Foreign capital inflows lead to sector imbalances, inflation, and reduced competitiveness.
Foreign capital flows in a developing economy can change how different sectors grow. As the economy accumulates capital, sectors with higher demand and more capital grow faster than others. This leads to imbalances in production and prices, affecting inflation and competitiveness. The findings suggest that as the economy grows, factors of production move towards sectors with higher demand, causing those sectors to grow faster. This can lead to inflation and make domestic investment less attractive.