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Globalization and Human Developmentmore manufactured goods and less primarycommodities (like food and raw materials)than before.But these developments do not apply acrossthe board (Figure 1.2). The bulk of exportsin the developing world are mostly concentratedin East Asia. At the other extreme areSub-Saharan Africa and South Asia whoexport a much lower proportion to the restof the world. In between lie Latin America,Europe and Central Asia, and MENA. Overthe past two decades, MENA and Europehave been loosing ground, while East Asiahas become increasingly integrated into theworld economy.Factor MobilityTrade expansion has been accompanied byunprecedented capital mobility, especiallysince the 1980s (Figure 1.3). The bulk of theincrease in capital flows came from theprivate sector (in the form of FDI andportfolio investment). Net official flows ofaid have fallen, but foreign direct investmentbecame a much more important channel forcapital mobility than portfolio investment.In addition, FDI is increasing steadily, whileportfolio investment and credit have fallenin the wake of the financial crises of the late1990s.Like trade, the flow of capital to differentdeveloping regions has become increasinglynon-uniform. (Figure 1.4) illustrates this forFDI flows to developing countries. WhileLatin America and East Asia attractedaround 78 percent of FDI flows todeveloping countries in the late 1990s,Sub-Saharan Africa, MENA and South Asiacollectively attracted only 8 percent.The importance of capital inflow todeveloping countries lies in part in that itsupplements domestic savings to levels thatenable the recipient economies to growmore rapidly. Furthermore, it enables theseeconomies to access advanced knowledgeabout production techniques, managementpractices, and sometimes export markets.These benefits are as important for developmentas the physical capital itself. At the sametime, however, capital inflows can be costly.Indeed, they complicate macroeconomicmanagement and expose countries to therisk of sudden capital flight. These costs canbe high in terms of economic activity andemployment.%181614121086Figure 1.1: Trade in Goods and Services as Share of GDP222018161412108DevelopedcountriesDevelopingcountries1970 74 78 82 86 90 94Figure 1.2: Share of World Exports by Developing Region,1980-1999.400350300250200150100500East Asia andPacificLatin America&Carib.4 Sub-Saharan2 Africa0South Asia1980 1985 1990 1994 1995 1996 1997 1998 1999Figure 1.3: Net Long-Term Flows to DevelopingCountries, 1970-99.TotalOfficialflows**Europe &Central AsiaMENAFDICapital marketflow*1970 80 90 91 92 93 94 95 96 97 98 9910080604020-20* Capital market flows includeportfolio investment and debtflows in the form of banklending and bond financing.** Concessional andnon-concessional official flows.Source: World Bank, GlobalDevelopment Finance 2000.Figure 1.4: Net FDI by Developing Region, 1970-1999Latin America & Carib.Europe & Central AsiaMENAEast Asia & Pacific01970 1980 1990 1998 1999Sub-Saharan AfricaSouth AsiaEgypt Human Development Report 2000/2001 - 15