Question

What factors lie behind capital inflows to the developing world? Discuss.

Answer 1

The capital inflows to the developing countries have increased significantly over the few decades. Following are the factors behind the capital inflow:

• Profitability: The developing countries have relatively larger opportunities due to the vastness of the market. Thus capital is coming in the form of the FDI to reap the benefits of emerging markets.
• A saturated market of developed countries: Now markets of developed countries have saturated, so now these countries are looking for the unsaturated markets, The markets of developing countries are unsaturated.
• Aids and Concessional loans: The developed countries and intergovernmental organizations are offering aids and concessional loans to the developing countries, thus now larger inflows of capital are occurring.
• Remittances: Workers of developing countries are working in the developed countries, thus , there is larger inflow of capital in forms of remittances.