Q. What factors lie behind capital inflows to the developing world?
Answer: Several developing countries have received a lot of capital inflows that lead them to an enormous debt to foreigners. These debts are been produced for the reason that the economy of the developing world is extremely small compared to the economy of the industrial world. While developing countries face plenty of poverty and poor financial institutions national savings is often low and because of that they are always facing current account deficit. Even although these countries are very poor in capital there are opportunities for profitable introduction or expansion of firms and equipments and these opportunities give good reason for a high level of investment. Though for the reason that these countries always have deficits in their current account a country is able to obtain resources from abroad to invest even if its domestic savings level is low. This signifies that the country is going to have to borrow money from a foreign country. These behaviours of production are the one that lie behind capital inflows because by helping these countries to grow and expand the price to be pay is a big debt which they know based on their circumstances it's going to be hard to repay.