Published online by Cambridge University Press: 07 September 2011
Introduction
Since the beginning of this decade there has been a marked increase in flows of private capital to developing countries from just under US$200 billion in 2001 to over US$1 trillion in 2007 before the global financial crisis in 2008 curtailed these increases in flows. These flows consist of foreign direct investment (FDI), portfolio investment, private bank lending and remittances. Much of this was FDI, which by the mid-1990s had become the most important source of external finance for developing countries and reached over US$500 billion in 2007. A large share also corresponded to private debt (just under US$500 billion in 2007) of which the major part corresponded to debt contracted by enterprises in developing countries. During the same period, net official development assistance was small by comparison reaching a little over US$100 billion from 2005 onwards. Private capital flows, and FDI in particular, far outweigh development assistance and therefore constitute a significant leverage point for sustainable development. But there are major debates about the impact of FDI on host countries, and about whether its economic benefits are achieved at the expense of environmental damage and social inequity, and indeed whether the economic benefits are all that they are claimed to be.
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