What are the types of foreign funds received by developing countries?

For the reason that poor countries are unable to survive on their own due to various political and economic issues, these countries receive foreign funds in different forms. These funds, to a great extent, help the slow economies to stabilize their economic conditions. The funds received are utilized in the areas of business and investment, development sector, and through trade, poverty reduction schemes, living standard improvement programs, etc. However, these funds are classified into 3 types:

  1. Foreign direct investment
  2. Foreign aid
  3. Foreign trade

Firstly, foreign direct investment encourages foreign investment from multi-national and transnational corporations. These corporations invest in poor countries in order to raise income and opportunities for jobs.

The second primary type of foreign funds is foreign aid which mainly takes care of the development issues in poor countries. These tools are designed and funded by foreign governments to ensure the protection of human rights and especially to combat the problems driven by poverty.

Thirdly, foreign trade is another way through which developing nations receive foreign funds. This is more unintentional. The rising trend of international trade is indicating economic growth globally. Because of free-trade policies go hand-in-hand with economic freedom and political stability.

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