Do Private Flows Reach the Lowest Income Countries?
Analysis of private investment suggests that the lowest income countries do not experience dramatically lower inflows than better-off developing countries.
Owen Barder, Senior Fellow and Director for Europe at the Center for Global Development, recently posed a question about our post on public and private sources of global development finance. He wondered if private flows, such as remittances and investment, and non-ODA official flows went primarily to the richer developing countries, with the poorest countries receiving very little. To test this hypothesis about private flows, we looked at net private investment from the World Bank's Global Development Finance database and average remittance inflows from World Bank and Hudson Institute data. We then averaged the flows, calculated as a percentage of GDP, across the four OECD income classifications, low income, lower middle income, higher middle income, and high income. The results are provided below:
Our analysis of private investment suggests that the lowest income countries do not experience dramatically lower inflows than better-off developing countries. Net capital flows are the most even, with the upper middle income, lower middle income, and low income country averages all hovering above or below 4% of GDP. Remittance flows, however, seem to correlate negatively with income levels. In 2010, the lowest income group received the largest remittance inflow as a percentage of GDP--nearly 7%. The average inflow of remittances was roughly 6.5% of GDP among lower middle income countries and less than 4% of GDP among upper middle income countries.
These findings reaffirm the need to study private flows and their impact on development outcomes. Not only are these flows large, but they are significant even among the poorest countries.