Where’s the Money: Financial Flows to the Developing World

By Michael Jacobs

In order to provide some perspective on the shifting composition of development related financial flows over the last few decades, we assembled graphs using data from the UN Conference on Trade and Development to illustrate trends in Official Development Assistance (ODA), Foreign Direct Investment (FDI), and remittances. The numbers are compared for developing countries in three discrete regions: Asia, the Caribbean/Americas, and Africa.  After a quick analysis of the results, a few common themes are apparent: FDI now exceeds ODA flows for developing countries in all three regions, and ODA flows, long flat relative to FDI in Asia and the Americas, are now leveling off in Africa as well.

This new reality reflects a paradigm shift in how we should view development in Africa, and globally– ODA will continue to play a critical development role, but as a force to mobilize, direct, and augment the substantial financial flows sourced from elsewhere.  These snapshots illustrate clearly that the ODA “bull market” is a thing of the past, and development strategy must adjust accordingly.

Asia remit

  • In Asia today, FDI far exceeds ODA flows, and while remittances are substantial, remittance flows are also dwarfed by FDI. We have to look all the way back to 1985 to see a point at which ODA flows were greater than FDI– while ODA remained flat and even declined slightly in the 1990’s, FDI exploded.

america remit

  • FDI has exceeded ODA flows in the Americas for the entire time-period we examined, stretching back to 1980. While ODA increased by a factor of 5 in that time, FDI increased by a factor of 45. Today FDI dwarfs ODA flows, and exceeds remittances by a multiple of around 5 ($292.08 billion vs. $62.49).

africa remit

  • Our analysis shows the most dramatic shift in development resources has occurred in developing Africa, where FDI only recently surpassed ODA flows.  In 2010 ODA flows still exceeded FDI, with $47.37 billion in ODA and $47.03 billion in FDI respectively. By 2012 that relationship had flipped, with FDI exceeding ODA by approximately $6 billion.  Remittances coming into Africa, however, still exceed both FDI and ODA.  While remittances have significant development impact globally, it remains particularly relevant for developing African countries.

Michael Jacobs is a researcher for the Project on U.S. Leadership in Development at CSIS.

2 thoughts on “Where’s the Money: Financial Flows to the Developing World

  1. Pingback: Why ODA Still Matters | Prosper

  2. Pingback: The Indian Diaspora Investment Initiative: Leveraging Remittances for Development | Prosper

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s