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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.

Suggested Citation

  • Mwanza Nkusu & Selin Sayek, 2004. "Local Financial Development and the Aid-Growth Relationship," IMF Working Papers 04/238, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/238
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    References listed on IDEAS

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    Cited by:

    1. James B. Ang, 2009. "Financial Liberalization And The Aid Growth Relationship In India," Development Research Unit Working Paper Series 10-09, Monash University, Department of Economics.
    2. John Serieux, 2008. "Financial Liberalization and Domestic Resource Mobilization in Africa: an Assessment," Working Papers 45, International Policy Centre for Inclusive Growth.
    3. Hovhannes Toroyan & George C. Anayiotos, 2009. "Institutional Factors and Financial Sector Development; Evidence from Sub-Saharan Africa," IMF Working Papers 09/258, International Monetary Fund.

    More about this item

    Keywords

    Economic growth; Development assistance; Poverty; Foreign aid; financial development; financial market; aid flows; financial markets; aid effectiveness; financial market development; Welfare and Poverty: General; Economic Growth and Aggregate Productivity: General; Economywide Country Studies: General;

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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