Book Chapter
Introduction

Capital, largely originated from developed countries, has increased rapidly across the world in recent years, outgrowing other capital flows to developing countries. Academic and policy studies recognize the positive externalities that foreign direct investment (FDI) can generate for the host country. Alongside active policies for promoting and attracting FDI, the degree of openness to international trade is an important factor, particularly in outward‐oriented developing countries. The interface between private domestic and foreign investment is a key issue in studying FDI's externalities in the recipient economy, as FDI tends to crowd out private investment in a number of developing economies. Both FDI and domestic investment are essential for economic growth. But the challenge for developing countries is to devise an FDI strategy that can foster both economic growth and domestic investment by contributing to the development of new skills, technology, or products to the host country. Southern economic giants, remarkably China, India, Brazil, and increasingly South Africa (CIBS), are contributing to these developments. CIBS and other fast growing developing countries are important sources of investments. South—South capital flows are progressively critical for international development, but international trade remains the strongest and most direct channel through which southern leading economies impact on other countries—mostly their developing partners.