A Study On Contemporary International Capital Flow And Its Effects On Economic Growth Of Late-developing Countries

This dissertation is concerned with the discussion of the empirical and theoretical association between international capital flow and economic growth of LDCs. In this paper, author tries to reveal the mechanism of the effect of contemporary international capital flow on the economic Growth of LDCs., and to provide a consistent story on both the past success and the failure of these economics in the relate fields, Put in another word, to find out in what ways and to what degree the growth experiences of the high-performing economies shed light on the prospects for long-term success of develops currently underway in LDCs. The dissertation consists of five chapters. The first chapter is the introduction, which provides a generate picture of contemporary international capital flow and its effect on economic growth of LDCs. In this part author expound the value and methodology of the whole dissertation. And then point out that for the late-developing countries, foreign investment is not only a chance but also a new challenge to their economic growth. This means the late-developing countries must concentrate on how to tackle the relationship between risk and revenue and how to minimize the cost of friction to favorably make use of the foreign investment. In the second chapter, the author review and discuss the certain theoretical works of the past years. We can found that it is a major topic of developing economic on the effect of contemporary International capital Flow to the economic Growth of LDCs. The new classicism, the neo-intuitionism, the structuralism all make certain important contributes in the relate field. Although they hold different opinion, yet most of them agreed that international capital flow has made valuable contributions to the economic growth of overall international economy as well as the national economy of every country of the world. In this process, the foreign investment makes good the deficit in forming capital and promotes their industrial structure. The key point of this process is that who can better absorb and localize more foreign investment. This shows that it is vital task for the late-developing countries to conduct such affairs, especially deal properly with the foreign investment and rely on its own efforts. In chapter three, based on the previous theory, the author systematically analyses the mechanism of the international capital flow and its effect on economic growth by expanding the classic model. First, discuss relational between the volatility of international capital and economic growth; then generalize the mechanism of the effect of contemporary international capital flow to the economic Growth of LDCs. At the end of this chapter, analyze the FDI and its concrete effect on economic growth of LDCs. To that extant, the policy application is quite clear: in an open economy, there is a feedback between the international capital flow and economic growth. Only the foreign investment can go into effect with other local factors, it will really promote their long-run economic growth. The positive effect of foreign investment is based on the ability of macro-control, defective law system and efficiency of financial system which consists of non-financial factors. . In certain condition we must ensure these non-financial factors to form a complete set with the foreign investment and ensure the marginal revenue is above the marginal cost on accounting the entire business. Otherwise the whole country will fall into the difficult position.The fourth chapter mainly analyzes how to favorably make use of the foreign investment. The author argues that ultimately the endogenous factor is the key point in the process of absorbs and localizes the foreign investment. The successful experience of East Asian and Latin America shows that, all this is based on the institutional environment of certain countries. First, institutional environment is a main factor in attracting international capital. Second human capital is the key in success of process. Finally, a perfect and well-performing financial system is necessary macro-Circumstance to make a better use of the foreign investment. This means we should draw up highly inter-control and highly autonomy financial institutions, we should establish a financial system which is in accordance with the Basel II Accords, In chapter 5, the author discusses the association between how the developing countries make use of foreign capital and its developing stage. And the author points out that is a developing, a step by step and a dynamic course process, which means the ability of developing countries to make use of foreign capital must base on its economic development stage environments. Nowadays, developing country is in the process of industrialization and modernization. According to the necessary different type of industrialization, we can summarize this process into three stages: recourse-labor droved stage, in which industrialization is droved by nature recourse and labor force; labor-investment droved stage, which industrialization is droved by labor and investment; Investment-innovation stage, which investment and innovation impel the industrialization. The investment environments, capability, mode and function of making use of foreign capital means one countries is in a certain stage. And only these countries take effective measure and adopt certain policy can they really make best use of international capital. Today is the age of information, in which developing countries maybe drop behind. But there also will be a chance that productivity develops fleetly and information droved industrialization in developing countries.