er component of FDI in developing countries than in developed countries. ( between 40-20% for less developed countries and 20 to -20% for developed countries). In the latter group, inward FDI is financed overwhelmingly from funds brought in from abroad, whereas in developing countries, FDI depends more on profits earned there. It is not clear whether that contrast is due to the difference in profits earned in two regions or to different rates of profitsrepatriation, dependent, among other things, on policies of host countries. If majority-owned foreign affiliates of non-bank United States parent firms are any guide, they earned much higher profit rates in developing countries: 8 per cent in the period 1983-1990, compared with 5 per cent in developed countries (United Sates Department of Commerce- profit rates are defined here as the share of net income to total income)".Nothing wrong with reinvested earnings when profits on those reinvested earnings are not going to leave the country. But, if those reinvested earnings, which were domestically produced, are seen legally as foreign investment, what happens is that domestic capital will flow abroad towards the home country of the investor. For less developed societies it will mean that domestic capital from poor countries will flow towards rich countries.In normal business conditions, with 10% depreciation, 10% profits and 50% of reinvested earnings, in 10 years the host country will be treating as foreign capital an amount which is 50% national capital. The following data could be illustrative:UNITED STATES.- Investment and income on investment abroad (US$ million) Income on U.S. U.S. direct of which net direct assets abroad investment reinv. invest. abroad earnings abroad1960 3,621 -2,940 -1,226 -1,6741965 5,506 -5,011 -1,543 ...
