Social Scientist. v 25, no. 294-295 (Nov-Dec 1997) p. 48.

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Changing Pattern of External Resource Flows


Here, our contention is that the foreign aid is giving way to private investment in a big way. Secondly, however, the quantum and destination of aid is decided by political and strategic considerations of donors. Thirdly, the nature and pattern of private investment is also changing, portfolio investment is emerging massively. Finally, there is a trend of concentration of TNCs in US and Japan on the one hand, and the direct foreign investment is going maximum in East Asia and Pacific, China at the top.

In this essay, we will at first discuss in brief what is external resource flow and what are its forms. Then in second section, we will discuss changing pattern of 'foreign aid* to developing countries. In third section, we will discuss changing pattern of private foreign investment. In fourth section, we will critically assess the relevant factors which influence external resource flows. In fifth section, we will make some concluding remarks.

External resource flow means transfer of financial resources from developed countries either officially—bilaterally (from government to government), or multilaterally (through multilateral financial institutions)—or privately for the purpose of development investment to developing countries. That is to say, external resource flow may be in many forms which are mentioned below: (1) Bilateral official development assistance (ODA)—'foreign aid'; (2) Multilateral official development assistance—foreign aid; (3) Private direct foreign investment by multinational corporations; (4) Private foreign portfolio investment; (5) Private finance from NGOs; (6) Commercial bank lending.

Here, we are not discussing military aid in any of these categories since it is given for strategic reasons, not for development purpose. Similarly, we are also not including here bank borrowings which are usually taken by developing countries for the purpose of meeting the balance of payment problems. We are also not discussing here loans/grants from NGOs.


Aid is a kind of external resource transfer on non-commercial, concessional or 'softer* terms, than loans available in world capital markets, on grounds of development. The Development Assistance Committee (DAC) of Organiza-

Social Scientist, Vol. 25, Nos. 7-8, November-December 1997

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