Scope of the Chapter

This chapter discusses international aid and investment. We look first at globalization and its meaning. Second, we examine LDC economic interdependence. The third section discusses capital inflows, and the fourth, their roles in reducing savings and foreign exchange gaps. The fifth section reviews the balance of payments. Finally, the last section analyzes how to finance the deficit.

Globalization and Its Contented and Discontented

Globalization is the expansion of economic activities across nation-states, including deepening economic integration, increasing economic openness, and growing economic interdependence among countries in the international economy (Nayyar 1997). For Harvard's Dani Rodrik (1998:1–3), globalization involves the increasing international integration of markets for goods, services, and capital, pressuring societies to alter their traditional practices to be competitive in the world economy.

As University of Delhi Vice-Chancellor Deepak Nayyar (1997) points out, globalization took place during an earlier period, 1870–1913, as well as a later period, since 1950, especially since the 1970s and early 1980s. Similarities between the two periods include increases in export/GDP, capital flows, and technological change; trade then financial liberalization, the dominance of economic liberalism, the power of a hegemon or dominant economic power (early in Britain and later in the United States, other OECD economies, the World Bank, and the IMF), the dominance of the British pound (£) early and the U.S. dollar later, and scale economies (with new forms of industrial organization).