The graph below illustrates the GDP growth rates between the years 2001 and 2008 across the leading economies across the world. The global economic growth dropped marginally from 3. 9 percent in the year 2006 to 3. 7 percent in the year 2007. This is attributed to the rising price of fuel, increased inflationary trends, and volatile capital markets. Higher growth rates are observed in the Asian countries recording GDP rates above 8 percent. The United Nations forecast for the year 2008 is slightly dipping curve owing to the global market slowdown and the subprime mortgage crisis in the United States.
Source: United Nations economic development report 2008 (www. unctad. org) China has witnessed rapid economic growth in the last two decades reaching a GDP growth rate of 11. 4 percent in the year 2007. Increased flows of foreign direct investment and trade volumes over the years have lent a boost to the Chinese economy giving way to unexpected growth and development. Impact of capital inflows on economic development Globalization of economies across the globe in the recent years has enhanced scope for global investment and trade relations that has greatly contributed to the economic growth and development of countries.
The globalization process has far-reaching implications in the economic development and trend across the globe. It has served as a vital link to global market for goods and services facilitating free flow of capital across nations. Widespread accesses to high-end technology and improved channels of communication have increased trade linkages and the flow of capital across nations. Trade and foreign investment are the primary forces driving globalization giving way to “rapid integration of production and financial markets over the last decade” (Joong-Wan Cho, Economic and Social Commission for Asia and Pacific).
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The rising trade and consumerism in the Asian countries and the liberalization policies adopted by these emerging and developing economies caused a shift in investment trends. The multinational organizations together with banking and financial institutions realized the immense market and trade potential these economies had to offer in terms of higher rates of return, un-explored market base, untapped economic resources, and lower cost of production.
This resulted in increased foreign capital inflow into these economies that had a positive impact on the economic growth and development indicators. The GDP growth rate increased sharply followed by strengthening of capital markets and increased trade surplus. Increased reserves of foreign exchange in the economy served to add to its capital accumulation and subsequent wealth generation. Implementation of high end technology and wider scale of operations contributed to enhanced productivity.
Low cost of production, cheaper labor, and wider scale of operations accounted for higher profitability position and increased rate of return. The developing economies thus benefited in terms of increased balance of trade, foreign exchange reserves, technology transfer, employment opportunities, managerial skills development, and efficient market operations know-how. Increased foreign investment and capital inflows created more employment opportunities for the locals aiding higher income levels, increased spending capacity, higher rates of savings, and better standards of living.
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