Describe the technology transfer benefit of capital flows and the political power cost of large capital flows into low-income countries
What will be an ideal response?
Benefits include new technologies, new management techniques, and new ideas. Developing countries often lack access to these without outside help. If it comes as direct investment, it has the further benefit of not coming from debt and requiring interest payments from scarce national resources. The Odious Debt situation pointed out that among the lowest income countries, corruption and lack of freedom have been a problem in the debt crisis. Similar problems could result from non-debt capital inflows (although tax payers may not be left with the same kinds of IOUs with interest). Large inflows of capital give access to power that may be exploited on the side of those doing the investing (their gain as opposed to the host nation's) or by those with political power in the nation receiving it (the interests of the people in power as opposed to the nation's interests). Large bribes for favorable legal treatment, for example, may be in the interests of the policy makers and the firms, but not the people.
You might also like to view...
The non-income determinants of consumption include all of the following EXCEPT
A) real wealth. B) the interest rate. C) stock of assets owned by household. D) innovation.
Which of the following statements is TRUE?
I. A firm that is not economically efficient does not maximize profit. II. Economic efficiency depends on the relative costs of resources. III. A technological efficient firm is also economically efficient. A) I only B) II only C) II and III D) I and II
"Subordinated" debt is one form of __________ debt
A) mezzanine B) uncollateralized C) zero-coupon D) risk-free
The move to an international gold standard between 1896 and World War I:
a. encouraged the free flow of goods and capital between countries. b. was accompanied by moderate increases in prices. c. required a higher use of resources than would have been the case under a paper standard. d. made it difficult to exercise expansionary monetary policy. e. All of the above.