Sunday June 12th 2011

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The Role of Investment, Industry and Foreign Trade in economic development

In these figures we include some of the main features of international economic relations to foster economic development. Foreign direct investment is of great importance to increase domestic investment in many countries and to favor the increase of Imports useful to foster domestic production, both in industrial and non-industrial sectors. Investment abroad is also a source of economic returns which contribute to increase economic development. Exports of raw materials, elaborated products or services (as tourism) are usually the main source to finance Imports which are needed to increase industrial and non-industrial output and employment.

Figures 1 and 2 show the main factors than contribute to increase real income per capita, accordingly to the empirical evidence shown in quantitative studies of socio-economic development published in AEID and in other selected journals of Economics research. These figures are a short version of the general figure presented in a more specialized article by Guisan(2009), free on line at Volume 9-1 of the journal AEID.

Although many economists agree with these analyses, the question is that unfortunately economic policies in many cases do not have into account properly the great importance of these factors to foster economic development. Regarding the fight agains poverty and the Millenium Development Goals the main emphasis should be on Human Capital, Industry and other activities which contribute at a great deal to increase both domestic production as well as the capacity to import goods and services from other countries, in order to increase real income per head and wellbeing.

In this year 2009 of international financial crisis, it is worthy to call attention of politicians and institutions about the negative consequences that financial disorder have for many developed and developing countries. Countries need investment, both from domestic agents and from foreigners, and good performance of financial channels is of great importance to fuel the engine of economic development.
In the next update of this entry we will include some graphs of World Development for the period 2000-2009.

This article was originally posted on Euro American Association of Economic Development Studies