the government, or by other actions that discourage investment in certain industrial sectors. Examples: In the electricity sector in Argentina, the government introduced controls on energy prices in 2002, reducing profitability and thus discouraging capital investment. This was compounded by high inflation, which caused declines in real revenue, while devaluation of the peso increased the cost of servicing high levels of debt in foreign currency. The result was severe undercapitalization, which led to inability to keep up with increasing demand, contributing to the 2004 Argentine energy crisis. In Pakistan, the textile industry has been undercapitalized for decades. Among other factors, this is due to protectionist actions by the developed countries that should be natural markets for the industry's output. These include subsidies of locally produced raw materials (e.g. cotton in the US), subsidies on local textile industries and high import tariffs on goods manufactured in Pakistan and other low-cost garment producers. Resource extraction in the Democratic Republic of Congo (e.g. mining) has been undercapitalized for many years due to endemic violence and looting, uncertain property rights and concerns about corruption. Although the potential is huge, the risks are also huge. Only the bravest investor would supply capital in this environment. Jeffry A. Frieden notes that during the period of European colonialism the colonial powers encouraged investment in production of raw materials while discouraging investment in industries that would use these materials as inputs in competition with the colonial power's home industries. During the same period, independent developing countries in Latin America and other areas pursued a policy of Import substitution industrialization which diverted capital from other enterprises where these countries had a comparative advantage. Although opposite in intent, both policies had the effect of creating overcapitalization in some sectors and undercapitalization in others. A contrary view comes from the economist Robert Solow, who was awarded the Nobel prize for his work on the ways in which labor, capital and technical progress contribute to overall economic growth. Among other insights, Solow showed that undercapitalization appears to have less impact on economic growth than would be predicted by earlier economic theories. Footnotes References Van Horn, Mike (2006) Build a Culture of Profitability Oakland: The Encounter Collaborative FDIC Federal Deposit Insurance Act Robert Solow: Capital Theory and the Rate of Return. 1963. See also Banking Bankruptcy Capital Capital market Finance Investment Mortgages Piercing the corporate veil Business terms Financial capital Foreign direct investment