Foreign direct investment and development financing

Abstract

The lack of local resources to meet the investment requirements needed to promote development, pushed developing countries to resort to external financial resources.

Indeed, the debt crisis in the 80s of the 20th century has resulted in the reduction of official or public aid which was replaced by foreign direct investment as an alternative source of funding for development programs.
This change of behavior in developing countries vis-à-vis foreign direct investment has been accompanied by a pronounced growth and an apparent change in the mode of distribution of international capital flows to these countries. In this context,  these flows have become the most important source of private capital in developing countries, and thereafter, the main source of financing for development.
This paper discusses the reasons behind the transformation of foreign direct investment into the main source of financing in developing countries.