Reverse Foreign Aid

Tina Rosenberg in the New York Times Magazine:

25idea190_1Economic theory holds that money should flow downhill. The North, as rich countries are informally known, should want to sink its capital into the South — the developing world, which some statisticians define as all countries but the 29 wealthiest. According to this model, money both does well and does good: investors get a higher return than they could get in their own mature economies, and poor countries get the capital they need to get richer. Increasing the transfer of capital from rich nations to poorer ones is often listed as one justification for economic globalization.

Historically, the global balance sheet has favored poor countries. But with the advent of globalized markets, capital began to move in the other direction, and the South now exports capital to the North, at a skyrocketing rate. According to the United Nations, in 2006 the net transfer of capital from poorer countries to rich ones was $784 billion, up from $229 billion in 2002. (In 1997, the balance was even.) Even the poorest countries, like those in sub-Saharan Africa, are now money exporters.

How did this great reversal take place? Why did globalization begin to redistribute wealth upward?

More here.

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