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Trade and Development Report 2008

Commodity Prices, Capital Flows and the Financing of Investment

image of Trade and Development Report 2008

The Trade and Development Report 2008, subtitled Commodity Prices, Capital Flows and the Financing of Investment” highlights the paradox that the “capital poor” developing world is exporting capital to the “capital rich” developed countries. The Report suggests shifting the focus in financial policies from households putting more money aside and imports of foreign savings, to the reinvestment of profits and credit creation through the domestic banking system.

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Current issues related to the external debt of developing countries

Large capital inflows are often seen as a sign of economic strength of a receiving country, and are sometimes cited as evidence of good institutions and investment opportunities. By contrast, large external debts are usually viewed as a sign of weakness, and developing countries are concerned about the accumulation of such debt. There is a lack of coherence in these perceptions, since debt accumulation is the natural consequence of large capital inflows, unless they take the form of grants or equity flows.

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