ABSTRACT
The development of economics as an empirical science has been marked by the interaction of theory and fact. The consideration of the practical problems and issues of the day has often led to the re-examination of the old theories and formulation of the new ones - more so in the field of international trade and investment since the days of Ricardo. In recent years, the economic development of underdeveloped economies has provided an important context for a re-examination and extension of the traditional theory of international investment. Traditionally, the centre of the stage was occupied by the discussion of the mechanism of transfer and the balance of payments adjustment - a discussion which was sharpened by the short-run Keynesian income analysis, with its emphasis on macroeconomic aggregates and consequently on the role of foreign investment as an employment stimulating and stabilizing factor. However, in the post-Second World War period, the discussion of foreign investment has been associated with three inter-related problems: 1) cure of the dollar shortage; 2) the procurement of sufficient supplies of raw materials and primary products for the advanced industrialized countries; and 3) the economic development of backward economies.
