Capital flows and the developing countries
In Chapter 12, we considered the effects of international trade on economic development. Despite the important effects of international trade on economic conditions in developing countries, our analysis was incomplete. As we saw in Chapter 12, there are a number of inﬂows and outﬂows of money in a country’s balance of payments that are not included in the current account. Speciﬁcally, we have not completely considered how capital account transactions affect economic development. In some previous chapters, we have touched on some of these issues. In Chapter 6, we brieﬂy discussed the role of FDI in the world econ - omy. In a few places in the second part of the book, we have looked at various aspects of capital account transactions that affect the developing countries. The basic purpose of this chapter is to bring this material together in order to consider the role of capital ﬂows in economic development.