The globalization of capital flows has many causes. Obviously, a major factor has been the breakdown of the bipolar world of communism against capitalism. A lot more people in the world, particularly in developing countries, now think that the road to higher living standards lies in individual initiative, private enterprise, free markets, and an open trading system. New structures are being created to encourage the movement of goods, people, and capital around the world, most notably the World Trade Organization. All of this is good news for the developing world.
Economic growth is more solid if based on fundamental market realities.
That is what globalization offers the developing world. However, rapid economic growth does not automatically translate into sustainable improvements in living standards and social conditions for the broad base of the public. Consequently, a new model is needed to guide the roles and relationship of public sector aid to development and foreign direct investment in the developing world. In the old model of development, which has been dominant since the 1960s, public sector capital was deemed essential to create the physical and social infrastructure which developing countries needed. Foreign aid was directed at providing, for example, ports, roads, and power grids, schools and health facilities, and improvements in government policy and capacity.