Foreign Public Capital and Economic Growth of Developing Countries

A major economic policy objective in most of the developing countries is fostering economic growth, which usually requires good quality and higher quantity of investment. In turn, more resources for investment require higher levels of both domestic and foreign savings. While the impact of domestic savings on economic growth is unambiguous, there is controversy at the theoretical and empirical levels over the effect of foreign capital (or foreign savings) on both economic growth and domestic savings. A detailed study of macroeconomic effects of foreign capital can help in settling the controversy. This chapter should be seen in this context.