rate of return on capital - Diane

[Diane Monaco]

At 06:53 PM 4/23/2002 -0700, you wrote:
>         I'm not sure I understand the "resource gap" number, but it seems 
> to me
>that what we're trying to explain is why countries where there is apparently
>greater demand for investment than savings available should see their
>currencies beggared.  Presumably, if moneys are flowing in from abroad, they
>must be converted to local currency in order to be invested, implying a
>greater demand for local currency than saved currency available.  However,
>the currencies of such countries seem almost invariably to be out of demand,
>perpetually sinking into inflation.

The investment funds that do flow into developing countries are usually in 
the hard currencies so these local currencies ARE almost invariably out of 
demand.  In fact most foreign direct investment is actually denominated in 
US dollars, which sheds some light on why US policy is increasingly 
promoting financial integration even more so than open trade policies -- 
the dollar dominates these capital markets.

Of course the situation in Asia is very different from the situation in 
Africa -- and I think we're both describing the situation in most 
sub-Saharan countries: inflation, "out of demand" currencies...hey, I like 
your term.

Best,
Diane