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Local Financial Development and the Aid-Growth Relationship

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  • Mwanza Nkusu
  • Selin Sayek

Abstract

With official development assistance (ODA) set to rise as countries strive to meet the Millennium Development Goals (MDGs), aid effectiveness remains an important area of development policy. An increasing number of studies support the notion that ODA can contribute to growth in a nonlinear relationship. In this paper, we investigate a new hypothesis regarding this relationship: that deeper financial markets in aid-recipient countries facilitate the management of aid flows, thereby enhancing aid effectiveness. An empirical analysis, using a panel data set, finds robust support for the hypothesis.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/238.

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Length: 34
Date of creation: 01 Dec 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/238

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Keywords: Economic growth; Poverty; Financial assistance; Economic models; financial market; aid flows; financial markets; aid effectiveness; financial market development; foreign aid; development assistance; financial intermediation; liquid liabilities; nominal exchange rate; official development assistance; deposit money; financial sector; deposit money banks; financial institutions; financial structure; stock market; financial resources; domestic interest rates; financial intermediaries; financial system; development aid; aid allocation; international finance; money market; domestic money market; financial intermediary coalitions; foreign aid flows;

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References

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  1. Chang, Charles C. & Fernandez-Arias, Eduardo & Serven, Luis, 1999. "Measuring aid flows : a new approach," Policy Research Working Paper Series 2050, The World Bank.
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  3. Bulir, Ales & Hamann, A. Javier, 2001. "How Volatile and Unpredictable are Aid Flows, and What are the Policy Implications?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
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Cited by:
  1. James, Ang, 2009. "Financial Liberalization and the Aid-Growth Relationship in India," MPRA Paper 14411, University Library of Munich, Germany.
  2. Hovhannes Toroyan & George C. Anayiotos, 2009. "Institutional Factors and Financial Sector Development," IMF Working Papers 09/258, International Monetary Fund.
  3. John Serieux, 2008. "Financial Liberalization and Domestic Resource Mobilization in Africa: an Assessment," Working Papers 45, International Policy Centre for Inclusive Growth.

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