GLOBAL PERSPECTIVES

How Development Finance Is Changing Geopolitics

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Jeff Goodson
Board of Contributors

Jul 11, 2018 | 10:00 GMT

A container ship pulls into Djibouti's Doraleh Port in 2015.

A container ship pulls into Djibouti's Doraleh Port in 2015. China, which helped finance the port's development, has also built a military base next door.

(CARL DE SOUZA/AFP/Getty Images)

Highlights

  • Since the 1980s, foreign direct investment (FDI) has grown dramatically, surpassing traditional aid funding, remittances and portfolio investments as the main source of external financing for developing countries.
  • China has led the push toward FDI with infrastructure projects such as the Belt and Road Initiative.
  • The flood of Chinese investment into international markets will force traditional development finance institutions, such as the World Bank, to rethink their approach to aid, and shape foreign affairs for years to come.

Development finance has undergone a shift. Though traditional aid flows once dominated the sector, foreign direct investment (FDI) is now by far the leading source of development finance in most of the world's emerging states. At the same time, competition for influence in these countries is heating up, led by China's massive investments in infrastructure projects in Asia, Europe, Africa and the Middle East. The race in development finance is already altering the balance of global geopolitics and will have major economic, military and political repercussions. ...

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