What Is The Flow Of Capital In Poor Countries?

A modern economy requires a vast array of capital goods. Countries must abstain from current consumption to engage in fruitful roundabout production. But there's the rub, for the poorest countries are near a subsistence standard of living. When you are poor to begin with, reducing current consumption to provide for future consumption seems impossible.

The leaders in the growth race invest at least 20 percent of output in capital formation. By contrast, the poorest agrarian countries are often able to save only 5 percent of national income. Moreover, much of the low level of savings goes to provide the growing population with housing and simple tools. Little is left over for development.

But let's say country has succeeded in hiking up its rate of saving. Even so, it takes many decades to accumulate the highways, telecommunications systems, computers electricity generating plants and other capital goods that under pin a productive economic structure.
Even before acquiring the most sophisticated computers, however, developing countries must first build up their infrastructure, or social overhead capital, which consists of the large-scale projects upon which a market economy depends.

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