In the last twenty-five years more than sixty new states have come into being. Most of these new states are burdened with the problems caused by economic underdevelopment, but are determined to solve those problems. The very fact of underdevelopment, however, has meant that these states are unable to marshall sufficient domestic capital to meet the goals of constant and rapid development. They have, consequently, had to turn to the developed, industrialized nations for aid in achieving those goals.At first, the aid that was given to the developing countries was generally given on a government to government basis. The explanation for the absence of private enterprise in the business of reconstruction and development may be found in the facts of the economic reality of Europe in the late 1940's and of Africa, Asia and Latin America in the 50's and 60's. The problems that had to be solved were so complex and the means for solving them so limited that it seemed that if anything could be done, it would have to be done on the massive, centralized, planned basis which demanded governmental organization and control. Furthermore, in the short-run, at least, the private sector was totally uninterested in any investment which was risky and, so it seemed, not very profitable. Rational economic decisions were, however, in the case of the developing countries, buttressed by an ideological foundation which rejected private enterprise associated with former colonialist masters and emphasized the economic and social benefits of public control of the means of production. In the past ten years, however, ideology has begun to make way for a more pragmatic approach. The developing countries have come to understand that aid from foreign governments often comes in a package with undesirable political wrappings and that, more important, government to government aid simply could not provide enough of the capital that must be raised if ambitious development programmes are to be met.
Dynamic Causal Relationships among GDP, Exports, and Foreign Direct Investment (FDI) in the Developing Countries