A long way to go still.......

[Brad DeLong]

>Doug, you once pointed out that, in America, the poor could not contribute
>much to national savings. They only control about 3% of the economy, you
>said, so even if they saved 20% of their income, which would be impossible
>anyway, it would only amount to maybe .6% of the national income. I'm
>wondering if what holds true here is true for entire nations that are poor.
>Do poor nations like Mali and Bangladesh need outside investment simply
>because they don't have enough income to invest in themselves? Or could they
>come up with the money to do internal investment if only there was the
>internal political will?

The world structure of relative prices is stacked against them. 
Because current exchange rates for poor countries are far below 
purchasing-power-parities, it requires a *huge* proportional 
sacrifice in terms of current consumption to produce even a small 
domestically-financed investment effort.

This is one of the biggest of the vicious circles that keeps poor 
countries poor.

The hope was that opening up international capital markets would make 
it easier for poor countries to finance industrialization. But as we 
sit here and look at the United States's $250 billion plus annual 
trade deficit, it seems that something has gone very wrong. In the 
aggregate, capital is not flowing from rich countries to poor 
countries, but from everywhere else to the United States.

There are a number of theories suggesting that the long-run dominant 
tendency is for open capital flows to cascade from rich to poor, and 
that this tendency has been masked over the past two decades by 
temporary factors. But with each year that passes, such theories 
become less and less credible...

Brad DeLong