Trade and investment cooperation has been expanding among developing countries. Trade has more than doubled in a decade and the growth per annum has been faster as compared to the fast. This rapid growth is linked to the pick-up in GDP growth rates in several developing countries, substantial reduction in tariff barriers and falling transport cost. Likewise with increase in FDI to enormous extend and financial integration between various countries has been spurred by the regional trade agreements.
Though a small part of global private transfers have the possibility to transform the facade of financial growth, if developing country growth continues to outpace developed countries over the coming two decades, the World Bank said. Even here FDI originates from firms in countries with higher incomes and invests mostly within the same area. Also, FDI intends to tap resources like energy in other countries and half of the investments have gone to natural resource schemes in countries of Latin America.
The flow of remittances to developing countries says the World Bank, can have significant impact in reducing poverty, facilitating increase in household investment in education and health and supporting economic activity. At the same time, the bank noted that the higher private capital flows to developing countries has, rather than fuelling domestic investment, resulted in rise in the countries official reserves and sharply increased in accumulation of foreign assets by private entities. In case of many countries, such remittances are the largest source of foreign exchange receipts.
Overall remittances help to strengthen national balance payments but as the World Bank points out, not many countries have a strategy of using the reserves in productive investment. For instance, in India the Reserve Bank of India has often emphasized the importance of strong reserve position as a cushion against external shocks and of keeping it at comfortable and consistent level of growth rate of the economy and the distribution of external sectors and the extent of risk-adjusted flow of capital. Private transfers (workers remittances) to India have increased comparatively. Such remittances have been significant factor in keeping the current account deficit to the minimum, the other being the earnings from software which has risen to enormous proportions.
At the same time, there are growing skills shortages in developing countries as they come to terms with the inroads of technology in an increasingly competitive global environment. Technological change is threatening the job security of many working men and women who age unable to find alternative jobs.