Financial Liberalization and the Aid-Growth Relationship in India
AbstractThis paper examines the impact of foreign aid in 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 policies imposed on the Indian financial system. 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 greater openness in the financial system of the host country is a crucial prerequisite to realize the effectiveness of foreign aid. Our results are robust to a number of control variables and estimation techniques.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 14411.
Date of creation: 2009
Date of revision:
Aid; financial liberalization; India;
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Find related papers by JEL classification:
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-05 (All new papers)
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