Finance concepts and applications

Finance

Capital generated in the industrialized countries finds its way mostly to other industrialized countries and emerging markets. In the year 2006, total foreign direct investment was 1305.9 billion dollars and climbed 17.8% in 2007 to 1537.9 billion dollars (Foreign direct investments in 2007). In 2006, a huge chunk of the capital, 910 billion dollars, went into OECD countries (OECD, 2007) which have high income and a high human development index and are regarded as developed countries. Further, none of the top twenty countries receiving FDI included a less-developed country (LDC) (OCO Global, 2008). In fact, emerging countries China and India occupied the number one and number three spots while the highly developed United States held position number two for inflow of FDI (OCO Global, 2008).

To understand the disparity in FDI received by LDCs and other nations, consider the following FDI inflows into the LDCs in 2000-05 were three times higher than in the preceding 10 years, but still they accounted for only 1% of world inflows in 2000-05 and 0.7% of world stock in 2005 (United Nations Conference on Trade and Development, 2007). On top of this, it's important to remember that FDI inflows to the LDCs are highly concentrated geographically: four petroleum-producing LDCs - Angola, Chad, Equatorial Guinea and Sudan - received more than half (56%) of the total FDI inflows going to all 50 LDCs in 2000-05 (United Nations Conference on Trade and Development, 2007).