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Topic 12 Foreign Finance, Investment, Aid Final

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Topic 12 Foreign Finance, Investment, Aid Final

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manoftomorrow1544
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© © All Rights Reserved
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Topic 12

Foreign Finance,
Investment,
Aid, and Conflict:
Controversies and
Opportunities
14.1 The International Flow of
Financial Resources

• Three sources:
– Private direct and portfolio investment
– Remittances of earnings by international
migrants
– Public and private development assistance

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14.2 Private Foreign Direct
Investment and the Multinational
Corporation
• Multinational Corporation (MNC)
– Recent growth of foreign direct investment (FDI)

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Figure 14.1 FDI inflows, Global and By Group
of Economies, 1980–2012 (Billions of Dollars)

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Figure 14.2 Trends in Annual Growth Rates of
FDI Inflows, by Groups of Economies, 1970–
2012 (Percent)

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14.2 Private Foreign Direct Investment and
the Multinational Corporation (cont’d)

• Private Foreign Direct Investment and the


Multinational Corporation

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14.2 Private Foreign Direct Investment and
the Multinational Corporation (cont’ d)

• Private Foreign Investment: Pros and Cons


for Development
• Traditional arguments in support of private
investment: Filling savings, foreign
exchange, revenue, and management gaps
– Four main arguments

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14.2 Private Foreign Direct Investment and
the Multinational Corporation (cont’ d)

• Private Foreign Investment: Pros and Cons


for Development
• Traditional arguments against private
foreign investment: Widening gaps
– Two main perspectives of the arguments:
Economic and ideological
– Transfer pricing
– See Box 14.1
• Reconciling pros and cons

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14.2 Private Foreign Direct Investment and
the Multinational Corporation (cont’d)

• Private Portfolio Investment: Benefits and


Risks?
• What is portfolio investment?
• Emerging-country stock markets

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Figure 14.3 Net Capital Flows to Developing
Countries, 2000–2009

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14.3 The Role and Growth of
Remittances

• Wage differences
• “Brain Drain”
• Uneven flow of remittances

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Figure 14.4 Sources of External Financing for
Developing Countries, 1990–2008

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Table 14.1 Major
Remittance-Receiving
Developing Countries,
by Level and GDP
Share, 2008

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14.4 Foreign Aid: The Development
Assistance Debate

• Conceptual and measurement problems


• Amounts and allocations: public aid
– Official development assistance (ODA)

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Table 14.2 Official Development Assistance Net
Disbursements from Major Donor Countries, 1985, 2002,
and 2008

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Table 14.3 Official Development
Assistance (ODA) by Region, 2008

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14.4 Foreign Aid: The Development
Assistance Debate (cont’d)

• Why donors give aid


– Political motivations
– Economic motivations: two-gap models and
other criteria
• Foreign exchange constraints
• Growth and savings
• Technical assistance
• Absorptive capacity
• Economic motivations and self-interest

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14.4 Foreign Aid: The Development
Assistance Debate (cont’d)

The two-gap model:


savings constraint

I £ F + sY (14.1)

Where
I is domestic investment
F is the amount of capital inflows
s is the savings rate
Y is national income
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14.4 Foreign Aid: The Development
Assistance Debate (cont’d)

The two-gap model:


foreign-exchange constraint
(15.2)

Where
I is domestic investment
F is the amount of capital inflows
E is the level of exports
Y is national income
m1 is the marginal import share
m2 is the marginal propensity to
import
Copyright ©2015 Pearson Education, Inc. All rights reserved. 14-19
14.4 Foreign Aid: The Development
Assistance Debate (cont’d)

• Why recipient countries accept aid


• The role of nongovernmental organizations
in aid (NGOs)
• The effects of aid

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14.5 Conflict and Development

• The scope of violent conflict and conflict


risks
• The consequences of armed conflict
– Health
– Destruction of wealth
– Worsening hunger and poverty
– Loss of education
– A torn social fabric

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Figure 14.5 Global Trends in Armed
Conflict, 1946–2008

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14.5 Conflict and Development
(cont’ d)

• The causes of armed conflict and risk factors


for conflict
– Horizontal inequalities
– Natural resources for basic needs
– Struggle to control exportable natural resources

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14.5 Conflict and Development
(cont’ d)

• The resolution and prevention of armed


conflict
– Importance of institutions; e.g. addressing
commitment problems
– Global actors
– Regional actors: an Africa-wide approach
– National actors
– Focus on education
– Local, “community-driven” economic
development

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THE END

THANK YOU

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