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Local Financial Development and the Aid-Growth Relationship

  • Mwanza Nkusu
  • Selin Sayek

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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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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