Notesale: Turn your study into money

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Financial flows
Examine the importance of loans, debt repayment, development aid, remittances, foreign direct
investment and repatriation of profits in the transfer of capital between the developed core areas
and the peripheries
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Flows of money and
investment from the developed core areas to the periphery of the world economy allow investors in
the capital-rich core to earn higher rates of return than they would do otherwise, and allow workers
in the resource-rich periphery access to the fixed and working capital they need to increase their
productivity and wages
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However, the situation has been changing over the last two decades due to the advent of more
globalised markets
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TNCs invest to make profits and are the driving force
behind economic globalisation
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TNCs have substantial influence on the global economy in general and in the countries in which they
choose to locate in particular
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From 2006-2008 they accounted for, on average, 9%, 16% and 11% respectively of
estimated foreign assets, sales and employment of all TNCs
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Capital flow can help developing countries with economic development by furnishing them with
necessary capital and technology
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Most Sub-Saharan
African countries, which have urgently needed foreign capital for economic betterment have been
largely excluded from globalised investment in the past although these is evidence that this is
beginning to change
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Clearly host countries want to keep as much of the profits made by foreign TNCs
reinvested in the local economy, however they will be aware that TNCs will want to repatriate to
justify the reasons for investment
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Most host countries complain that TNCs are so powerful that the balance of benefits is invariably
distorted in their favour
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Unbeneficial FDI
It is the quality of FDI not the quantity that brings net benefits to the receiving country, to bring
prosperity FDI must be channelled into productive rather than speculative activities
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The majority of FDI is made

up of companies: buying out state firms, purchasing equity in local companies, and financing
mergers or acquisitions
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While supporters of globalisation argue that economic growth
through trade is the only answer, critics say that developed countries should do more to help poor
countries through debt relief ad by opening their markets to exports from developing countries
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However, many on the loans that burden the world’s poorest countries
were given with high interest rates and long term repayments
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Development Aid
Aid is assistance in the form of grants and loans below market rates
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Voluntary aid is run by NGOs or charities, these organisations collect money from
individuals and organisations, however an increasing amount of government money goes to NGOs
because they have the expertise to run aid efficiently
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That a significant proportion of foreign aid is ‘tied’ to the purchase
of goods and services from the donor country
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That aid may delay the introduction of
reforms and that international aid can create a culture of dependency
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The World Bank estimated that World Wide remittances were
$251bn in 2007, this represents more than twice the level of international aid
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1/3 of global remittances originate in the USA, with Latin America and the Caribbean being the
region receiving the highest level of remittances per capita
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Higher remittance flows are associated
with lower poverty, better health and higher levels of education in the developing world
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Examine the influence of governments, world trading organizations and financial institutions (such as
the World Trade Organization, International Monetary Fund and World Bank) in the transfer of
capital
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National governments exert their
influence through national policies and membership of major international organisations
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IMF
The IMF and the World Bank were brought into being at a conference designed to plan a new
economic structure for the post-war period held at Bretton Woods, New Hampshire, USA in 1944
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A country running short of foreign currency reserves that it needed to maintain its currency
exchange rate could turn to the IMF for help
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However in 1960 a branch of the World Bank known as the International
development Association was formed to lend only to nations with a very low per capita income
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There are critics of the World Bank and they argue that rather than helping recipient countries, the
loans pushed many into further debt, with new loans often being used to pay off old ones
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Furthermore, critics claim that conditions attached to the World Bank
loans have crippled economic growth in recipient economies, hindered development, promoted
dependency and increased poverty
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In 1995 it
became the WTO which was set up as a permanent organisation with far greater powers to arbitrate
trade disputes
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However in some areas protectionism is still
alive and well, particularly in clothing, textiles and agriculture
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Oxfam is a major critic of the way the present trading system operates and instead
promote fair trade

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