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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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Domestic sources of finance and investment in productive capacity

There is general agreement that a sustainable rise in living standards can only be achieved through expanded production and continuous productivity growth. This presupposes high rates of investment in physical infrastructure and plant and equipment, as well as in more intangible elements, such as education and research and development. But opinions differ as to the most appropriate modes of financing these different types of investment. For private investment to take place, entrepreneurs not only need an incentive in terms of expectations of future profits, they should also be able to finance the purchase of the required capital goods.

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