External borrowing,capital formation and growth in developing countries

Since the summer of 1982 the banking community has been faced with an international debt crisis of unprecedented dimensions. The debt rescheduling agreements that have been negotiated since then involve sums totalling no less than $ 100 billion. However, they give the international financial system no more than a breathing-space. The following two articles deal with different aspects of this crisis. Rainer Erbe examines the question as to what growth effects were associated with external borrowing. Can a lack of growth effects be made responsible for the crisis or were other factors more important? This is followed by an article by Anton Konrad who discusses the proposals which have been made for long-term crisis management. What are their chances of success?     

Promoting foreign direct investment in developing countries

Over 100 developing nations have investment promotion offices or agencies, reflecting a sense of competition to attract foreign direct investment, most of which flows to a few favorite countries. The investment promotion function is often underfunded and haphazard. This article outlines policy choices for investment promotion and discusses alternative modes of organizing this crucial activity. It proposes a novel bounty / royalty scheme whereby investment can be attracted.     

The role of Capital markets in developing countries

Capital markets in developing countries are under increasing political pressure. What solutions are likely to the conflicts and problems that arise over the need to integrate them into exploiting the resources, and fulfilling the needs, of a developing economy as a whole?     

New forms of foreign investment in developing countries

To a growing extent, since the early 1970s “new forms” of foreign investment have developed which constitute a departure from full ownership of the capital by the foreign investor and the practice of “packaged” management services. What view is to be taken of these new forms of investment from the development policy aspect?     

Effects of foreign direct investment in developing countries

The effects of direct investments and multinational corporations remain a highly contentious issue. The author traces here the reasons for the large number of diverging statements and comments on this issue and considers what political conclusions should be drawn from this wide variety of views.     

Competitiveness of developing and state trading countries

The foreign trade policies of the industrialized countries have become increasingly complex. The states in question do not apply uniform policies to all other countries but operate different arrangements for different groups of countries. The divergencies can be easily adduced as evidence in support of charges of discrimination against one group of countries for the benefit of another group. The state trading countries for instance claim—in partial explanation of their relatively small export achievements—that the foreign trade policy of the industrialized western countries puts them at a disadvantage compared with the developing countries. Is this charge justified? The following study answers this question for the EC which is the most important market for both these groups of countries in the industrialized world.     

The impact of civil war on foreign direct investment flows to developing countries

We investigate the impact of civil war on foreign direct investment (FDI) flows to developing countries. We employ a new data-set that disaggregates FDI inflows to primary, secondary and tertiary sectors. Second, we control for a richer set of economic and institutional variables that could determine FDI inflows including population, gross domestic product (GDP) per capita, the degree of trade openness, exchange rate variability, inflation, the governance structure of the host country using International Country Risk Guide data and its regime type using the POLITY autocracy–democracy data. We also address the reverse causality between FDI and conflict and the potential endogeneity of explanatory variables by employing dynamic system generalised method of moments (GMM) techniques in estimation. Our results indicate that primary sector FDI flows to developing countries are not significantly affected by civil war, whereas secondary and tertiary sectors FDI are more sensitive to such outbreak, potentially leading to reversals of existing FDI. Among institutional variables, government stability and control of corruption are more significant compared to regime type, law and order, and bureaucratic quality.     

Monetary policies for developing countries: The role of institutional quality

Weak public institutions, including high levels of corruption, characterize many developing countries. We demonstrate that this feature has important implications for the design of monetary policymaking institutions. We find that a pegged exchange rate or dollarization, while sometimes prescribed as a solution to the credibility problem, is typically not appropriate for countries with poor institutions. Such an arrangement is inferior to a Rogoff-style conservative central banker, whose optimal degree of conservatism is proportional to the quality of institutions. Finally, we cast doubt on the notion that a low inflationary framework can induce governments to improve public institutions.     

Corporate foreign currency borrowing and investment: The case of Hungary

The paper investigates the impact of foreign currency lending on investment. Using Hungarian firm level data, we test whether foreign currency lending contributed to larger investment before the crisis and whether the depreciation during the Great Recession resulted in lower investment rate for firms with foreign currency loans. Results of OLS and matching estimations show that before the crisis FX lending increased investment rates and during the crisis the investment rate of firms with FX loans declined more because of the balance sheet effects triggered by the depreciation. These effects were found to be more pronounced for liquidity constrained firms.     

The trade with developing countries

The classic view of the theory of foreign trade that unfettered international exchanges of goods enhance the economic welfare of all participating nations is gaining more and more ground in the discussions about development policy. Since past experience has shown capital aid alone to be incapable of lessening the prosperity differential between the North and the South, the “Aid by Trade“ strategy is now of increasing importance. There is however no panacea which would embrace the developing countries more closely in the international goods exchanges.

     

The trade with developing countries

The classic view of the theory of foreign trade that unfettered international exchanges of goods enhance the economic welfare of all participating nations is gaining more and more ground in the discussions about development policy. Since past experience has shown capital aid alone to be incapable of lessening the prosperity differential between the North and the South, the “Aid by Trade“ strategy is now of increasing importance. There is however no panacea which would embrace the developing countries more closely in the international goods exchanges.     

The debt burden of developing countries

According to OECD data¹, the external debts of developing countries totalled $ 625 billion at the end of 1982. As this does not include certain forms of credit, their indebtedness can be estimated at more than $ 700 billion, of which $ 500 billion consists just of bank loans. The resultant burden of interest and redemption payments has become so great that many more developing countries will be forced to seek rescheduling in the future. The debt burdens of developing countries and the vulnerability of the world financial system must be reduced for development policy reasons and also to ensure that the economies of the industrialised countries are not harmed. The following study suggests how this may be done.     

The conduct of international enterprises in developing countries

Do multinational enterprises act in developing countries as a motive force for progress or do they perpetuate colonialism by different means? The fierce controversy on this question still continues, fuelled not only by basic ideological differences but by dearth of empirical evidence. Prof. Pausenberger is helping to overcome the lack of knowledge.