The real interest rate in a country is defined as the nominal interest rate deflated by the inflation rate (1+r)= (1+I)/(1+Growth rate or pie)or, approximately, (r=i-pie), where Growth Rate or Pie= Pt+1/pt.
Suppose that capital is not mobile across countries. Would you expect the rate of return to capital to be equalized across countries? Why or why not?
Now suppose that capital is allowed to move across countries. Under what conditions would real interest rates be equalized across countries?