Regionalization and Capital Movement

Essay by supersaadiCollege, UndergraduateA, June 2010

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It is a well-known fact and dominant theory that development, defined as a process of improvements in a population's standards of living with associated structural or institutional change, requires access to and the accumulation of capital. Of course, capital, as wealth begetting wealth, or the sum total of society's productive resources, takes diverse forms: financial, physical, natural, human, and social. At issue in the development process is the accumulated stock of capital in these diverse forms, as well as their cross-national flows-international resource flows, if you will. As for money or financial capital, the most mobile form of capital, the international transfer process (the flow of capital) occurs in the form of bank capital (loans or debt financing), portfolio investments, and foreign direct investment. These transfers make up what can be termed private capital flows. Then there are also official capital flows via the operations of bilateral and multilateral aid or donor agencies.

The following table records in statistical form the volume of private and official capital flows from the North to the South. Of course, capital flows in other directions as well, and the table does not record the corresponding outflows of capital in the form of debt payments, royalty charges, repatriated profit, and corporate dividends. According to the United Nations Conference on Trade and Development's World Development Report 2003, the combined South-North outflows of capital might well exceed the inflow.

The international flow of capital is generally viewed as a catalyst and necessary condition of development. Foreign direct investment, a type of capital that is associated with the multinational corporation, is generally regarded as the "backbone of development finance." Portfolio investment, another form of private capital flow, tends to be more short-term and is much more volatile in its international operation and movements-so much so that...