Development Finance in the Global Economy: The Road Ahead

Today, large volumes of global savings move through an increasingly integrated global capital market in search of investment opportunities. Capital is abundant. The developing world is receiving an increasing share of these flows, to the benefit of private investment — in production, trade and infrastructure — as well as to the balance of payments (with foreign direct investment (FDI) providing the most stable form of capital flow). Running alongside this story of private capital flow is one of increased official flows, official development assistance (ODA) having rebounded since its mid-1990s slump. And the flows of private and official capital run together at times, as with the international finance facility (IFF) which aims to leverage and front-load ODA by borrowing from international capital markets. The IFF, together with the French airline tax and proposals for global environmental taxes, the currency transaction tax (CTT) and the Global Premium Bond, constitute the new class of innovative financing mechanisms. Last, but certainly not least, the new philanthropy (increasingly in partnership with development agencies) is adding considerably to already well-established and growing flows from the charitable sector — and this source of capital has an especially close relationship with the goal of reducing poverty.