Capital Imports and the Problem of Internal and External Financial Stability during the Process of Development

Abstract

Having discussed the possibilities and necessities for investment in less developed countries, we must now return to an important part of the analysis.1 In Chapter V (p. 68) we assumed that the less developed countries in carrying out their investment programme would, owing to their very low capital formation, have no choice other than to rely on capital imports. Since in most cases these are countries with a comparatively high rate of under-employment, one could well ask, however, whether investment financing could not be carried out, at least in part, by creating money i.e. credit without (previous, simultaneous or subsequent) voluntary savings at home, or capital imports. This question cannot be answered until we have investigated more closely the peculiarities of the investment process in less developed countries. We therefore propose to deal now with a short term analysis of the capital importing and investment process.