Economic Development Final Fdi & Aid

Front 1

What are the 3 things that AID consists of?

Back 1

1) Financial flows

2) Technical assistance

3) Commodities/Grants/Subsidized loans

Front 2

What are the two requirements for money to be considered AID?

Back 2

1) Must be designed to promote economic development and welfare as its main objective

2) Must be a grant or subsidized loan

Front 3

Concessional Assistance

Back 3

Grants and subsidized loans that make up foreign aid

Front 4

Nonconcessional Assistance

Back 4

Loans that carry market or near-market terms

--> NOT AID

Front 5

Official Development Assistance

Back 5

Aid provided by the Development Assistance Committee (DAC) donor governments to low- and middle-income countries for development purposes

Front 6

Private Voluntary Assistance

Back 6

Grants from private organizations that are not ODA or DCA

Front 7

The savings constraint gap

Back 7

An economic motivation of AID; more domestic investment opportunities than available domestic savings - foreign savings can supplement domestic savings

Front 8

Foreign-exchange constraint gap

Back 8

An economic motivation of AID; shortage of foreign exchange to finance needed imports of capital and intermediate goods

Front 9

Fiscal gap as an economic motivation for AID

Back 9

The government has less realized tax revenues than planned government expenditures

Front 10

Economic motivation for AID via growth and savings

Back 10

The foreign aid can accelerate economic growth, which will eventually lead to higher domestic savings. This will result in the need for AID diminishing

Front 11

Technical assistance

Back 11

AID in terms of high-level worker transfers to train labor in developing countries, which fills the skill-gap

Front 12

Absorptive capactiy

Back 12

Aid is considered in relation to a recipient nation's ability to use aid funds wisely and productively

Front 13

Tied Aid

Back 13

Bilateral loans and grants that are tied to requests such as purchasing goods from the donor country

Front 14

How can donors improve aid effectiveness? (4 ways)

Back 14

1) Be more selective in what countries to give aid to, preferably ones with good policies and institutions

2) Recipients should have higher participation in setting priorities, designing projects, monitoring and evaluating results, and being accountable

3) Harmonizing and coordinating accounting and monitoring, evaluation systems, or pool funds

4) Result-based management: Aid based on what is working

Front 15

What are the 3 main sources for FDI?

Back 15

1) Private FDI and portfolio investment

2) Foreign aid

3) Remittances of earnings by international migrants

Front 16

FDI Definition

Back 16

Long-term investment in which a non-resident entity exerts significant control (>10%) over an enterprise in the host country

Front 17

Foreign Portfolio Investment

Back 17

Investors who have a smaller stake in an enterprise in foreign country

Front 18

What are 6 reasons for increasing FDI?

Back 18

1) Advances in technology in communication and transportation (accompanied by decreasing costs)

2) Changes in attitudes of FDI

3) Increase in world trade and competition

4) Rise in multinational corporations

5) Peace, Education, and Health

6) Emergence of globally-minded entrepreneurs

Front 19

What are 7 arguments for FDI?

Back 19

1) Filling the resource gap (between target and desired investment/savings)

2) Filling the foreign-exchange gap

3) Filling the tax gap

4) Filling the skill gap

5) Multinational corporations bring technology, create jobs, and increase specialization of production

6) Access to world market

7) Spread of new cultures (controversial)

Front 20

What are some arguments against FDI?

Back 20

MNCs may lower domestic savings and investment, ruin long-run exchange position (due to profit repatriation), receive tax concessions (stifling domestic competition and lowering the filling of the tax gap), and stifle domestic entrepreneurs

Ideological reasons: MNCs may exert political and economic power/control and use local resources in undesired ways

Front 21

What are three strategies to increase FDI?

Back 21

1) Improve general investment environment

2) Introduce policies aimed at attracting FDI (Timely info to investors, EPZ and increased infrastructure, and incentives via tax breaks or subsidizes)

3) Requirements and restrictions (Joint ventures, domestic content requirements, or other common restrictions such as ceilings on profit repatriation)