ABSTRACT
This chapter considers the way in which the problem of international investment is affected by what is called the balance of international payments. The balance of payments of a country may be conveniently divided into two parts: the balance on income account and the balance on capital account. A large withdrawal of short-term funds is equivalent from the standpoint of the balance of payments to a sudden large-scale (though unintended) increase of foreign lending, and must be expected to lead to a heavy drain on the country’s gold reserve. From the point of view of the balance of payments this is the minimum figure which can be assigned to the loss of the cotton export trade. The replacement of imports of manufactured goods by home production contributes, just as much as an increase of exports, to improve the balance of international payments on current account.
