Accumulation and Mobilization of Capital for Sustainable Development – Historical Perspective and Significance of ECA Financing
| DOI | http://doi.org/10.1111/1758-5899.12709 |
| Published date | 01 September 2019 |
| Date | 01 September 2019 |
| Author | Ashish Kumar |
Accumulation and Mobilization of Capital for
Sustainable Development –Historical
Perspective and Significance of ECA Financing
Ashish Kumar
Export-Import Bank of India
Abstract
Economic development is closely related to accumulation and mobilisation of capital, sources of which can either be domestic
or foreign. In a developing country context, foreign capital has emerged as an important source of supplementing domestic
capital, and is increasingly being channelised through official export credit agency (ECA) support. For this support to have a
lasting impact, it is important that projects are designed and developed in a coordinated manner with strong involvement of
the host country. Simultaneously, it is critical to devise mechanisms such as local currency financing to ensure the sustainabil-
ity of such support.
Accumulation and mobilization of capital has been at the
centre of any discussion on development economics. Ade-
quate amount of capital, its quality and timely availability
have been important determinants of development. The rel-
evant discussion on mobilizing capital for sustainable devel-
opment accordingly is on three central points –what
determines generation and availability of capital for meeting
development needs, what determines transfer of capital to
recipient, and going forward, what modes of capital transfer
could help achieve sustainable developmental outcomes.
Sources of capital
Economic surplus is the primary source of generation and
accumulation of capital, with the quantum being deter-
mined by the size and efficiency of the underlying economic
order. Pace of capital accumulation has accelerated as
human society has made the transition from feudalism to
capitalism. Efficiency of a capitalist system has led to more
productive use of capital and generation of higher surplus.
Reinvestment of the surplus along with the associated multi-
plier effect has helped accelerate formation and growth of
capital with all its attendant benefits. The development pro-
cess of the West has been the story of growth of industrial
capitalism and faster generation and reinvestment of that
wealth.
Economic surplus, if insufficient, can be supplemented by
accessing foreign capital, both equity and debt. In the
underdeveloped countries, where indigenous capitalism has
not taken shape, accumulation and deployment of capital
has been mainly dependent on transfer of capital from
external sources. The host country, depending on its ability
to attract and absorb capital as also its ability to put capital
into more productive and efficient use has, in many cases,
been able to put in place a virtuous cycle of growth and
capital accumulation, which has over time unleashed the
indigenous sources of growth.
Transfer of foreign capital
Cross country transfer of capital could be from official, pri-
vate and institutional sources. Some transfers such as aid,
grant, and soft loan are largely policy driven. Other than
these, most cross country transfers are driven by commercial
considerations of risk-reward ratio, which critically hinges on
the domestic environment in recipient country. In order to
mobilize financing, as also to facilitate its absorption and
effective use according to national priorities, it is essential
for countries to have a deep and efficient financial system,
adequate enabling environment and robust policy frame-
work.
Private sources
Foreign direct investment (FDI) and foreign portfolio invest-
ment (FPI) are two of the most common instruments of for-
eign capital transfers from private sources. As institutional
network in countries are almost non-existent at the initial
stages of development and profitable opportunities to
deploy capital is difficult to identify, the ability to attract
and absorb private capital and portfolio flows at the initial
stages of development are limited. While FDI has been a
better-known source of foreign capital transfer in least
developed countries (LDCs), private capital and its transfer
have, at best, had limited impact on development in LDCs.
FDI in LDCs has mostly been in extractive industries and low
skill-based industries. Further, the activities, in many cases
are directed towards the external market, through linkages
©2019 University of Durham and John Wiley & Sons, Ltd. Global Policy (2019) 10:3 doi: 10.1111/1758-5899.12709
Global Policy Volume 10 . Issue 3 . September 2019
416
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