Factors Affecting Foreign Investment
IT is generally recognized that for any country the chief source of capital must lie in its own savings. There are, of course, various special cases where extremely promising natural resources have attracted large amounts of foreign capital for a particular purpose ( Iran and Venezuela). But in most countries this is hardly a basis upon which economic development can be planned, and even in those countries where it can it represents a substantial capital inflow only in the early stages and thereafter the servicing of the investment may exceed new investment. There is the case of Canada which imported as much foreign capital in 1908-13 as it formed at home, but this was a short and unique period in Canadian history, a period which succeeded thirty years of little foreign investment. Similarly, the case of modern Israel, with her extraordinarily heavy capital importation, is an unique instance in modern history. In general, the available data indicate that the bulk of the increase in the capital investment of the advanced economies came out of domestic savings.
The supply of capital being provided domestically through voluntary saving and other means in the underdeveloped countries falls far short of what is required for their development and far below that which, in and after the nineteenth century, was domestically forthcoming in what are now developed or capital-exporting countries. The relevant data relating to capital formation in the underdeveloped countries are quite un