chapter  20
22 Pages

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.