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

2. Chapter 15 Slide 2 Copyright © 2003 Pearson Education, Inc. Foreign Finance, Investment, and Aid: Controversies and Opportunities Chapter 15

3. Chapter 15 Slide 3 Copyright © 2003 Pearson Education, Inc. The International Flow of Financial Resources n Two sources: –Private direct and portfolio investment –Public and private development assistance n How can these flows help development? n Can these flows harm development?

4. Chapter 15 Slide 4 Copyright © 2003 Pearson Education, Inc. Private Foreign Direct Investment and the Multinational Corporation n Definition of MNC n Recent growth of foreign direct investment (FDI) n Private foreign investment: pros and cons

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

6. Chapter 15 Slide 6 Copyright © 2003 Pearson Education, Inc. Multinational Corporations: Size, Patterns, and Trends n MNCs are typically very large

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

8. Chapter 15 Slide 8 Copyright © 2003 Pearson Education, Inc. Multinational Corporations: Size, Patterns, and Trends n MNCs are typically very large n Private foreign investment: some pros and cons for development

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

10. Chapter 15 Slide 10 Copyright © 2003 Pearson Education, Inc. Multinational Corporations: Size, Patterns, and Trends n MNCs are typically very large n Private foreign investment: some pros and cons for development n Private portfolio investment: boon or bane for LDCs?

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

12. Chapter 15 Slide 12 Copyright © 2003 Pearson Education, Inc. Foreign Aid: The Development Assistance Debate n Conceptual and measurement problems n Amounts and allocations: public aid

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

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

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

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

17. Chapter 15 Slide 17 Copyright © 2003 Pearson Education, Inc. Foreign Aid: The Development Assistance Debate n Conceptual and measurement problems n Amounts and allocations: public aid n Why donors give aid

18. Chapter 15 Slide 18 Copyright © 2003 Pearson Education, Inc. Foreign Aid: The Development Assistance Debate The two-gap model: savings constraint WhereI is domestic investment F is the amount of capital inflows s is the savings rate Y is national income

19. Chapter 15 Slide 19 Copyright © 2003 Pearson Education, Inc. Foreign Aid: The Development Assistance Debate The two-gap model: foreign-exchange constraint WhereI 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

20. Chapter 15 Slide 20 Copyright © 2003 Pearson Education, Inc. Foreign Aid: The Development Assistance Debate n Conceptual and measurement problems n Amounts and allocations: public aid n Why donors give aid n Why LDC recipients accept aid n The growing role of nongovernmental organizations (NGOs) n The effects of aid

21. Chapter 15 Slide 21 Copyright © 2003 Pearson Education, Inc. Conclusions: Toward a New View of Foreign Aid n Dissatisfaction among donors and recipients may create the possibility for new aid arrangements n Future aid is likely to be linked to market reforms and institutional capacity- building

22. Chapter 15 Slide 22 Copyright © 2003 Pearson Education, Inc. Concepts for Review n Absorptive capacity n Aid weariness n Concessional terms n Economic transition n Emerging-country stock markets n Foreign aid n Foreign direct investment (FDI) n Foreign-exchange gap n Global factories n Multinational corporation (MNC) n Nongovernmental organizations (NGOs) n Official development assistance (ODA)

23. Chapter 15 Slide 23 Copyright © 2003 Pearson Education, Inc. Concepts for Review, cont’d n Portfolio investment n Productive resources n Savings gap n Technical assistance n Tied aid n Transfer pricing n Two-gap model