect, as Beninese cotton serves a different, higher-quality niche market than U.S. cotton.
Explanation: The U.S. subsidies artificially lower the world price of cotton. This harms unsubsidized producers in other countries, like Benin, by reducing the revenue they receive for their exports. Thus, wealth is transferred from Beninese farmers to two groups: 1) U.S. producers, who receive the subsidy payments from their government, and 2) all consumers of cotton and cotton products globally (including in the U.S. and Benin), who benefit from the lower commodity price. U.S. taxpayers lose, but they are not the recipients of the wealth transfer from Benin.

Question 15

A popular smartphone is designed in the United States, sources key components from Japan and South Korea, is assembled in China, and is marketed and sold globally by the U.S. parent company. The final retail price is $1000. Of that price, the cost of assembly in China accounts for approximately $25.

This distribution of value within the global value chain (GVC) suggests that the greatest economic rewards are captured by the owners of...

  1. low-skilled labor in the country of final assembly.
  2. efficient logistics and shipping companies that move components and finished goods.
  3. the physical capital (factories and machinery) used in the assembly process.
  4. intangible assets, such as patents, software design, and brand reputation. (correct answer)
Explanation: This question tests your understanding of how value is distributed in global value chains (GVCs), a key concept in international political economy. When analyzing GVCs, focus on where the highest profit margins lie rather than where the most visible economic activity occurs. The passage reveals a striking pattern: while assembly in China represents the most visible manufacturing step, it captures only $25 of a $1000 retail price—just 2.5%. This demonstrates that in modern GVCs, the greatest economic rewards flow to owners of intangible assets like intellectual property, design capabilities, and brand value. The U.S. company retains control over the high-value activities (design, patents, marketing, brand management) while outsourcing low-margin assembly work. This "smile curve" effect shows value concentrated at the beginning (R&D, design) and end (marketing, sales) of the production process, with minimal value in the middle manufacturing steps. Answer A is incorrect because low-skilled assembly workers receive wages, not ownership returns, and represent a tiny fraction of the final value. Answer B misses the mark—while logistics companies earn fees, they don't capture the major value created in this chain. Answer C focuses on physical capital used in assembly, but the passage shows assembly itself generates minimal value compared to the total retail price. Remember this pattern: in technology-intensive GVCs, look for where intellectual property, design, and brand control reside. These intangible assets typically generate the highest returns, while physical production often represents the smallest value share despite being the most visible economic activity.

Question 16

A country whose politically powerful auto industry is shrinking due to import competition creates a Trade Adjustment Assistance (TAA) program. The program provides extended unemployment benefits and retraining funds, but eligibility is strictly limited to workers who can definitively prove their job was lost due to foreign trade, as opposed to other causes like automation.

A significant distributional consequence of this policy's specific design is that it...

  1. fully compensates all workers harmed by free trade, thereby eliminating political opposition to it.
  2. benefits owners of capital in the auto industry by subsidizing the downsizing of their workforce.
  3. harms domestic consumers by requiring a tax increase that completely offsets the gains from cheaper imported cars.
  4. creates political and economic divisions between workers in trade-impacted sectors and those displaced by other economic forces. (correct answer)
Explanation: When analyzing trade policy, you need to consider not just economic efficiency but also how benefits and costs are distributed across different groups. Trade Adjustment Assistance programs reveal important political economy dynamics about who gets help and who doesn't. The correct answer is D because this TAA program's strict eligibility requirements create artificial distinctions between displaced workers. By limiting benefits only to those who can "definitively prove" their job loss was trade-related, the policy divides workers who may be experiencing very similar hardships. A factory worker laid off due to import competition receives assistance, while one laid off due to automation at the same factory does not, even though both face identical challenges finding new employment. This design choice creates resentment and political divisions between groups that might otherwise unite around broader labor protections. Option A is wrong because the program only helps workers who can prove trade causation, not "all workers harmed by free trade." Option B incorrectly suggests capital owners benefit from subsidized downsizing, but TAA doesn't subsidize employers—it provides benefits to displaced workers. Option C assumes the policy requires tax increases that offset consumer gains from imports, but the passage gives no information about funding mechanisms or their relationship to consumer benefits from trade. Remember that trade policy questions often test whether you understand distributional consequences—who wins and loses from specific policy designs. Look for how eligibility criteria, benefit structures, and program rules can create unexpected political coalitions or divisions between seemingly similar groups.

Question 17

Country X has a large, low-skilled labor force and abundant agricultural land. Country Y has a highly educated workforce and a large stock of industrial capital. According to the Heckscher-Ohlin model, they begin to trade freely with each other.

Based on the Stolper-Samuelson theorem, which groups in which country would experience a decline in their real incomes as a result of this trade?

  1. Capital owners and skilled labor in Country X; landowners and low-skilled labor in Country Y. (correct answer)
  2. Landowners in Country X and skilled labor in Country Y.
  3. Low-skilled labor in Country X and capital owners in Country Y.
  4. Landowners in Country Y and capital owners in Country X.
Explanation: When you encounter questions about international trade and income distribution, you're dealing with the Heckscher-Ohlin model and its key implication, the Stolper-Samuelson theorem. This theorem predicts that free trade benefits owners of abundant factors while hurting owners of scarce factors in each country. Country X has abundant low-skilled labor and land but scarce capital and skilled labor. Following its comparative advantage, Country X will export agricultural products (using its abundant factors) and import manufactured goods. The Stolper-Samuelson theorem tells us that trade increases demand for abundant factors (benefiting landowners and low-skilled workers in Country X) while reducing demand for scarce factors (hurting capital owners and skilled workers in Country X). Similarly, Country Y has abundant capital and skilled labor but scarce land and low-skilled labor. Country Y will export manufactured goods and import agricultural products. This benefits capital owners and skilled workers in Country Y while hurting landowners and low-skilled workers there. Answer A correctly identifies both groups that lose: capital owners and skilled labor in Country X (the scarce factors there), plus landowners and low-skilled labor in Country Y (the scarce factors there). Answer B only identifies one loser from each country, missing half the affected groups. Answer C incorrectly suggests that abundant factors (low-skilled labor in X, capital in Y) would lose from trade. Answer D completely reverses the logic, suggesting abundant factors lose while scarce factors benefit. Remember: under Stolper-Samuelson, trade always hurts owners of each country's scarce factors while benefiting owners of abundant factors.

Question 18

A government wants to protect its domestic sugar industry from foreign competition. It can either impose a tariff that raises the domestic price by 20%, or it can issue a limited number of import licenses (a quota) that restricts supply sufficiently to also raise the domestic price by 20%.

From a distributional standpoint, what is the primary difference in the outcome between using a tariff versus a quota to achieve the identical price increase?

  1. The tariff generates revenue for the government, whereas the quota generates 'quota rents' for the firms that hold the import licenses. (correct answer)
  2. The quota is more harmful to domestic consumers because it creates a greater degree of scarcity than a tariff.
  3. The tariff provides a larger benefit to domestic producers than the quota because it is a more direct form of financial support.
  4. The tariff creates a net economic welfare loss for the country, while the quota does not distort the market in a way that creates loss.
Explanation: Both tariffs and quotas raise domestic prices, benefiting domestic producers and harming domestic consumers to the same extent if the price increase is identical. The key distributional difference lies in who captures the revenue that is created. With a tariff, the government collects the difference between the world price and the domestic price as tax revenue. With a quota, the private importers who are given the valuable licenses to import can buy at the world price and sell at the higher domestic price, capturing that difference as profit, known as quota rents.

Question 19

A heavily indebted developing country accepts an International Monetary Fund (IMF) structural adjustment program. The conditions of the loan require the government to privatize state-owned enterprises (SOEs), slash food and fuel subsidies, and liberalize its trade regime.

Which group within the country is most likely to experience immediate, concentrated losses as a direct result of these conditions?

  1. Rural farmers who produce cash crops for export.
  2. Foreign investors and domestic business elites connected to international markets.
  3. Urban public-sector employees and low-income consumers. (correct answer)
  4. International financial institutions and creditor nations who proposed the program.
Explanation: Privatizing SOEs often leads to layoffs, directly harming public-sector employees. Slashing food and fuel subsidies immediately raises the cost of living for consumers, with the largest impact on the low-income urban population who rely on these subsidies. While trade liberalization may eventually benefit export-oriented agricultural producers (A) and is designed to attract foreign investors (B), the immediate, sharp costs are borne by those dependent on the previous state-led economic model.

Question 20

Fearing capital flight during a period of economic instability, a developing country's government imposes strict controls on capital outflows, making it difficult for citizens and firms to move their savings abroad.

A major distributional effect of this policy is that it benefits domestic firms that borrow from local banks by...

  1. encouraging multinational corporations to bring more capital into the country.
  2. protecting domestic savers from the risks associated with volatile foreign markets.
  3. trapping domestic savings within the country, thus keeping local interest rates lower than they would be otherwise. (correct answer)
  4. causing the domestic currency to appreciate, which lowers the cost of imported machinery for firms.
Explanation: Capital controls on outflows act like a dam, preventing domestic savings from seeking higher returns abroad. This larger pool of trapped domestic capital increases the supply of loanable funds within the country, which puts downward pressure on domestic interest rates. This benefits domestic borrowers, such as firms, but harms domestic savers, who are denied the opportunity to earn higher returns elsewhere. Such controls typically deter, rather than encourage, foreign investment (A).