Explanation

According to the neoclassical model of international capital flows:

• Capital tends to flow from countries with high capital-to-labor ratios to countries with low capital-to-labor ratios
• This occurs because capital is more productive (higher marginal product) in countries where it is relatively scarce
• Countries with high capital-to-labor ratios typically have lower returns on capital due to diminishing marginal returns
• Countries with low capital-to-labor ratios offer higher potential returns on capital
• In open economies with free trade and international borrowing/lending, capital seeks the highest risk-adjusted returns

Therefore, capital flows from capital-abundant countries (high capital-to-labor ratio) to capital-scarce countries (low capital-to-labor ratio).