NCPA - National Center for Policy Analysis

Private Capital Fuels Growth

March 24, 1997

A flood of private capital is flowing into projects in developing countries even as government loans and aid are shrinking, according to a World Bank study.

  • Total funds invested in poorer countries increased a sizable 20 percent last year -- to a record $285 billion.
  • Flows of private capital increased $60 billion, or 32.3 percent, while government loans and aid declined by $12 billion, or 23 percent.
  • While governments and international financial institutions provided more than half the money going to developing nations as recently as 1991, last year private money provided 80 percent of net long-term flows.
  • Nearly three-quarters of the $243.8 billion in private capital ended up in a dozen developing countries.

China and Mexico together got about one-third of it; another quarter went to Brazil, Indonesia, Malaysia and Thailand. Countries that have embarked on economic reforms are being favored overwhelmingly for investment. But those which have not are being largely shunned, the report said.

  • Except for the huge economies of China and India, the world's very poorest counties -- defined as those with per-capita incomes below $765 a year -- received only about 3 percent of all the private capital.
  • For example, despite some economic reforms, sub-Saharan Africa received just $11.8 billion in private capital, less than $1 of every $20 invested in the developing world.

Source: David Wessell, "Flow of Capital to Developing Nations Surges Even as Aid to Poorest Shrinks," Wall Street Journal, March 24, 1997.

 

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