Development bank, national or regional financial institution designed to provide medium- and long-term capital for productive investment, often accompanied by technical assistance, in poor countries.

The number of development banks has increased rapidly since the 1950s; they have been encouraged by the International Bank for Reconstruction and Development and its affiliates. The large regional development banks include the Inter-American Development Bank, established in 1959; the Asian Development Bank, which began operations in 1966; and the African Development Bank, established in 1964. They may make loans for specific national or regional projects to private or public bodies or may operate in conjunction with other financial institutions. One of the main activities of development banks has been the recognition and promotion of private investment opportunities. Although the efforts of the majority of development banks are directed toward the industrial sector, some are also concerned with agriculture.

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Development banks may be publicly or privately owned and operated, although governments frequently make substantial contributions to the capital of private banks. The form (share equity or loans) and cost of financing offered by development banks depend on their cost of obtaining capital and their need to show a profit and pay dividends.

Development practices have provoked some controversy. Because development banks tend to be government-run and are not accountable to the taxpayers who fund them, there are few checks and balances preventing the banks from making bad investments. 

Subsidy, a direct or indirect payment, economic concession, or privilege granted by a government to private firms, households, or other governmental units in order to promote a public objective.

 

Identification of a subsidy is often complicated because of the variety of subsidy instruments, the multiplicity of the objectives they are designed to serve, and the complexity of their effects.

The term also includes grants of money or other aid made by a central government to a local one to promote objectives in which the central government has an interest (e.g., grants-in-aid). More broadly defined, subsidies include welfare payments designed to ameliorate inequalities in the distribution of income and also other governmental programs designed to mitigate the effects of market forces.

Subsidies have a long history in all nations. They were extensively employed by governments during the mercantilist period preceding the Industrial Revolution, when it was thought that the accumulation of gold through a favourable balance of trade required the protection of domestic manufacturers. Such protectionist doctrines have often been viewed with skepticism. Nevertheless, protectionism continues as a part of national economic policy in most nations of the world. In nations in which a strong central government influences the price and production policies of domestic industries, the subsidy device is replaced by comprehensive economic planning.

Subsidies are implemented through a variety of financial techniques, such as (1) direct payments in cash or kind, (2) governmental provision of goods or services at prices below the normal market price, (3) governmental purchase of goods or services at prices in excess of the market price, and (4) tax concessions and similar inducements. In addition, there are numerous governmental policies that have subsidy effects, such as regulatory statutes that soften the full force of competition, policies that require the purchase of goods from favoured producers or nations, and protective wage and price legislation.

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Valpolicella Group

joost.holleman@valpolicella-group.com

Citroenvlinderstraat 20

2805 KJ Gouda

The Netherlands

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