International Borrowing vs. Direct Foreign Investment

Discusses the advantages and disadvantages of international borrowing, and compares these borrowings compared with direct foreign investment.

International Borrowing

Advantages

International borrowing (Isgut 2001) is beneficial to (developing) countries: such finance can help speed up capital accumulation and encourage economic growth, allowing a smoother distribution of consumption expenses, making it possible to improve the living standard of citizens before the fruits of economic growth materialize. For example, prior to the Asian financial crisis, wealth created by export-led growth contributed to an investment boom in commercial/residential property, industrial assets and infrastructure. Thus, the construction industry flourished (i.e. more employment): much of this construction was financed via heavy borrowing from (foreign) banks, which were willing to lend as long as the value of property continued to rise (Hill, The Asian Financial Crisis)...Read more>>