Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 15 Foreign Finance, Investment, and Aid: Controversies and Opportunities

Copyright © 2006 Pearson Addison-Wesley. All rights reserved.

Chapter 15

Foreign Finance, Investment, and Aid: Controversies and Opportunities

Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 15-2

The International Flow of Financial Resources

Two sources:– Private direct and portfolio investment– Public and private development assistance

How can these flows help development? Can these flows harm development?


Private Foreign Direct Investment and the Multinational Corporation

Definition of MNC Recent growth of foreign direct investment

(FDI) Private foreign investment: pros and cons


Figure 15.1


Figure 15.2


Table 15.1


Multinational Corporations: Size, Patterns, and Trends

MNCs are typically very large and are the major force in the rapid globalization of world trade.


Multinational Corporations: Size, Patterns, and Trends

MNCs are typically very large Private foreign investment: some pros and

cons for development (see table 15.1 from 9e)

Traditional arguments in favor of Traditional arguments against Reconciling pros and cons


Private Portfolio Investment

What is portfolio investment? Private portfolio investment: boon or bane

for LDCs?


Foreign Aid: The Development Assistance Debate

Conceptual and measurement problems Amounts and allocations: public aid


Table 15.2


Table 15.3


Table 15.4


Table 15.4 (cont’d)



Conceptual and measurement problems Amounts and allocations: public aid Why donors give aid- political and economic

motivations.



The two-gap model:savings constraint

sYFI Where

I is domestic investmentF is the amount of capital inflowss is the savings rateY is national income

(15.1)



The two-gap model:foreign-exchange constraint

WhereI is domestic investmentF is the amount of capital inflowsE is the level of exportsY is national incomem1 is the marginal import sharem2 is the marginal propensity to

import

FEYmImm 221)( (15.2)



Conceptual and measurement problems Amounts and allocations: public aid Why donors give aid Why LDC recipients accept aid The growing role of nongovernmental

organizations (NGOs) The effects of aid


Conclusions: Toward a New View of Foreign Aid

Dissatisfaction among donors and recipients may create the possibility for new aid arrangements

Future aid is likely to be linked to market reforms and institutional capacity-building


Concepts for Review

Absorptive capacity Aid weariness Concessional terms Economic transition Emerging-country stock

markets Foreign aid Foreign direct investment

(FDI)

Foreign-exchange gap Global factories Multinational

corporation (MNC) Nongovernmental

organizations (NGOs) Official development

assistance (ODA)


Concepts for Review (cont’d)

Portfolio investment Productive resources Savings gap

Technical assistance Tied aid Transfer pricing Two-gap model

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Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 15 Foreign Finance, Investment, and Aid: Controversies and Opportunities