Migration of Financial Resources to Developing Countries PDF
Preview Migration of Financial Resources to Developing Countries
MIGRATION OF FINANCIAL RESOURCES TO DEVELOPING COUNTRIES MIGRATION OF FINANCIAL RESOURCES TO DEVELOPING COUNTRIES Dilip K. Das Palgrave Macmillan ISBN 978-1-349-18293-0 ISBN 978-1-349-18291-6 (eBook) DOI 10.1007/978-1-349-18291-6 © Dilip K. Das, 1986 Softcover reprint of the hardcover 1st edition 1986 978-0-333-39799-2 All rights reserved. For information, write: St. Martin's Press, Inc., 175 Fifth Avenue, New York, NY 10010 Published in the United Kingdom by The Macmillan Press Ltd. First published in the United States of America in 1986 ISBN 978-0-312-53217-8 Library of Congress Cataloging-in-Publication Data Das, Dilip K., 1945- Migration of financial resources to developing countries. Bibliography: p. Includes index. I. Capital movements-Developing countries. I. Title. HG389l.D37 1986 332'.042 85-18345 ISBN 978-0-312-53217-8 To Vasanti and the innumerable hours of togetherness we had to do without Contents Preface xiii Glossary of Acronyms xvii Text Tables xviii TRANSNATIONAL FLOW OF LONG-TERM RESOURCES - A HISTORICAL PERSPECTIVE Antiquity I Medieval Period and Thereafter 1 The Old Concept of Economic Aid 3 America - The Debtor Nation 4 Rationale Underlying the Capital Flows in the Nineteenth Century 5 Developing Countries of the Nineteenth Century 5 Golden Era of Resource Transfer 6 Tum of the Century 8 Government Role in the Pre-First-World-War Financial Flows 10 Scenario on the Eve of First World War 1l International Financial Relations during the First World War 12 The Post-war Scene 13 The Great Depression: A Thin Dividing-line 15 Impact of the Second World War 17 Principal Source Countries 17 England 17 France 19 Germany 20 United States 20 2 INFLOW OF FINANCIAL RESOURCES AND ECONOMIC GROWTH 22 Introduction 22 The Supply-side Story 23 Macroeconomics of Resource Inflows 26 The Two-gaps Theory 26 The Big Push 27 Capital-absorptive Capacity Approach 27 vii Vlll Contents Microeconomics of Resource Inflows 28 Resource Transfer and Economic Growth 30 Resource Inflows and Domestic Saving 34 The Foreign Exchange Constraint 37 Reverse Transfer 38 3 DEVELOPING COUNTRIES IN THE INTERNATIONAL ECONOMY-PROGRESS, INTERACTION AND INTEGRATION 40 Introduction 40 The Growth Scenario 41 Agricultural Sector 45 Manufacturing Sector 48 Trade 51 Commodity Trade Trends 53 Terms of Trade 58 Re-emergence of Protectionism 59 Protectionism in the Manufacturing Sector 61 Protectionism in the Agricultural Commodities 62 Emergence of the NICs 62 External Shocks and the LDCs 64 The Theme of Interdependence 65 4 THE STRUCTURE AND VOLUME OF BILATERAL RESOURCE FLOWS 69 Introduction 69 A Question of Motivation 70 Internalising the External Resources 72 The First Post-war Decade: 1946--55 72 Geographical Distribution 75 Financial Terms 76 Economic Setting During the First Post-war Decade 76 Patterns of Imports of Creditor Countries 78 The Second Post-war Decade: 195.>--65 79 Geographical Distribution 83 Financial Terms 84 Economic Setting During the Second Post-war Period 85 Pattern of Imports of the Creditor Countries 88 The Third Post-war Decade: 1966--75 91 Geographical Distribution 93 Financial Terms 95 Contents 1x Economic Setting During the Third Post-war Decade 95 Pattern of Imports of the Creditor Countries 98 The Impact of Economic Fluctuations on the Liquid Resources of the LDCs 101 The Contemporary Period: 1976-83 102 Geographical Distribution 104 Financial Terms 106 Economic Setting During the Contemporary Period 107 Pattern of Imports of Creditor Countries 112 The Impact of Economic Fluctuations on the Liquid Resources of the LDCs 113 An Overall View of the Resource Flows from the DAC 114 Countries THE FLOW OF CONCESSIONAL ECONOMIC ASSISTANCE TO LDCs FROM OPEC COUNTRIES 116 Enter OPEC 116 A Question of Motivation 118 The OPEC Aid Record 119 The Pre-1973 Period 119 Beyond 1973 120 Geographical Distribution 123 Financial Terms 125 THE FLOW OF CONCESSIONAL ECONOMIC ASSISTANCE TO LDCs FROM THE CENTRALLY PLANNED ECONOMIES 126 The Inception 126 Trade and Aid 127 The Aid Philosophy 128 A Question of Motivation 129 The Aid Record of the CPEs 130 The First Period: 1954-70 130 Geographical Distribution 131 Financial Terms 132 The Second Period: 1971-83 133 Flows to Developing Non-market Economies 135 Geographical Distribution 135 Financial Terms 136 X Contents 5 INTERNATIONAL CAPITAL MARKET AND THE DEVELOPING COUNTRIES 137 Introduction 137 The Commercial Bank Lendings 138 Growth of the International Financial Market 138 The Borrowers and the Lenders 139 The Genesis of the Eurocurrency Market 140 Eurocurrency Credits to Developing Countries 141 Financial Terms 142 Variable Interest Rates 143 Where the Money Went 144 Access to International Capital Markets 145 Trends in Bank Exposure 146 The Maturing Relationship 148 Bond Markets 149 The First Period: 1960-72 149 The Relative Insignificance of External Bond Markets 151 Financial Terms 152 The Second Period: 1973-83 152 Access of LDCs to External Bond Markets 154 Relative Significance of the Two Segments of the External Bond Market 155 Financial Terms 156 The Reversal of Capital Currents-Negative Flows to LDCs 156 Export Credits 157 Growth of Export Finance to Developing Countries 158 Export Credits and Development Finance 159 The Berne Union 160 Flow of Export Credits between 1950 and 1969 160 Flow of Export Credits between 1970 and 1983 162 Financial Terms 165 Foreign Direct Investment 166 The First Period: 1946-55 169 The Second Period: 1956-70 171 The Third Period: 1971-82 174 Changing Profile of Foreign Direct Investment 176 6 RESOURCE FLOWS TO AND FROM THE MULTILATERAL FINANCIAL INSTITUTIONS 179 Introduction 179 Contributions to Multilateral Institutions 180 Contents xi Donors' Policy Preferences Regarding the Multilateral Institutions 183 Interactions Between the Multilateral Institutions and Donors 184 International Bank for Reconstruction and Development 186 The Purpose of the Bank 187 The First Period: 1947-60 188 Two Questions: One Answer 190 The Second Period: 1961-84 191 The Programme Lending Debate 197 International Development Association 198 Introduction 198 The Sources of Funds 199 Eligibility Criteria 201 Lending Terms 202 Lending Operations 202 International Finance Corporation 205 Introduction 205 The Rationale 206 Financial Operations 207 The Modus Operandi 210 Asian Development Bank 211 Organisation 211 Evolution 212 Lending Operations 213 African Development Bank 215 Organisation 215 Evolution 216 Lending Operations 216 Inter-American Development Bank 218 Organisation 218 Evolution 219 Lending Operations 220 Multilateral Development Banks 222 International Monetary Fund 223 The Conditionality Tussle 223 Financial Assistance Policies 225 LDC Drawings on the Fund 226 The New-Found Power 230 United Nations Development Programme 231 Genesis 231
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