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Financial Liberalization And The Aid Growth Relationship In India

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Author Info
James B. Ang

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Abstract

This paper examines the impact of foreign aid on the process of economic development in India by controlling for the degree of financial liberalization. A composite index is constructed using the method of principal component analysis to capture the joint influence of various financial sector policies. The results show that while foreign aid exerts a direct negative influence on output expansion, its indirect effect via financial liberalization is positive. Therefore, an important implication of the findings in this paper is that adequate liberalization in the financial system of the host country is a crucial requirement for effective foreign aid. Our results are robust to a number of control variables and estimation techniques.

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Paper provided by Monash University, Department of Economics in its series Development Research Unit Working Paper Series with number 10-09.

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Length: 23 pages
Date of creation: 01 Jun 2009
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Handle: RePEc:mos:druwps:2009-10

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Postal: Department of Economics, Monash University, Victoria 3800, Australia
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Related research
Keywords: aid; financial liberalization; India.;

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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    Other versions:
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