ABSTRACT
External resources can play a critical role in economic development. The early literature (e.g. Chenery and Bruno, 1962) on foreign capital noted the role that foreign resources may play in meeting the shortfall in domestic savings and relaxing the constraint on imports of essential raw materials and capital goods. External resource inflows can take several forms, such as aid, grants, borrowing and direct investment. Aid and grants are the main components of the official source of external finance and direct investment is the predominant form of private resource flows. While borrowing can be either from official or private sources, it is the latter that has dominated external financing in the East Asian NIEs in recent years. The important role that aid and grants have played in the early phase of industrialisation in East Asian NIEs, especially in Korea and Taiwan, has been noted in Chapter 2. The focus of this chapter is mainly the role of direct foreign investment (DFI) in the industrialisation process.
