ABSTRACT
The current and capital accounts in the balance of payments are a record of intertemporal and international trade in saving often called ‘foreign investment’ or ‘capital importing’. Although it is related to financial capital flows it is not to be confused with them.1 By lending abroad economic agents expect to make higher returns than domestically and by borrowing from abroad expect that returns will exceed the cost of borrowing. Building on the work of a number of authors, this chapter investigates the nature of these processes, thereby demonstrating some of the advantages to be gained from foreign investment. It also discusses whether any case for intervention can be inferred from this analysis.2
