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The Role of Foreign Capital Movements in the Economic Development of Brazil and Mexico, 1947-1960

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The Role of Foreign Capital Movements in the Economic Development of Brazil and Mexico, 1947-1960 Louisiana State University LSU Digital Commons LSU Historical Dissertations and Theses Graduate School 1963 The Role of Foreign Capital Movements in the Economic Development of Brazil and Mexico, 1947-1960. Darrell Richard Lewis Louisiana State University and Agricultural & Mechanical College Follow this and additional works at: https://digitalcommons.lsu.edu/gradschool_disstheses Recommended Citation Lewis, Darrell Richard, "The Role of Foreign Capital Movements in the Economic Development of Brazil and Mexico, 1947-1960." (1963). LSU Historical Dissertations and Theses. 897. https://digitalcommons.lsu.edu/gradschool_disstheses/897 This Dissertation is brought to you for free and open access by the Graduate School at LSU Digital Commons. It has been accepted for inclusion in LSU Historical Dissertations and Theses by an authorized administrator of LSU Digital Commons. For more information, please contact [email protected]. This dissertation has been 64—5057 microfilmed exactly as received LEWIS, DarreU Richard, 1936- THE ROLE OF FOREIGN CAPITAL MOVEMENTS IN THE ECONOMIC DEVELOPMENT OF BRAZIL AND MEXICO, 1947-1960. Louisiana State University, Ph.D., 1963 Economics, finance University Microfilms, Inc., Ann Arbor, Michigan THE ROLE OF FOREIGN CAPITAL MOVEMENTS IN THE ECONOMIC DEVELOPMENT OF BRAZIL AND MEXICO, 1947-1960 A Dissertation Submitted to the Graduate Faculty of the Louisiana State University and Agricultural and Mechanical College in partial fulfillment of the requirements for the degree of Doctor of Philosophy in The Department of Economics by Darrell Richard Lewis B.A., Luther College, 1960 August, 1963 ACKNOWLEDGMENTS An especial acknowledgment is made to the writer's major professor, Dr. Robert A. Flammang, Assistant Professor of Economics, for the pertinent comments and suggestions made during the preparation of this study. Appreciation is also expressed to Dr. Bernard F. Sliger, Professor of Economics and Head of the Economics Department; to Dr. Thomas R. Beard, Assistant Professor of Economics; to Dr. Herbert G. Hicks, Associate Professor of Management and Marketing; and to Dr. Stanley W. Preston, Professor of Finance, for their assist­ ance in the preparation of this study. To his wife, Marilyn, the writer extends his sincere appreciation for her efforts and patience in the course of this study. TABLE OF CONTENTS PAGE ACKNOWLEDGMENTS................................. ii LIST OF TABLES ................................. vii LIST OF FIGURES........................................ ix ABSTRACT ............................................... X CHAPTER I. INTRODUCTION .................................. 1 Rationale for the Study Rationale for the Choice of Data The Order of Presentation II. SOME ANALYTICAL ASPECTS OF FOREIGN CAPITAL UTILIZATION.................................. 11 The Ability to Effectively Utilize Foreign Capital Time and programming as limiting factors The role of complementary factors Financial order as the limiting factor Prudent monetary policy Mobilization of domestic savings Cognizance and programming of debt service The balanced growth approach The pragmatic approach In summary The Pattern of Foreign Capital Inflows Public capital from "official" sources Private capital from private sources Private portfolio investment Direct investment Incentives for placement of direct foreign investment CHAPTER PAGE Adequacy of demand Availability of social overhead Ease of servicing capital Foreign trade bias The "investment climate" Public loan capital from private and other sundry sources Export credits and medium-term loans Licensing and technical assistance agreements The Long-Run Income and Developmental Aspects of Capital Inflows The "agglomeration effects" Limitations of underdeveloped economies to modern income analysis The retention of generated income The distribution of generated income The channeling of generated income The per-capita increase of generated income In summary III. MAGNITUDE, EVOLUTION, SIGNIFICANCE AND ECONOMIC CLIMATE OF THE FOREIGN CAPITAL. .................... 77 Magnitude of the Foreign Capital Evolution of the Foreign Capital Significance of the Foreign Capital Foreign capital as a proportion of domestic capital formation Foreign capital as a proportion of foreign exchange Economic Climate of the Foreign Capital Brazil Mexico Concluding observations IV. FORMS OF INTERNATIONAL CAPITAL FLOWS ........ 102 Definitional Considerations Gross Movements and Origin of Private Capital Inflows to Brazil and Mexico iv CHAPTER PAGE Gross Movements and Origin of Public Capital Inflows to Brazil and Mexico Public loan capital from governmental sources The Export-Import Bank Public Law 480 Other United States agencies Public loan capital from international agencies The International Bank for Reconstruction and Development The International Finance Corporation Public capital from "official" grants Public loan capital from private and other sundry sources Concluding Observations V. FIELDS AND IMPLEMENTATION OF INTERNATIONAL CAPITAL FLOWS................................ 152 The Pattern of Private Investment in Brazil and Mexico Manufacturing Public Utilities Commerce and trade Extractive industries and agriculture Banking and financial institutions Joint international business ventures Concluding observations Public and Quasi-Public Borrowing Transportation Electric power Agriculture Other Concluding observations VI. THE NATURE AND PROBLEMS OF FOREIGN CAPITAL SERVICE.............................. 209 Relationship Between Service Payments and Domestic Income and Savings Relationship to income v CHAPTER PAGE Relationship to savings Relationship Between Service Payments and Balance of Payments Growth of external earnings The pattern of trade and multilateral adjustment The pattern of capital flows The pattern of private and public remittances Service payments on private account Service payments on public account Concluding Observations VII. SUMMARY AND CONCLUSIONS.......................... 264 Private Portfolio Replaced by Public Portfolio The Conflict of Policy and Practice The Role of Multilateral Investment Channeling Necessity of Prior and Simultaneous Expansion Necessity for Governmental Action Positive Servicing Policy BIBLIOGRAPHY . ......................................... 292 COMPUTATIONAL APPENDIX ......................... 315 VITA ...................... 327 vi LIST OF TABLES TABLE PAGE I. Total Amount of Foreign Capital in Brazil and Mexico: 1947, 1952, 1960 .......... '................. 78 II. Foreign Capital as a Proportion of Gross Domestic Fixed Capital Formation. ................ 83 III. Foreign Capital as a Proportion of Foreign Exchange Resources ........ 86 IV. Movements of Foreign Long-Term Capital, 1947-1960 ......................... 316 V. Computation of Aggregate Amounts of Long-Term Foreign Capital in Brazil and Mexico.................. 319 VI. National Income and Gross Domestic Capital Formation in Mexico and Brazil .................. 325 VII. Combinations of Types and Forms of Capital Flows .......... 104 VIII. Yearly Averages and Ratios of Public and Private Capital Imports................. 107 IX. Export^Import Operations in Mexico and Brazil: Cumulative 1934-June, 1960. 124 X. Loan Operations Under the International Cooperation Administration of the United States, 1947-1960 ................. 128 XI. International Agency Loans to Brazil and Mexico During the Period 1947-1960 .... 132 vii TABLE PAGE XII. Yearly Averages and Ratios of Public Loans and Grants..................... 135 XIII. Estimated Percentages of Private Foreign Direct Investment by Industries in Brazil and Mexico.............155 XIV. United States Direct Investments and Earnings Ratios. ........... 190 XV. Estimated Amounts and Distribution of Authorized Exim Bank and World Bank Gross Public Loans in the Period Between 1947-1960 .... ........ 192 XVI. Proportion of Gross Domestic Savings Absorbed by Service Payments ....... 218 XVII. Rates of Gross Capital Formation Financed by National Resources .......... 220 XVIII. Brazilian and Mexican Patterns of Trade. 235 viii LIST OF FIGURES FIGURE PAGE 1. Brazil, Foreign Capital Service (Semi-Logarithmic) .............. 260 2. Mexico, Foreign Capital Service (Semi-Logarithmic) .............. 261 3. Brazil, Foreign Capital Service (Cross Section). ......... ........ 262 4. Mexico, Foreign Capital Service (Cross Section). ..... ........... .... 263 ABSTRACT The purpose of this study is to examine the roles of foreign long-term capital in the post-war economic develop­ ment of Brazil and Mexico. An attempt is made to identify and contrast its evolution, importance and amount, .forms and fields of implementation, and balance of payments effects between the two countries, and to compare the complementary measures taken by the two governments concerned. Chapters I-II provide an analytical discussion of some of the approaches and problems involved in the effective utilization of foreign capital. The factors governing the different forms of investment are different and so also are the criteria applied in their use. The developmental effect of foreign capital is also different depending upon the sec­ tors of the economy into which it flows. Accordingly, Chapters III-V seek to throw light on the factors governing the pattern of foreign capital in the two countries. Chapter VI examines the long and short-run problems of foreign capi­ tal servicing in terms of internal and external economic implications. Chapter VII concludes and summarizes the main x findings of this
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