Theoretical Background and Framework for Analysis

Abstract

Multiple paths exist through which the international world economy might have an effect on the domestic development processes of poor countries. Trade, portfolio investment, direct investment, commercial loans, and official and private development assistance, all present potential paths for analysis. I have chosen to focus on the consequences of foreign direct investment flows for two primary reasons. First, they are very closely tied to international trade patterns, and so they are strong indicators of other global economic interactions (UNCTC, 1996). As will be discussed further in this chapter, companies which invest directly overseas frequently do so because they expect the investment to yield trade advantages. Stocks of FDI are also closely tied to trade patterns, but the data are very difficult to obtain. Furthermore, because of the way stocks are calculated, they are correlated very highly with flows through time.