Compared with the previous peak of global capital, the amount of money flowing to poorer countries today is already small. Maurice Obstfeld and Alan Taylor, two economists, point out that less-developed countries’ share of total global debt is at an all-time low. In 1900, these countries accounted for 33% of the total; in the 1990s, the figure was down to 11%. In 1913, the countries in the bottom fifth of income per person received around 25% of the world stock of foreign capital, much the same as the countries in the richest fifth. By 1997, the poorest fifth’s share was down to under 5%, compared with 36% for the richest fifth. According to Messrs Obstfeld and Taylor, today’s capital transactions seem to be “mostly a rich-rich affair, a process of Â‘diversification finance’ rather than Â‘development finance’…foreign investment in the poorest developing countries lags far behind the levels attained at the start of the last century.” Why?
Author: Matthew Bishop
Sources: CFO Publishing, The Economist
Subjects: Finance, International
Industry: Finance / Banking