Document Type

Conference Paper

Publication Date

1-1992

First Page

1

Last Page

50

Keywords

Capital flows, Foreign direct investment, South Asia

Abstract / Description

The role of external finance in promoting economic growth in developing countries has long been recognized and debated over the yePrs. Theoretically, less developed countries that are short of domestic resources can further their economic expansion by utilizing foreign savings to the extent that the marginal rate of return on domestic investment exceeds the marginal cost of external resources. Under conditions of perfect capital mobility, these flows would also help equalize rates of return on capital across countries and narrow development gaps. Nevertheless, it is difficult to draw any clearcut gennralization on the way external capital affects domestic economies of deve.oping countries. Differences in the abaorptive capacity of diverse developing economies and alternative forms of capital flows that exert heterogeneous economic impacts tena to complicate the empirical analysis of development finance. In addition, the interpretation and cross-country comparison of aggregate data often pose a number of pitfalls.

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