Free Flow of Capital in Developing Countries Essay -- Essays Papers

Free Flow of Capital in Developing Countries Today, there are very few who argue against free trade, however, the idea of capital mobility to and from developing countries is a highly debated issue. Capital is the financing(money) or goods, used to produce other goods. Capital can further be split among capital debt and capital equity/finance. Equity capital or financing, is money raised by a business in exchange for a share of ownership. Ownership is achieved through shares of stock. Debt capital is represented by funds borrowed by a business that must be repaid over a period of time, usually with interest. Typically, short term debt is of less concern because if stockholders sell out, the value of the stock falls and the stockholder is hurt. The company isn’t necessarily hurt now, but will have a difficult time raising funds through future stock issues. Debt is of more concern. If short term debt isn’t renewed, than the company has to liquidate assets in order to pay. Therefore, capital mobility is the free flow of liquid investments from one country to another. Now although capital mobility could finance the world’s developing countries, increase wages, and create a more competitive world market (which is very beneficial to consumers); there are negative affects including income inequality, corruption, and bad capital control management . This paper will tackle both the good and bad aspects of capital flows in order to further analyze the theory of capital mobility. Before continuing it is necessary to look at some of the background and purpose of capital flows. Only until around 1980, have developing countries seen this idea as positive. Before, there was the feeling that with foreign capital a... ...s should absolutely approach with caution, because capital flows are too unstable to gamble with. Resources - Class Lecture Notes: â€Å"Trade and Capital Flows† - Class Handout: â€Å"Trade and Employment† - Hartwell, A. Christopher. Policy Analysis: The Case Against Capital Controls. The CATO Institute. Washington D.C. June 14, 2001. - http://econ.cudenver.edu/beckman/econ4410/stiglitz-world%20crisis.doc - http://quote.bloomberg.com/apps/news pid=10000039&sid=aFNcMq9i7rx0&refer= columnist_derosa - http://www.bepress.com/ev/vol1/iss1/art1/ - http://0-firstsearch.oclc.org.skyline.cudenver.edu/WebZ/FSFETCH?fetchtype=full record:sessionid=sp07sw02-58421-e0iyjwrgp5q5z:entitypagenum=3:0:recno=1 :resultset=1:format=FI:next=html/record.html:bad=error/badfetch.html:entitytop recno=1:entitycurrecno=1:numrecs=1