Development finance – where does it come from?

Added 13 Dec 2012

Our review of all different sources of development finance is nearly complete – look out for that in the new year – but I thought I’d whet your appetite with a summary table. 

Using the most reliable sources we can find, here’s a summary of different inflows, outflows and domestic resources for developing countries as a group, given as an equivalent percentage of GDP to allow scale comparisons.  I’ve also include figures for low-income countries (LICs) as a group, when they are available. Detailed questions will all be answered when the paper is published – watch this space early in the new year!

*Figure for upper-middle income countries only: combined figure for all developing countries not available.

Some things to note:

  • There is a lot of overlap between many of the categories – for example the domestic investment category will include some FDI and some government investment, though the majority is domestic private investment.
  • The flow figures are net figures (inflows minus outflows).

What do we learn from this?  Here are a few things that strike me:

  • Domestic resources are far larger than other financial resources, and have been growing as a share of GDP over the last decade.
  • Overall, outflows are significantly larger than inflows, largely caused by illicit capital flight and reserve-accumulation: both issues intimately linked to global policy failings.
  • The picture varies across countries, and low-income and vulnerable countries tend to be far more affected by external resources than other countries.
  • Volatility and predictability of external finance is a major issue, especially for low-income countries, where it is equivalent to a major share of GDP.  Private flows, in particular portfolio equity and short-term finance are particularly volatile. For example you can see that in 2010 portfolio equity was a very large net outflow for LICs – in other years it has been a very large net inflow.

For a more nuanced and detailed analysis….. wait for the publication of the final paper early next year!

[1] All developing countries