Private international finance and industrialisation of LDCs

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Abstract
The relationship between external finance and industrial growth in Less Developed Countries (LDCs) is complex. Nevertheless on the basis of the experience of many LDCs over the 1970s it would appear that, together with an interventionist state, external financial flows have been instrumental in rapid industrialisation. During this period substantial net financial resources were made available to LDCs by the private banking system. Although these loans carried high interest rates they were associated with low conditionality. However in the current period the debt problems of the Third World have made the banking system reluctant to provide additional resources, giving a pronounced role to the IMF and the World Bank in shaping the terms on which (reduced) financial resources are provided. These new loans are associated with high levels of conditionality which, inter alia, may have a negative impact on industrial growth. The argument is sustained in this paper through an analysis of changing aggregate financial flows, and short case studies on Chile and Brazil.

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