Posted by: bklunk | March 5, 2007

Plus Ca Change, Plus …

Les Relations Internationales asks the question:

“Why isn’t financial deepening happening in the poor countries?”

In the blog titled “Why isn’t financial deepening happening in the poor countries?“, the author addresses the question of “Why is there a weak association between financial openness and financial deepening in the poor countries?” The poor countries of the world are welcoming capital flows into their countries, but it appears that the gap between financial openness and financial deepening is widening. Through analyzing the current economic and developmental situations in the poor countries, Professors Ju and Wei proposed frameworks on studying capital flows. Although much Foreign Direct Investment (FDI) are going into the poor countries from foreign corporations, the poor countries are not benefiting significantly from the capital inflow. This is due to the rather poor financial sectors within those poor countries. They take in FDI, but are unable to retain much of the profits so that the country benefits. Foreign investors are benefiting much more, because the capital outflow from the poor countries are going back into the wealthy, industrialized nations.

Going off what Professors Ju and Wei asserted, I feel that in certain cases, the poor countries of the world are being taken advantage of by the richer nations. The rich nations have capabilities that far surpass what the poor countries are capable of, in economic, social, political, and any other terms. To eliminate the huge gap between the rich and poor of the world, I feel that the rich countries need to address developmental issues more critically. Rather than pouring FDI into the poor countries, where the poor countries are unable to retain the capital, policymakers should sought to address matters that will build the internal sectors first. Once they are self-sustained, the developing nations can attempt to develop more efficiently.

So, does this imply some kind of intervention to establish the necessary financial conditions.

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