The Extent To Which Developing Countries Are Involved In International Financialflows And The Main Effects On Economic Development

Foreign direct investments are an important factor for economic growth and development. Throughout time, the source and destination of foreign direct investments have undergone significant changes and thus, starting with the 2000’s there has been an increasingly more global involvement of developing countries in the global flow of foreign direct investments. These countries are currently accountable for more than a quarter of the global outward FDI flows and for almost half of the total global inward FDI flows. In light of the changes that have occurred worldwide after the global financial crisis, the economic policy measures tend to vary from encouraging FDI’s to limiting them. If some countries see FDIs as an important factor for economic growth and global expansion, others only perceive the strong competition from foreign companies, which can lead to a loss of control over domestic capital. At the same time, as the North-South disparity faded, there is evidence that developing countries have become more involved in international financial flows during the past few years. In order to highlight this issue, we have analysed the existing data for a period that has seen a strong financial integration of emerging markets and a decreased volatility of financial flows in advanced industrialised countries (1970-2013). We will particularly approach the relationship between economic growth and international capital flows, with specific reference to foreign direct investment flows (FDI).