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Volume :24 Issue : 94 1999      Add To Cart                                                                    Download

THE ROLE OF THE FINANCIAL INSTITUTIONS IN PROMOTING CAPITAL FLOWS AND INVESTMENT

Auther : Dr. Wanis Farag Abdel Aal

 

The aim of this paper is to examine the flow of foreign capital into Arab countries, and to investigate the nature and pattern of these flows in the last two decades and the role of the financial institutions in promoting capital flows. It is also to highlight the significance of foreign investment in the economic development of the Arab region and the crucial role of the developed financial markets in mobilizing long-term foreign capital for economic growth. The analysis considers two main sources of long-term foreign capital: Foreign Direct Investment (FDI) and portfolio investment. These two sources of private capital are rapidly replacing the more traditional sources of financing to developing countries, such as official grants and loans as well as commercial bank borrowing.

However, FDI (excluding oil) and portfolio investment flows to the Arab region are among the lowest in the world as both sources of financing still remain constrained by restrictive investment regimes and the absence of well developed institutional arrangements – the intermediaries, instruments and markets – that channel these funds for investment. The study emphasizes that recent efforts to liberalize the financial system must be accompanied by policy reforms and institution-building efforts to introduce proper financial intermediation and new financial instruments.

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