Chapter 2

Practical Applications: The Investment and Policy Insights and Implications Derived From Arbitrage and Mobility


We begin to explore the usefulness and empirical validity of the concepts introduced in the first building block. One insight was that absent transportation costs, factor returns will be equalized across economies. That will result in the convergence of the income earned by a factor across the various national borders. This suggests that measures aimed at increasing the degree of integration, such as the EU, result in a convergence of nominal rates of returns. Conversely, disturbances that lead to measures with less integration, such as the breakdown of Bretton Woods, result in a divergence of nominal rates of returns. ...

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