What is developing and developed economy

globalization

In relation to the global capital movements, the capital flows into the economically developing countries are comparatively low.

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Facts

In relation to the global capital movements, the capital flows into the economically developing countries are comparatively low. Between 1998 and 2008, the average annual inflow of capital was around $ 125 billion. It is primarily due to private direct investment that the balance of capital flows is positive and not negative overall. It is noticeable that government net capital flows were consistently negative between 2003 and 2008. The amount of the repayment of state aid now regularly exceeds that of the granting of new loans.

In contrast to earlier phases in which strong fluctuations in capital flows were observed, the period after 1998 was initially characterized by relatively small deviations. This changed suddenly in 2007. Due to the real estate crisis in the USA ('subprime market' crisis), capital inflows rose sharply in the short term: Relatively stable macroeconomic fundamentals had initially saved the economically developing countries from being drawn too deeply into the crisis to become so that they also became interesting for portfolio investments as well as for loan and bond financed investments. With these investments, however, there is a strong concentration on a few countries. More than 50 percent of the volume of syndicated loans and bond issues in 2007 came from just five states. In the case of portfolio investments, it was even more than 75 percent. Due to their economic growth, the so-called BRIC countries (Brazil, Russia, India and China) are of particular importance.

In 2008, however, capital flows collapsed dramatically as the crisis hit the economically developing countries with a time lag. In 2007, economic growth in these countries was still an average of 8.1 percent; in 2008 it was 5.9 percent. If, however, China and India are ignored, the gross domestic product of the economically developing countries will fall by 1.6 percent in 2009, according to World Bank projections. The high level of fluctuation in bank loans and portfolio investments is therefore to a large extent shaped by the events in the economically developing countries.

A regional breakdown shows that the capital flows vary greatly depending on the region. While in Central and Eastern Europe and Asia between 1998 and 2008 capital inflows totaled 707 and 657 billion US dollars, respectively, significantly less capital flowed to Africa (151 billion US dollars). The Middle East even saw massive capital outflows of $ 256 billion.

Data Source

International Monetary Fund (IMF): World Economic Outlook 2008

Terms, methodological notes or reading aids

Economically developing countries are states that have a comparatively low level of material prosperity. There is no generally accepted definition, as different indicators can be used to determine the prosperity and development of a country. According to the definition of the World Bank, the gross domestic product per capita in economically developing countries was below 11,905 US dollars in 2008. The chart is based on the classification specified in the "World Economic Outlook" report of the International Monetary Fund.

The information in the graphic and the tables is Net flowsthat say nothing about the size of the gross movements: A small net flow can be the result of very small gross movements or very large gross movements that neutralize each other. The figures are aggregated in each case. This means that, for example, a positive total value of a region can be compatible with net capital outflows for individual states in this region.

While Portfolio investments (Stock and other security purchases) are purely financial investments Direct investment made with the intention of doing business in the host country.

On the Subprime market Even borrowers with poor credit ratings can obtain a mortgage loan.

Table I: Capital flows in economically developing countries I.

In absolute numbers, by species, 1998 to 2008

 Direct investmentPortfolio investmentsBank loans and othersState capital flowsa total of
in billions of US dollars
1998-2000*164,241,4-141,27,171,5
2001180,5-76,9-30,12,375,8
2002144,4-86,4-4,114,868,7
2003161,3-3,8-3,3-43,3110,9
2004183,910,028,0-64,9157,0
2005243,7-5,6-11,3-98,5128,3
2006241,4-100,762,2-154,148,8
2007359,039,5219,2-100,5517,2
2008459,3-155,2-194,6-60,049,5
1998-2008 total2.466,1-254,9-357,6-482,91.370,7

* Average value in the years mentioned

Source: International Monetary Fund (IMF): World Economic Outlook 2008


Table II: Capital flows in economically developing countries II

In absolute numbers, by region, from 1998 to 2008

 AfricaCentral and Eastern EuropeCIS *Asiamiddle East
in billions of US dollars
1998-2000**3,830,8-16,3-13,40,5
20011,35,66,924,3-7,6
20022,025,915,723,9-19,2
20034,942,319,066,91,4
200413,061,32,6145,6-17,7
200526,099,930,485,3-53,7
200635,2120,055,131,8-50,0
200733,4173,6127,2164,811,0
200824,2147,1-127,4127,9-120,9
1998-2008 total151,4768,180,6630,3-255,2

* GUS - Commonwealth of Independent States / CIS - Commonwealth of Independent States
** Average value in the years mentioned


Source: International Monetary Fund (IMF): World Economic Outlook 2008