Access to capital, foreign direct investment (FDI) and debt affect development by determining whether households, businesses and governments can finance investment. Their effects are not automatically positive: outcomes depend on access, borrowing terms, regulation and how resources are distributed.
This belongs to the Development and Sustainability thematic study at SL and HL. Development includes growth, poverty, equality, health, education and environmental sustainability.
| Economic factor | How it can promote development | How it can restrict development |
|---|---|---|
| Access to capital | Credit allows households and firms to invest in education, technology and businesses. In Kenya, 79% of adults had a financial or mobile-money account in 2021 to 2022. | High interest rates, lack of collateral and unequal banking access can exclude poorer or rural groups. Benefits may therefore remain concentrated, increasing inequality. |
| Foreign direct investment | FDI can provide capital, employment, technology and access to global markets. In Vietnam, FDI averaged about 5% of gross domestic product over two decades; export-related employment reached 28.6 million in 2020. | Profits may be repatriated, employment may remain low-skilled, and governments may weaken labour or environmental protections to attract investors. Weak links with domestic firms have also created a dual economy in Vietnam. |
| Debt | Sustainable borrowing can finance infrastructure, healthcare and education. | Excessive debt servicing reduces funds for public services and limits policy choices. Zambia defaulted on its Eurobonds in November 2020 after external public debt rose sharply, showing how debt distress can weaken economic sovereignty. |
These factors reveal interdependence between states, lenders, multinational corporations and citizens. They also involve power, because creditors and investors can influence government priorities.
A common misconception is that more investment or borrowing always produces development. In an IB response, analyse both opportunities and limitations, use specific contemporary cases, and reach a judgment based on who benefits, who bears the costs and whether outcomes are sustainable.