International Trade and Finance: A North American Perspective

By Khosrow Fatemi | Go to book overview
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(see Equation 14.5 in Table 14.2), at least in the short run. Per capita income does not seem to benefit as much from MNC local borrowing, except in the lowest- and highest-income groups in these countries (see Equation 14.4 in Table 14.2). In some of the groups it shows negative relationships, although none of these are significant. One explanation for this seemingly contradictory result (significant and positive relationship with GNP or lack of it, or with respect to per capita income) could be the differences in population growth rate and/or income distribution prevailing in the different income group countries. 7


This study investigated the consequences of the borrowing decisions of foreign direct investors in the local financial markets of developing host countries. The statistical results indicate that foreign direct investors do indeed borrow in the countries they operate in. However, this practice does not seem to adversely affect (that is, crowd out) local borrowers. Instead, the supply of credit seems to increase and accommodate all borrowers, public and private. Regarding the development momentum in these countries, foreign direct investors' local borrowing shows a positive, and in most cases significant relationship with gross national product in all income groups. It is government borrowing that shows a mixed result (both negative and positive) in its relationship with gross national income.

See, among others, Robert Z. Aliber, "A Theory of Direct Investment, The International Corporation," in A Symposium, edited by Charles P. Kindleberger ( Cambridge, MA: MIT Press, 1970), pp. 17-34; John H. Dunning, International Production and the Multinational Enterprise ( Boston: Allen & Unwin, 1981); M. Kraska, and Koji Tiara, "Foreign Capital, Aid, and Growth in Latin America," Developing Economies 12, no. 3 ( September 1974):214-18; R. Nurkse, Problem of Capital Formation in Underdeveloped Countries ( New York: Oxford University Press, 1953); and G. F. Papanek , "Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries," Journal of Political Economy 81, no. 1 ( January-February, 1973):120-30.
K. B. Griffin, and J. L. Enos, "Foreign Assistance: Objectives and Consequences," Economic Development and Cultural Change 18 ( April 1971):313-27; United Nations, Multinational Corporations in World Development ( New York: Praeger, 1974); T. Weisskopf, "The Impact of Foreign Capital Inflow on Domestic Savings in Underdeveloped Countries," Journal of International Economics 2, no. 1 ( February 1972).
Isaiah Frank, Foreign Enterprise in Developing Countries ( Baltimore, MD: Johns Hopkins University Press, 1980); Rajnish Mehra, "On the Financing and Investment Decisions of Multinational Firms in the Presence of Exchange Risk," Journal of Financial and Quantitative Analysis ( June 1978):29-47; G. L. Reuber, et al., Private Foreign Investment in Development ( London: Oxford University Press, 1973).


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