Chapter 15 Slide 1Copyright © 2003 Pearson Education, Inc.

Chapter 15 Slide 2Copyright © 2003 Pearson Education, Inc.

Foreign Finance, Investment, and Aid: Controversies and Opportunities

Chapter 15

Chapter 15 Slide 3Copyright © 2003 Pearson Education, Inc.

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?

Chapter 15 Slide 4Copyright © 2003 Pearson Education, Inc.

Private Foreign Direct Investment and the Multinational Corporation Definition of MNC Recent growth of foreign direct

investment (FDI) Private foreign investment: pros and

cons

Chapter 15 Slide 5Copyright © 2003 Pearson Education, Inc.

Chapter 15 Slide 6Copyright © 2003 Pearson Education, Inc.

Multinational Corporations: Size, Patterns, and Trends MNCs are typically very large

Chapter 15 Slide 7Copyright © 2003 Pearson Education, Inc.

Chapter 15 Slide 8Copyright © 2003 Pearson Education, Inc.

Multinational Corporations: Size, Patterns, and Trends MNCs are typically very large Private foreign investment: some pros

and cons for development

Chapter 15 Slide 9Copyright © 2003 Pearson Education, Inc.

Chapter 15 Slide 10Copyright © 2003 Pearson Education, Inc.

Multinational Corporations: Size, Patterns, and Trends MNCs are typically very large Private foreign investment: some pros

and cons for development Private portfolio investment: boon or

bane for LDCs?

Chapter 15 Slide 11Copyright © 2003 Pearson Education, Inc.

Chapter 15 Slide 12Copyright © 2003 Pearson Education, Inc.

Foreign Aid: The Development Assistance Debate Conceptual and measurement problems Amounts and allocations: public aid

Chapter 15 Slide 13Copyright © 2003 Pearson Education, Inc.

Chapter 15 Slide 14Copyright © 2003 Pearson Education, Inc.

Chapter 15 Slide 15Copyright © 2003 Pearson Education, Inc.

Chapter 15 Slide 16Copyright © 2003 Pearson Education, Inc.

Chapter 15 Slide 17Copyright © 2003 Pearson Education, Inc.

Foreign Aid: The Development Assistance Debate Conceptual and measurement problems Amounts and allocations: public aid Why donors give aid

Chapter 15 Slide 18Copyright © 2003 Pearson Education, Inc.

Foreign Aid: The Development Assistance Debate

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

Chapter 15 Slide 19Copyright © 2003 Pearson Education, Inc.

Foreign Aid: The Development Assistance Debate

The two-gap model:foreign-exchange constraint

Where I 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 )(

Chapter 15 Slide 20Copyright © 2003 Pearson Education, Inc.

Foreign Aid: The Development Assistance Debate 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

Chapter 15 Slide 21Copyright © 2003 Pearson Education, Inc.

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

Chapter 15 Slide 22Copyright © 2003 Pearson Education, Inc.

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)

Chapter 15 Slide 23Copyright © 2003 Pearson Education, Inc.

Concepts for Review, cont’d

Portfolio investment Productive

resources Savings gap

Technical assistance

Tied aid Transfer pricing Two-gap model