Aria PN

Developing nations did not benefit from foreign capital. That’s what Dani Rodrik and Arvind Subramanian wrote in a new paper about financial globalization. Capital inflows increase consumption but their effect on investment and in turn productivity growth are minimal.

The paper builds from previous findings that countries that grow more rapidly are those that rely less and not more on foreign capital.

Of course developing nations need foreign capital. However, most of their government do not yet have policies and regulations necessary for increasing capital flows. Without those tools, foreign capital is risky and subject to a lot of corruptions. Unless the developing nations improve their governance, foreign capital is not that beneficial.