EFFECT OF CAPITAL IMPORTS ON SAVINGS AND GROWTH IN LESS DEVELOPED COUNTRIES

Authors

  • Umesh C. Gulati

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    • *East Carolina University. The research on this subject was supported by East Carolina University Research Council. The author is grateful to his colleagues William Collins and Louis H. Zincone, and to a referee for helpful suggestions. Research assistance provided by his graduate student, Lee Conyers, is also acknowledged. No one except the author is responsible for any errors, however.


Abstract

This paper examines some of the arguments of the critics of foreign aid and other capital inflows to less developed countries (LDCs). The paper finds that the critics lack sufficient evidence on the supposedly adverse effect of capital transfers to LDCs on their savings and growth of incomes. This, however, does not mean that these capital inflows always promote growth in LDCs. In particular, it is shown that the relative importance of foreign capital on economic growth of LDCs would depend on the degree to which that growth is constrained by the lack of capital.

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