trends in international migration & capital movement

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    12. CONCLUSION 28

    13. BIBLIOGRAP"Y 2

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    Each year millions of women and men leave their homes and cross national borders in search of 

    greater security for themselves and their families. “Throughout human history, migration has been a

    courageous expression of the individual’s will to overcome adversity and to live a better life” (!,

    "##$, p. %&. 'any migrants are motivated by the uest for higher wages and better opportunities,

    responding to the demand for their s)ills abroad, but many others are forced to migrate because of 

    famine, natural disasters, violent conflict, persecution or simply a lac) of decent wor) in their home

    country. The *lobal +ommission on nternational 'igration (*+'& describes the driving forces in

    international migration in terms of “-s”/ development, demography and democracy (*+',

    "##%&. 0idening disparities in income, wealth, human rights and security across countries serve as

     push factors towards migration. 'igration in search of wor) has increasingly become a livelihood

    strategy for both women and men because of the lac) of opportunities for full employment anddecent wor) in many developing countries. 1t the same time, the proliferation of s)ill2intensive

    economic sectors, increased demand for s)illed wor)ers, reluctance of local wor)ers to accept

    certain low2s)illed 3obs, and demographic trends such as population decline and population ageing

    in ma3or destination countries act as strong pull factors. 1 growing number of nations are involved

    with migration as countries of origin, destination or transit, or all three. The ma3ority of migrants

    move in search of employment, ta)ing their families with them4 it is estimated that there will be "56

    million international migrants in the world in "#5# (!7, "##8&. 1lmost half of international

    migrants are women, most of whom are now migrating on their own, rather than primarily as family

    members of other migrants.

    nternational 9abour :ffice estimates that economically active migrants will number some 5#%.6

    million in "#5#4 these and family members accompanying them will account for almost 8# per cent

    of total international migrants. :nly about ;ation (9:&5 approaches

    migration from a labour mar)et and decent wor) perspective within the overarching framewor) of 

    its ecent 0or) for 1ll agenda (9:, "##;a&. 0hile international migration can be a positive

    experience for migrant wor)ers, many suffer poor wor)ing and living conditions, including low

    wages, unsafe wor)ing environments, a virtual absence of social protection, denial of freedom of 

    association and wor)ers’ rights, discrimination and xenophobia. 'igrant integration policies in

    many destination countries leave much to be desired. espite a demonstrated demand for wor)ers,

    numerous immigration barriers persist in destination countries. 1s a result, an increasing proportion

    of migrants are now migrating through irregular channels, which has understandably been a causeof concern for the international community. 1s large numbers of wor)ers < particularly young

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     people < migrate to more developed countries where legal avenues for immigration are limited,

    many fall prey to criminal syndicates of smugglers and traffic)ers in human beings, leading to gross

    violations of human rights. espite international standards to protect migrants, their rights as

    wor)ers are too often undermined, especially if their status is irregular.


    The nited !ations 7opulation ivision (!7& estimates that the world’s stoc) of migrants,

    defined as persons residing outside their country of birth or citi>enship, will be "56 million in "#5#.

    Thus, even though the percentage of the global population who migrate internationally is small (as

    noted above, about - per cent per year&, the total number is large < and it has more than doubled

    since 58=#, when it stood at 5#" million. The ! figures show the largest increase for 588#,

    reflecting the brea)2up of the ??@ into a number of independent countries, which added about ";

    million people to the total international migrant stoc). t should be noted, however, that many of 

    those in the former ??@ did not actually move, and some part of the statistical increase is

    accounted for by the fact that they were within newly defined national borders. This contributed to

    the growing share of migrants in the world population from ".- per cent in 58;% to -.5 per cent in

    "#5# (!7, "##8&. :ut of the total number, $# per cent were estimated to live in developed

    regions. nternational migrants represent between ; per cent and "# per cent of the population in

    most :rganisation for Economic +o2operation and evelopment (:E+& countries, while the share

    is much higher in the *ulf ?tates (see figure 5.5&. The large ma3ority of these people are migrants

    for employment and their families. t is interesting to note that the distribution of migrants by origin

    is more or less eually divided between three types of movement.

     +ontrary to popular belief, international migration from poor, developing countries (“the ?outh”& to

    rich, developed countries (“the !orth”& represents little more than a third of the global total. ?outh

    example, there have been large movements of wor)ers from Aur)ina Baso to +Cte d’voire, from

    Egypt to Dordan, from aiti to the ominican @epublic, from ndonesia to 'alaysia, and from

    neighbouring countries to 1rgentina. 'any countries are both sources of and destinations for 

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    migrants. +anada, for example, is a traditional destination for migrants, but +anada also sends

    significant numbers of people, particularly the highly s)illed, to the nited ?tates.

    ?imilar phenomena have emerged in 1sia. Bor example, Thailand receives many low2s)illed

    immigrants from +ambodia, the 9ao 7eople’s emocratic @epublic and 'yanmar, and also sends

    its own wor)ers to other countries, including srael, the @epublic of Forea and Taiwan (+hina&. Bor 

    a summary of the countries pro3ected to have the highest proportions of international migrants in

    "#5#, see figure 5.". G"# per cent ;ation4 reduction in the cost of transport and communications, resulting in

    increasing interactions among societies4 the absence of respect for human rights in some countries4

    and establishment of migration networ)s by earlier migrants. n the future, climate change may

    raise migration pressures. +ontemporary international migration can essentially be explained,

    however, by the increasing differences between countries, the lac) of gainful employment, decent

    wor) and human security in certain parts of the world, the growing demand for both high2 and low2

    s)illed wor)ers in destination countries, and the geographical proximity and historical lin)ages

     between origin and destination countries ('artin and 0idgren, "##"&.

    I. DECENT WORK DEFICITS:  The world’s population, calculated at $.; billion in "##=, is

    growing by about ;% million every year, with most of this increase ta)ing place in developing

    countries. The 9: report *lobal Employment Trends "##8 estimates the world’s labour force in

    "##= at around - billion people (9:, "##8a&. The global drop in economic activity since "##=

    has resulted in hiring free>es and wor)ers being dismissed in considerable numbers. @evised

     predictions for "##8 estimate that 9abour migration in a globali>ing world 58 global

    unemployment could rise by between "8 million and %8 million, with the middle case being -8million (9:, "##8a&. The number of “wor)ing poor”, defined as persons living on the euivalent

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    of ?G" per day or less, has continued to grow, reaching an estimated total of more than 5.6

     billion in "##8, an increase of more than "## million since "##; (9:, "##8a&. The plight of 

    farmers in developing countries is a powerful economic factor behind international migration and

    will continue to be so in the future. 'any industrial countries had a “great migration” off the land

    in the 58%#s and 58$#s, and similar movements are evident today in many ma3or origin

    countries, including +hina, 'exico and Tur)ey.

    II. ECONOMIC DISPARITIES: espite the progress made by the more populous developing

    countries, such as +hina and ndia, in raising incomes over the past two decades, the gap in per 

    capita incomes between rich and the poor countries has remained large. 1verage annual per 

    capita gross national income (*!& across the world in "##= was about ?G=,%=#. 1t the

    country level, however, per capita *! ranged from ?G56# in Aurundi to ?G$%,--# in

    ?wit>erland. 'oreover, the gaps between countries appear to have widened up to "### and

    remained wide thereafter, as shown in table 5.-. n 58;%, incomes in the high2income countries

    were 65 times greater than those in low2income countries and eight times greater than those

    inmiddle2income countries. Ay "##%, these differences had increased to $5 times and 5- times,

    respectively. 'eanwhile, very few low2 and middle2income countries have entered the high2

    income ran)s.


    LABOUR IN DESTINATION COUNTRIES: Dust as the nineteenth century was mar)ed bymigration from densely populated Europe to more lightly populated 1merica and :ceania,

    another change in population density may be expected in the first half of the twenty2first

    century. The population of the world’s less developed regions is increasing much more rapidly

    (at an annual rate of 5.% per cent& than that of the more developed regions (which is rising by

     3ust #."% per cent annually&. This difference is expected to continue until around "#%# (!7,

    "##-&. There is also a difference between the average age of the population in more developed

    countries and less developed countries, with the former having ageing populations and the latter 

    more youthful ones. 1lthough life expectancies are increasing and populations are ageing to

    some extent almost everywhere, the process has gone much further in Europe and Dapan, where

    fertility is so low that deaths exceed births. Bigure 5.- shows predicted world population trends

     by region up to "#%#. The populations of 1frica and 1sia (excluding +hina and Dapan& are

    expected to rise. f present trends continue, the population of taly, for example, is pro3ected to

    drop by "" per cent between "### and "#%#, that of 9atvia by 66 per cent and that of Estonia by

    %" per cent (!7, "##-&. The combination of low fertility and rising life expectancy means

    that the proportion of the population above $% years of age will rise from 5% to "= per cent

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     between "### and "#%# in Europe as a whole and from 5; to -$ per cent in Dapan. 1

    +ommunication from the European +ommission, +onfronting demographic change, highlights

    the following trends for the E/ continued increase in life expectancy4 continued growth in

    numbers above age $#4 continuing low birth rates4 fertility below replacement level4 more older 

    wor)ers (aged %%en aged $% and above to only two persons

    (European +ommission, "##$&.IV. MILITARY INVOLVEMENT: Forean and Iietnamese people are found in ?1, primarily due to

    the involvement of ?1 in the wars in these countries.V. COLONIAL POWERS: 0estern countries which have undergone early industrialisation have

    attracted labour from periphery. ndustrialisation has led to prosperity which in turn provided

    opportunities for employment. 7rosperity in *ulf2countries due to petroleum products provided

    employment to a good number of wor)ers from 1sian countries.VI.DEMAND FOR LABOUR: @apidly developing countries during the 58 th and early "#th century

    experienced scarcity of labour, specially uns)illed and semi2s)illed labour. This situation

     provided scope to the labour class in the poor countries to migrate.



    There is an international consensus that migrant remittances are the most tangible benefit of 

    migration to developing countries. 'igrant remittances usually go towards improved housing,

    nutrition, schooling and health care. @emittances 6" :verview and analysis therefore create

    human capital by financing education of children and health for all age groups, and improving

    food security for poor households. The volume of migrant remittances to developing countries

    has greatly increased in recent years < from ?G$# billion in recorded remittances in 588# to

    ?G"=% billion in "##; (@atha and Ju, "##=&. @emittances reached ?G-"= billion in "##=, but

    may drop by as much as 5# per cent in "##8 as a result of the global economic crisis (@atha,

    'ohapatra and ?ilwal, "##8&. Blows to 9atin 1merica, in particular, have fallen. espite this

    decline in the growth of these flows, remittances remain resilient in relation to other forms of 

    financial transfers < official development assistance (:1& and foreign direct investment (B&.

    @ecorded remittances are now over twice the level of :1, which in "##; was ?G5#% billion,

    and about two2thirds that of B, which was ?G-"% billion the same year. Bor some countries,

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    in fact, remittances constitute the main source of foreign exchange. The 0orld Aan) has

    therefore described remittances as “an important and stable source of development finance”

    (0orld Aan), "##-, p. 5%;&


    0hile there are many motivations behind individual decisions to migrate, a ma3or force driving

    contemporary migration is a lac) of decent wor) opportunities at home. n developing countries,

    decent 3obs are not being created fast enough to absorb the growing numbers of people ready to

     3oin the labour force every year. 'igration can thus be seen as a means to increase economic

    security. 1lthough emigration may be perceived as helping to ease population pressures, for 

    most countries it can have only a modest impact at best. Even for the main countries of origin,

    the proportion of the population leaving is relatively small. The largest transfer is from 'exico

    to the nited ?tates. :f the 5#= million people alive today who were born in 'exico, about =

    million now live in the nited ?tates, effectively reducing 'exico’s annual population growth

    rate from 5.= to 5.% per cent ('artin and Teitelbaum, "###&. Bor most other origin countries,

    such as +hina and ndia, the proportions are much lower. n very populous countries of origin,

    even high levels of emigration may have minimal effects on unemployment and wages (!,

    588=a&. owever, because migration is selective, it may induce upward pressure on wages in

    specific sectors. n 7a)istan, for instance, emigration to the *ulf countries resulted in increased

    wages for s)illed construction wor)ers and possibly also for low2s)illed 6= :verview and

    analysis construction and agricultural wor)ers (!, 588=a&. ?imilarly, real wages in the

    7hilippines seem to have risen in line with migration, especially for wor)ers in manufacturing

    (9ucas, "##%&. n ndia, there are indications that the huge migration from the ?tate of Ferala to

    the *ulf region has helped raise wages in that state (Kachariah, 'athews and rudaya @a3an,

    5888&. ?ome countries with high net emigration rates also have intractable unemployment

     problems. n small countries with large expatriate populations, the reduction of unemployment

    or underemployment related to emigration may be substantial.


    n considering the development impact of international migration, it is important to assess the

    impact of s)illed migration from developing countries. ?ince the early 588#s the international

    mobility of highly s)illed wor)ers has been increasing (ocuier and 'arfou), "##%4 umont

    and 9emaLtre, "##%4 9owell, "##=&, reflecting globali>ation trends, rising global demand for 

    s)ills, selective admission policies in developed countries, and the phenomenal growth in +T.

    The impact of this “brain drain” from origin countries varies according to the characteristics of 

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    those countries (si>e and level of development&, the type of sector or occupation concerned, the

    mode of financing education (public or private& and the type of migration (temporary,

     permanent or circular& (ocuier and 'arfou), "##%4 Fapur and 'cale, "##%4 9owell and

    Bindlay, "##"4 :E+, "##"a4 0orld Aan), "##$b&. ?)illed people move for many reasons,

    including higher wages, better facilities and more opportunities for advancement. estination

    countries sometimes promote the immigration of professionals through recruitment drives and

    selection systems that facilitate entry.

    These selection systems can amount to what has been called “cherry pic)ing”, in the sense of 

    attracting the “best and brightest” from poor countries and depriving these countries of their 

    most ualified individuals < individuals in whom they have made heavy investments in

    education and human capital, often at public expense. 'any migrants from developing countries

    in the nited ?tates in 588# had twice as much education as their compatriots. This trend hascontinued for almost all developing countries since the 588#s. Thus, for example, in "### there

    were -.; times more Damaicans with a university education in the nited ?tates than in Damaica4

    and for every ten ?alvadorian university graduates at home, there were four in the nited ?tates

    (1dams, "##-&.


    @eturn migration has traditionally been viewed as a good strategy to reverse brain drain, and

    considerable interest has been expressed in the return migration of s)illed wor)ers as a ma3or 

     positive factor for the development of origin countries. nfortunately, there are extremely

    limited data on return migration, except that which has ta)en place on an organi>ed basis,

     because countries do not have monitoring systems to record the return of nationals who have

     been employed abroad. ardly any information exists on the types of return migration,

    motivations for it or time patterns. n any assessment it would be important to distinguish

     between what is most relevant for development, that is, voluntary return, from involuntary

    return associated with, for example, the re3ection of asylum applications or deportation

     programmes for migrants in irregular status. ?uch data do not currently exist, however. 1n

    :E+ study of return migration from its member ?tates sheds some light on when migrants

    return and why. 1ccording to the study (:E+, "##=&, "#

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    *overnments of origin countries are increasingly interested in the potential value of 

    transnational communities as engines of development. Bor example, 'exico has created special

     programmes that match government funds to remittances that are invested to create 3obs in

    migrant areas of origin (9Mpe> Espinosa, "##"&. 'exicans in the nited ?tates have thousandsof “hometown associations” which have supported all )inds of community activities, from

     building new roads to repainting churches and funding fiestas. ?imilarly, migrants from El

    ?alvador who live in 9os 1ngeles, 0ashington, +, and many other cities in the nited ?tates

    have established town committees (comitNs del pueblo& to support activities bac) home, such as

     paving roads and installing electricity (7ortes, 588;4 7ortes, Escobar and 0alton @adford,


    VI. MIGRATION AND TRADEAecause traded goods include labour inputs, trade, li)e migration, involves the movement of 

    labour. Bor this reason, economists loo) at trade as a substitute for migration. n the E,

    expansion of intra2community trade has brought about a convergence of income levels. Today,

    even though wor)ers are completely free to move within the E, the number tempted to migrate

    is an insignificant proportion of the European wor)force. This is because trade and other 

    measures have largely accomplished the 3ob of reducing economic differences between the

    'ember ?tates (see Ienables, 5888&. The relation between trade and migration is, however,

    much more complex than this would suggest. ?ome economic activities, such as “call centres”,

    can easily be relocated to low2wage countries, so that 3obs, rather than people, migrate, but other 

    activities cannot be relocated. n some fields, such as financial services and high2technology

     products, trade and migration are complementary, in that the former prompts an increase in the


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    nternational capital movement have played an important role in the economic development of 

    several countries. They provide an outlet for saving for the lending countries which helps to smooth

    out business cycles and lead to a more stable pattern of economic growth. :n the other hand, they

    help to finance development of under2developed countries. They also help to ease the balance of 

     payments problems of developing economies. Thus, international capital movement have an

    important role to play in the balance of payments ad3ustments mechanism.

    1s compared to developed countries of the world, the developing countries suffering from scarcity

    of capital and poor technology. Therefore, they rely on international capital floes to finance their 

    investment opportunities and hence, to raise income and payment.

    The term international capital movement refers to borrowing and lending between countries. These

    capital movements are recorded in the capital account of the balance of payment.

    :ne of the most important developments in the world economy in the 588#s has been the

    spectacular surge in international capital flows. These flows have emanated from a greater financial

    liberalisation, improvement in information technology, emergence and proliferation of institutional

    investors such as mutual and pension funds, and the spectra of financial innovation. 0ith the

    increasing capital flows and participation of foreign investors and institutions in the financial

    mar)ets of developing countries, the capital account has been the focus of attention since the late

    58=#s and especially so in the 588#s. The expansion of capital flows has been much larger than that

    of international trade flows. The process has been reinforced by the ongoing abolition of 

    impediments and capital controls and the widespread liberalisation of financial mar)ets in the

    developing countries during the 588#s.


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    +apital movement can be classified by instrument into debt or euity and by maturity into short2

    term and long2terms.

    +apital movement can be divided in to short2term and long2terms flows. epending upon the nature

    of credit instruments involved.

    “1 capital movement is short2term if it is embodied in a credit instruments of less than a year’s

    maturity. f the instruments has duration of more than a year or consist of the title to ownership,

    such as the share of stoc) or a deed to property, the capital movement is long2term.”



    They can ta)e place through changes in claims of domestic’s residents on foreign residents or in

    liabilities of domestics residents owed to foreign residents. ?hort2term capital instruments are

    demand deposits, bills, overdraft, commercial and financial papers and acceptances, loan and

    commercial ban)s credits, and items in the process of collection. They are mostly speculative in

    nature. ?hort2terms capital movements may ta)e the form of hot money movements which refers to

    capital movements to ta)e advantages of international difference in interest rate.



    They are generally for long2term investments. They may be further classified in to direct

    investment, portfolio investment and assistance from governments and institutions.

    5.  Foreign Direct Investment [FDI] 

    F"#$%&' %#$* %'+$,*-$'* (FDI& is a direct investment into production or business in a country by

    an individual or company in another country, either by buying a company in the target country or by

    expanding operations of an existing business in that country. Boreign direct investment is in contrast

    to portfolio investment which is a passive investment in the securities of another country such

    as stoc)s and bonds. Aroadly, foreign direct investment includes Omergers and acuisitions, building

    new facilities, reinvesting profits earned from overseas operations and intra company loansO. n a

    narrow sense, foreign direct investment refers 3ust to building new facilities. The numerical B

    figures based on varied definitions are not easily comparable.

    1s a part of the national accounts of a country, and in regard to the *7 euation PQ+HH*H(J2'&

    R+onsumption H omestic investment H *overnment spending H(eJports 2 i'portsS, is

    investment plus foreign investment, B is defined as the net inflows of investment (inflow minus

    outflow& to acuire a lasting management interest (5# percent or more of voting stoc)& in an

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    enterprise operating in an economy other than that of the investor.B is the sum of euity capital,

    other long2term capital, and short2term capital as shown the balance of payments. B usually

    involves participation in management, 3oint2venture, transfer of technology and expertise. There are

    two types of B/ inward and outward, resulting in a net  B inflow (positive or negative& and

    Ostoc) of foreign direct investmentO, which is the cumulative number for a given period. irect

    investment excludes investment through purchase of shares. B is one example of international

    factor movements.

    T/$, "0 FDI, :

    5. H"#%1"'*23 FDI arises when a firm duplicates its home country2based activities at the same

    value chain stage in a host country through B.

    ". P32*0"#- FDI Boreign direct investment from a source country into a destination country

    for the purpose of exporting to a third country.

    -. V$#*%23 FDI  ta)es place when a firm through B moves upstream or downstream in

    different value chains i.e., when firms perform value2adding activities stage by stage in a

    vertical fashion in a host country.

    ori>ontal B decreases international trade as the product of them is usually aimed at host

    country4 the two other types generally act as a stimulus for it.

    M$*4", :

    The foreign direct investor may acuire voting power of an enterprise in an economy through any of 

    the following methods/

    •  by incorporating a wholly owned subsidiary or company anywhere

    •  by acuiring shares in an associated enterprise

    • through a merger or an acuisition of an unrelated enterprise

    •  participating in an euity 3oint venture with another investor or enterprise.

    F"#-, "0 FDI :

    • low corporate tax and individual income tax rates

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    • tax holidays

    • other types of tax concessions

    •  preferential tariffs

    • special economic >ones

    • E7K < Export 7rocessing Kones

    • Aonded 0arehouses

    • 'auiladoras

    • investment financial subsidies

    • soft loan or loan guarantees

    • free land or land subsidies

    • relocation expatriation

    • infrastructure subsidies

    • @ support

    • derogation from regulations (usually for very large pro3ects&


    The rapid growth of world population since 58%# has occurred mostly in developing countries. This

    growth has been matched by more rapid increases in gross domestic product, and thus income per

    capita has increased in most countries around the world since 58%#. 0hile the uality of the data

    from 58%# may be of uestion, ta)ing the average across a range of estimates confirms this. :nly

    war2torn and countries with other serious external problems, such as aiti, ?omalia, and !iger have

    not registered substantial increases in *7 per capita. The data available to confirm this are freely


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    1n increase in B may be associated with improved economic growth due to the influx of capital

    and increased tax revenues for the host country. ost countries often try to channel B investment

    into new infrastructure and other pro3ects to boost development. *reater

    competition from new companies can lead to productivity gains and greater efficiency in the host

    country and it has been suggested that the application of a foreign entity’s policies to a domestic

    subsidiary may improve corporate governance standards.

    5.  Portfolio Investment 

    1 /"#*0"3%" %'+$,*-$'* is a passive investment in securities, none which entails in active

    management or control of the securitiesU issued by the investor . 7ortfolio investment is an

    investment made by an investor who is not particularly interested in involvement in

    the management of a company.

    t is also the investment in securities that is intended for financial gain only and does not create

    a controlling interest in or effective management control over an enterprise.

    t includes investment in an assortment or range of securities, or other types of investment vehicles,

    to spread the ris) of possible loss due to below expectations performance of one or a few of them.

     portfolio investment is a mode of investment in the securities and bond of a company which helps

    the company to bring up more sources of finance and to strengthen itUs financial adeuacy. it enables

    to improve the creditworthiness of the company in the mind of the general public and they are being

     prompted to invest more and earn in accordance with it.

    The term portfolio refers to any collection of financial assets such as stoc)s, bonds, and cash.

    7ortfolios may be held by individual investors andVor managed by financial professionals, hedge

    funds, ban)s and other financial institutions. t is a generally accepted principle that a portfolio is

    designed according to the investorUs ris) tolerance, time frame and investment ob3ectives.

    The monetary value of each asset may influence the ris)Vreward ratio of the portfolio and is referred

    to as the asset allocation of the portfolio. 0hen determining a proper asset allocation one aims at

    maximi>ing the expected return and minimi>ing the ris). This is an example of a multi2ob3ective

    optimi>ation problem/ more Oefficient solutionsO are available and the preferred solution must be

    selected by considering a trade off between ris) and return. n particular, a portfolio 1 is dominated

     by another portfolio 1U if 1U has a greater expected gain and a lesser ris) than 1. f no portfolio

    dominates 1, 1 is a 7areto2optimal portfolio. The set of 7areto2optimal returns and ris)s is called

    the 7areto Efficient Brontier for the 'ar)owit> 7ortfolio selection problem.

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    3.  Official Flows

    They are shown as external assistance, i.e. grants and loans from bilateral and multilateral flows.

    9ong2term capital movements can also ta)e the form of government loan grants and loans from

    international financial institutions li)e A@, 1, etc. ?ometimes government of advanced

    countries may gives loans to financial pro3ect in a developing country. These are )nown as bilateral

    loans. nternational financial institution li)e world ban), 1sian developing ban), etc. 1lso give

    financial assistance to developing countries. These loans are called multilateral loans. Thus,

    governments and international institutions play an important role in international capital movement.


    1 part of the foreign capital is received on concessional term and it is )nown as external assistance

    and foreign aids. t may be received by way of loans and grants. *rants are in a forms of out rightgift which do not have to be repaid. 9oan ualify as aid only to the extent that they bear a

    concessional rate of interest and have longer maturity period than commercial loans. Boreign aids

    has mostly been given by foreign governments and international finantial institutions li)e 'B,

    0:@9 A1!F, 1?1! EIE9:7'E!T A1!F 1! ?: :!.

    :fficial flow were about ;%2=# percent of capital flow till 5885. Ay 5886, this has come down to

    about "# percent and has further fallen to below % percent by late 588#s.

    6.  External Commercial Borrowing 

    1n $6*$#'23 "--$#%23 7"##"8%'& (E+A& is an instrument used in ndia to facilitate the access to

    foreign money by ndian corporations and 7?s ( public sector  underta)ings&. E+As include

    commercial loans, buyersU credit, suppliersU credit, securitised instruments such as floating rate notes

    and fixed rate bonds etc., credit from official export credit agencies and commercial borrowings

    from the private sector window of multilateral financial nstitutions such as nternational Binance

    +orporation (0ashington&, 1A, 1B+, ++, etc. E+As cannot be used for investment in stoc)

    mar)et or speculation in real estate. The E1 (epartment of Economic 1ffairs&, 'inistry of

    Binance, *overnment of ndia along with @eserve Aan) of ndia, monitors and regulates E+A

    guidelines and policies. Bor infrastructure and *reenfield pro3ects, funding up to %#W (through

    E+A& is allowed. n telecom sector too, up to %#W funding through E+As is allowed. @ecently

    *overnment of ndia has increased limits on @A to up to G6# billion and allowed borrowings in

    +hinese currency yuan.

    Aorrowers can use "% per cent of the E+A to repay rupee debt and the remaining ;% per cent should be used for new pro3ects. 1 borrower can not refinance its existing rupee loan through E+A. The

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    money raised through E+A is cheaper given near2>ero interest rates in the ? and Europe, ndian

    companies can repay their existing expensive loans from that.

    The ministry has not put any ceiling on individual companies for using renminbi as currency for 

    E+A. Even though the overall limit for permitting it under E+A is only G5 billion, the officials

    denied possibilities of a single company using the

    entire amount as it would come under Xapproval’


    The cost of borrowing in @enminbi is far less,” said

    a finance ministry official. “+ompanies go for it as

    it is on easier terms. 0e are getting their (+hina’s&

    money cheap.”

    The limit for automatic approval has also been increased from G5## million to G"## million for the

    services sector (hospitals, tourism& and from G% million to G5# million for non2government

    organisations and microfinance institutions. The decisions will come into effect through a

    notification by @A.


    The pace, magnitude, direction and composition of international capital flows have crucial

    implication for the recipient countries. The surge in private capital inflows to developing economies

    in the 588#s coincided with the period of low international interest rate in the advanced economies

    and domestic policy reform in the developing world . The literature on determinants of cross2

    countries capital flow has identified various factors which, inter alia, include the overall

    macroeconomic scenario, political ris) perception, regulatory regims, fiscal concessions and

     business strategy of the entity from which the capital flow originates. The literature usually

    distinguishes between two broad sets of factors affecting capital movements.


    They reflects domestic opportunity and ris). The evidence on this issue highlights that 799 :@ 

    :'E?T+ B1+T:@? operating at pro3ect and country levels, reflects essentially the improved

     policies that increase the long run expected returns or reduced the perceived ris) on real domestic

    investments. These includes measures that increase the openness of the domestic financial mar)et to

    foreign investors4 liberalisation of B4 credible structural or macroeconomic policies4 sustainable

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    debt and debt service reduced ensuring timely repayments4 stabilisations policies that affect the

    aggregate efficiency of resource allocation4 policies that affect the level of domestics absorption

    relative to income4 and the ability of the economy to absorb shoc)s from changes in international

    terms of trade. 7ull factors li)e rebuts economic reforms in emerging economies are internal to an



    They are stimulus provided by the decline of ? interest rate that has ta)en place in recent years.

    B may be attracted by the opportunity to use local raw material or employ a local labour force

    that are relatively cheap. The 7? :@ EJ:*E!:? B1+T:@? includes lower foreign interest

    rates, recession abroad and herd mentality in international capital mar)ets. 7ush factorsare external

    to an economy and include parameters li)e low interest rates abundant liuidity, slow growth, or 

    lac) of investment opportunities in advanced economies.

    7ush and 7ull factors explains international capital flows. The 7ull factors determine the geographic

    distribution of the flows amongst the recipient economies.

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    The Imortant Determinants Of International Caital !ovements


    1n important factors which has a bearing on the international capital movements is differences in

    the rate of interest. 1ccording to 9.'.Ahole ,” 9i)e population migration, capital migration can be

    and has been explained in terms of the “799” and “7? B1+T:@?”. 1s far as the recent

    increase in capital flows is concerned, greater weight has to be given to the push factors,

     particularly the falling interest rates in the ? and some other countries.


    The various forms of foreign capital movements depends upon the degree of openness of the

    financial and other mar)ets and the extent of their international integration. n the recent years most

    of the countries have adopted the policy of deregulation, liberalisation, privatisation and structural

    ad3ustments. They have also dismantled various control related to trade, foreign exchange, foreign

    investment, ownership and capital flows. 1ll these changes have contributed to recent increase in

    capital flows.

    @apid improvements in technologies for collecting, processing, and disseminating information,

    along with the opening of domestic financial mar)ets, the liberalisation of capital account

    transactions, and increased private savings for retirements have stimulated financial innovation andcreated a larger pool of internationally mobile capital. 1t the same time, consolidation in the global

     ban)ing industry and competition from non2ban) financial institution R including mutual funds S

    have lured new players to the international financial area. These trends accelerated in the 588#s,

    expanding investments opportunities for saver and offering borrowers a wide array of sources of 

    capital. The same trends are expected to continue into the "5st century.


    :ver the last two decades, the financial mar)ets of leading industrial countries have transformed

    into a global financial system, permitting larger amounts of capital to be allocated not only to theirs

    economies, but also to developing economies. Birm in developing and industrial countries a li)e are

    raising more funds from international securities mar)ets. 'ultinational corporations are registering

    their euity on more than one country’s stoc) exchange and raising funds from financial mar)ets in

    different economies. 'utual funds, hedge funds, pension funds, insurance companies and other 

    investments and asset managers now compete with ban)s for national savings. Even though this

     phenomenon has been confined so far primarily to developed economies, it has started to spread to

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    some developing countries too. nstitutional investors have ta)en advantages of the easing of 

    restrictions in many developed countries to diversify their portfolios internationally, enlarging the

     pool of financial capital potentially available to developing economies. 1ccording to world

    development report of 58882"###, in 588% these investors controlled "#trillion dollars, 58=# of 

    which only " percent was invested abroad. Thus, there was a tenfold increase in the funds and a

    fortyfold increase investments abroad.



    The 588#s have seen a consistent trend toward more flexible exchange rate regimes and the

    liberalisation of capital account transactions. The latter involves changes in policies toward different

    types of private capital flows, such as foreign direct investments, foreign bond and euity

    investments, and short term borrowing from abroad. 'ost countries have moved towards capital

    account convertibility as part of wide2ranging gradual economic reform program that includes

    measuring to strengthen the financial sector.


    nfrastructural facilities, availability of s)illed labour, advances in computer and telecommunication

    technologies, etc. 0ill influence private capital investment into the country. 9abour policies will

    also have a bearing on the foreign investments. The mar)et potential, i.e. the ability of the mar)et to

    absorb the whole range of new products, is also li)ely to influence the inflow of foreign capital.


    The credit rating and credit standing of nation, which depend on economic, political and social

    stability, also influence foreign capital flows.

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    ?hort2term capital movement may be influenced by speculation relating to expected changes in

    interest rates or rate of return or foreign exchange rates.


    Boreign capital movement are also influenced by profitability considerations of investments.

    t is noteworthy that an overwhelming proportion of international capital flows towards developing

    countries is directed towards middle2income countries. !otwithstanding fluctuation over the year,

    this concentration has increased, especially with regard to B and portfolio flows. n particular,

    share of East 1sia and 7acific region in portfolio investment has increased. nflo of debt2creating

    capital toward developing countries declined sharply in the wa)e of the East 1sian crisis

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    Boreign +apital had played an important role in the early stages of industrialisation of most of the

    advanced countries of today li)e countries of Europe and !orth 1merica. There is a general view

    that foreign capital, if property diverted and utilised, can assist economic development of 

    developing countries. These countries need resources to finance investment in health, education,

    infrastructure and so on. t can supplement a country’s domestic saving effort and foreign exchange


    1 number of studies have confirmed that international capital flows can contribute significantly to

     promotr groth in developing countries by augmenting domestic savings, reducing cost of capital,

    transferring technology, developing domestic financial sector and fostering human capital

    formation. Boreign capital can contribute to economics development of developing countries in

    following ways/


    Economic development depends on , among other things, capital formation. The domestic capital

    formation is inadeuate in 9+s. The foreign capital can supplements the domestic resources to

    achieve the critical minimum investment to brea) the vicious circle of loe income2low saving2low

    investment. f more domestic capital is to be created by country’s own efforts, resources will have

    to be diverted from the production of goods reuirements for current consumption. This may lead to

    a cut in present living standards. Thus, foreign capital can help to supplement the domestic capital.


    Boreign capital helps to accelerate the pace of economies development by faciliting imports of 

    capital goods, technical )now2how and other imports which are reuired for carrying out

    development programmes.


    Boreign capital inflow may help to increase a country’s exports and reduced the imports

    reuirements if such capital flows into export oriented and import competing industries.

    TRANSFER OF TECHNOLOGY:!The foreign capital may facilited transfer of technology to

    9+s. t may helps to modernise the production techniues in industry, agriculture and other sector.


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    f the foreign capital is allowed to flow into the development of infrastructure it may lead to

    realisation of external economies which may stimulate domestic investments in the country.


    f foreign capital flow into real sectors in the form of direct investments it helps toi increase

     productivity, income and employment in the economy.


    nflow of foreign capital, especially the short2term, may be able to provide a breathing space to a

    deficit country to cover the deficit until a complete ad3ustments is achieved to correct the balance of 

     payments deficit,. owever, such capital movement should be seen as a temporary phenomenon.

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    +apital flow and economic growth are positively related to each other. igh surge of capital flow

    influences the domestic saving, investments and productivity of the country. mpacts of 

    international capital flows on economic growth during post liberalisation into ndia are very

    significant. t is argued that capital inflow influences growth and growth influences capital flows.

    nternational capital flows ma)e a direct contribution to economic growth. The potential benefits

    from the flows are reali>ed from improving productivity. *lobalisation allows capital to move to

    attractive destination and it can fuel higher growth.


    +apital flow affects the range of economic variable such as exchange rate, interest rate, foreign

    exchange reserve, domestic monetary condition and financial system in the country. +apital inflowinduces real exchange rate appreciation, stoc) mar)ets and real estate boom, and monitory

    expansion. 1ppreciation of exchange rate can lead to loss of competitiveness. nflow of foreign

    capital has a significant impact on domestic money supply and stoc) mar)et growth, liuidity and



    9arger capital flows can spar) off inflation due to its impact of monetory expansion.


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    +apital inflow may trigger bubbles in asset mar)et and stoc) mar)et.


    7ortfolios flows are li)ely to render the financial mar)et more volatile through increase lin)age

     between the domestic and foreign financial mar)ets. +apital flows expose the potential vulnerability

    of the economy to sudden withdrawals of foreign investor from the financial mar)et, which will

    affect liuidity and contribute to financial mar)et volatility.


    Boreign direct investment inflow tend to worsen the current account in the short run. The ong2term

    effects on the balance of payments depends, among other things, on the operating characteristics of 

    B enterprises, notably their export propensity, the extent to which they rely on imports inputs,

    including technology imports, and on the volume of profit2repatriation. :f course, there are indirect

    effect too. 'ultinationals can conceivably increase the export propensity of domestic firms through

    spill over effects. Burther, if domestic production by multinational substitutes for previously

    imported goods, B can reduce the total import bill.

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    F"#$%&' 2/%*23 -2 &%+$ #2%,$ *" ,$#%", /#"73$-, %' *4$ #$$'* "'*#%$,. t has been

    recognised that sudden and large surges in capital flows cause several problems. 9arge capital flows

    could push up monetary aggregates, engender inflationary pressures, destabilise exchange rates,

    exacerbate the current account position, adversely affect the domestic financial sector and distrupt

    domestic growth tra3ectories if and when such flow get reversed or drastically reduced. ?ome of the

    drawbac)s associated with international capital flows are discussed below.


    Boreign capital has a tendency to flow to high profit areas rather than the priority areas. The

    international capital inflows may be devoted to consumption which has a low social value or may

     be invested in pro3ect that generates low social returns. Thus, the use of foreign capital may involve

    inefficient allocation of resources and may create distortion in production structure. Therefore, it

    may not help to increase productivity, output and employment.


    ?ince the international capital flows are generally unstable, uncertain, unsustainable and uic)ly

    reversible they have a tendency to destabilise the economies of recipient countries. The volume,

    timing and composition of capital flow are uncertain. +hanges in internal factors such as loss of credit worthiness, etc. 'ay tend to stop the inflows or even lead to outflows. The inflow may tend

    to increase the money supply and lead to domestic inflation. 0hen the capital inflows are reversed

    there may be rise in interest rates, fall in liuidity, depreciation of currency, etc. 1ll of this may

    leads to serious balance of payments crisis.


    nternational capital flows are inherently unsustainable, volatile and unstable in nature. They aresub3ect to external shoc)s and internal policies. This increase instability in the recipient countries.


    reduced the effectiveness of monetory policy. The pressures against the exchange rate can uic)ly

     become very large and the central ban)s may be faced with the possibility of a run on their 

    currencies. The central ban)s may not be effective to prevent it.

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    foreign currency borrowing may imply a lot of uncertainties due to floating interest rates. There are

    many non2economics cost associated with foreign capital such as problems related to foreign

    ownership and control, dumping of outdated technology, loss of autonomy of domestic policies

    dependence, and so on. Boreign euity capital also gives rise to drain of resources in the form of 

    dividends and so on. Boreign borrowing give rise to the problem of debt trap.


    the technologies brought in by the foreign capital may not be adaptable to the consumption needs,

    si>e of domestic mar)et, availability of resources, stage of economic development in the country

    and so on.

    it become a clear from above analysis that undue dependence on foreign capital of whatever type

    R i.e. euity, debt, short2term and long2term capital S is bound to create large number of harmful

    conseuences in the recipient countries.

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    C2/%*23 03"8, %' I'%2

    The gradual opening of ndia’s capital account in the 588#s has changed the external sector 

    dynamics in ndia. *rowing integration with the world economy has introduced new

    macroeconomic influences, ma)ing the tas) of macroeconomic management that much more

    challenging. This paper by @enu Fohli attempts to analyse the patterns and trends in capital flows

    into ndia in the 588#s and how these have affected the )ey macroeconomic variables in the

    economy. t also attempts to study the response of the policy ma)ers to the new challenges posed by

    the partial capital account liberalisation.

    The paper finds that an inflow of foreign capital during this period has resulted in real exchange rate

    appreciation and has had a significant impact on domestic money supply. uring a capital surge,

    these effects have been countered through intervention and sterilisation. The costs of these policies

    in the event of heavy inflows of foreign capital into ndia are spelt out in the paper.

    The last decade has witnessed a tremendous increase in the mobility of international capital. +ross2

    country trends in capital flows reveal that private capital flows now dominate with official capital

    flows reduced to a tric)le. ?imultaneously, a rise in portfolio capital has tilted the composition of 

    international capital flows towards short2term investments, exposing individual countries to

    enhanced volatility and sudden withdrawal ris)s. These have been driven both by strong trends

    towards globalisation, which has enabled pursuit of higher returns and portfolio diversification, and

    the mar)etoriented reforms in many countries, which have liberalised access to financial mar)ets.

    +oncurrent with these trends has been the rising incidence of financial crises, raising uestions

    about lin)ages between the two. +oncern has also been expressed as to whether the costs of 

    increased vulnerability to financial fragility might not outweigh the gains from financial integration.

     !otwithstanding these doubts, most countries continue to progress in dismantling capital controls to

    integrate their financial mar)ets with the rest of the world, albeit more cautiously.

    These developments have stimulated a )een interest in understanding the nature and economic

    effects of capital flows as well as the appropriate policy responses to safeguard against financial

    instability that appears to be associated with international capital mobility. +apital flows affect a

    wide range of economic variables such as exchange rates, interest rates, foreign exchange reserves,

    domestic monetary conditions as well as savings and investments. ?ome commonly observed

    effects of capital inflows

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    ". that have been documented in recent studies5 include real exchange rate appreciation, stoc) 

    mar)et and real estate boom, reserve accumulation, monetary expansion as well as effects on

     production and consumption. Empirical studies that have begun to appear on the sub3ect assess the

    impact of capital inflows upon output growth (*ruben and 'c9eod 588$"&, differential

    macroeconomic effects of portfolio and foreign direct investment (*unther, 'oore and ?hort, 588$&

    and effects upon monetary conditions, savings and investment (Famin and 0ood, 588=&.

     Trends In International Migration Page 28

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     Trends In International Migration Page 29

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    7rinciple 6 of the 9: 'ultilateral Bramewor) on 9abour 'igration states/ “1ll ?tates have the

    sovereign right to develop their own policies to manage labour migration. nternational labour 

    standards and other international instruments, as well as guidelines, as appropriate, should play an

    important role to ma)e these policies coherent, effective and fair.” The 9: 'ultilateral Bramewor) 

    has identified the elements of a rights2based approach to labour migration/

    5& ensuring coherence between labour migration, decent wor), employment and other national

     policies45) formulating and implementing labour migration policies guided by international labour standards

    and other relevant international instruments and multilateral agreements concerning migrant


    ) addressing specific vulnerabilities faced by certain groups of migrant wor)ers, including wor)ers in

    irregular status4 and;) ensuring that labour migration policies are gender2sensitive.

      nternational capital movement have played an important role in the economic development of 

    several countries. They provide an outlet for saving for the lending countries which helps to smooth

    out business cycles and lead to a more stable pattern of economic growth. :n the other hand, they

    help to finance development of under2developed countries. They also help to ease the balance of 

     payments problems of developing economies. Thus, international capital movement have animportant role to play in the balance of payments ad3ustments mechanism.

    1s compared to developed countries of the world, the developing countries suffering from scarcity

    of capital and poor technology. Therefore, they rely on international capital floes to finance their 

    investment opportunities and hence, to raise income and payment.

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    • http/VVwww.ilo.orgVwcmsp%VgroupsVpublicV222edYprotectV222protravV222


    • https/'igrantsHasHpercentageHofHpopulation,



    • http/VVwww.islei3le.orgVislei3leconferenceVtheme".asp

    •  http/VVwww.globali>ation5#5.orgVpositive2effects2of2foreign2investmentV

    •  http/VVwww.economywatch.comVforeign2direct2investment

    •  http/VVelibrary.worldban).orgVdoiVabsV5#.5%8$V5=5-286%#25$$8

    •  http/$#-V;=%;V56V56YchapterW"#-.pdf 

    •  http/VVthehomewor)

    capital2movement.html•  http/VVaccountlearning.comVfactors2influencing2international2capital2mar)etV



    • = 'a3or isadvantages of 7rivate Boreign +apital 2 by ?thiti as Boreign Trade

    • 0hat are the Bactors which affects the nternational +apital 'ovementsZ 2 Ay !@1I ?

    •mpact of nternational +apital Blow on ndian Economy 2 by !arayan ?ethi, F. ma and

    ?han)ar 7atnai) 

    BOOK :

    Economics :f *lobal Trade 1nd Binance. 1uthor/2 Dohnson,+2005&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiz1J2DgMPLAhXPJI4KHWvIAZsQ_AUICCgC&biw=1366&bih=623,+2005&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiz1J2DgMPLAhXPJI4KHWvIAZsQ_AUICCgC&biw=1366&bih=623,+2005&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiz1J2DgMPLAhXPJI4KHWvIAZsQ_AUICCgC&biw=1366&bih=623,+2005&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiz1J2DgMPLAhXPJI4KHWvIAZsQ_AUICCgC&biw=1366&bih=623,+2005&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiz1J2DgMPLAhXPJI4KHWvIAZsQ_AUICCgC&biw=1366&bih=623,+2005&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiz1J2DgMPLAhXPJI4KHWvIAZsQ_AUICCgC&biw=1366&bih=623