Does Foreign Direct Investment Help Emerging Economies? - Economic Letter, Jan. 2007 - FRB Dallas

The gap between the world's rich and poor countries largely comes down to the financial and physical assets that create wealth. Developed economies possess more of this capital than developing ones, and what they have usually incorporates more advanced technologies. The implication is clear: A key aspect of economic advancement lies in poorer nations' capacity to acquire more capital and scale the technological ladder. Emerging economies undertake some capital formation on their own, but in this era of globalization, they increasingly rely on foreign capital. Indeed, total capital flows to developing economies have skyrocketed from $104 billion in 1980 to $472 billion in 2005. 1 The foreign capital has the potential to deliver enormous benefits to developing nations. Besides helping bridge the gap between savings and investment in capital-scarce economies, capital often A key aspect of economic advancement lies in poorer nations' capacity to acquire more capital and scale the technological ladder.