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Trade and Development Report 2008

Commodity prices, capital flows and the financing of investment
Prices:
Developed countries US$ 55
Developing countries US$ 27.50
Least Developed Countries US$ 13.75

The Trade and Development Report 2008, subtitled "Commodity Prices, Capital Flows and the Financing of Investment” highlights the paradox that the “capital poor” developing world is exporting capital to the “capital rich” developed countries. This "puzzle", which defies mainstream economic theory, is all the more intriguing as many capital-exporting countries have been achieving higher rates of investment and growth than those that continue to rely on net capital imports. Against this background the Report suggests to shift the focus in financial policies from households "putting more money aside" and imports of "foreign savings", to the reinvestment of profits and credit creation through the domestic banking system. As shown by an increasing number of countries in recent years, dependence on foreign capital inflows can often be avoided by policies aiming at a "competitive" exchange rate. In other cases, however, large increases in official development assistance are indispensable not only to foster the achievement of the Millennium Development Goals by 2015, but also to improve infrastructure and increase productive capacities, a condition for sustained growth, employment generation and poverty reduction beyond that date.

In its analysis of global economic prospects, the Report says that uncertainty and instability in international financial, currency and commodity markets are contributing to a gloomy outlook for the world economy and present considerable risks for the developing world. The situation would be exacerbated if monetary policy becomes more restrictive in response to the price effects of commodity imports, rather than providing an expansionary stimulus to counter the recessionary tendencies.

3 Sep 2008
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