ABSTRACT
Macroeconomists treat capital flows as if they were a thing in itself and call them generically “foreign saving.” But foreign saving comes in a variety of forms, some more directly contributing to growth, while others contribute less and may in fact have negative impacts on the recipient country owing to their volatility. In this chapter, we will make a distinction between foreign direct investment (FDI) by multinational corporations (MNCs), which involves long horizons and large sunk costs, and the more liquid kinds of flows. In addition, FDI is a bundle of assets and not merely finance: it includes hard technology embodied in capital goods, soft technology in the form of management skills, workers with skills unavailable in the host country, and access to market, among others.
