Financial Liberalization And The Aid Growth Relationship In India
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.
|Date of creation:||01 Jun 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, Monash University, Victoria 3800, Australia|
Web page: http://www.buseco.monash.edu.au/eco/
More information through EDIRC
|Order Information:|| Web: http://www.buseco.monash.edu.au/eco/research/papers/ Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ginarte, Juan C. & Park, Walter G., 1997. "Determinants of patent rights: A cross-national study," Research Policy, Elsevier, vol. 26(3), pages 283-301, October.
- Gong, Liutang & Zou, Heng-fu, 2001.
"Foreign Aid Reduces Labor Supply and Capital Accumulation,"
Review of Development Economics,
Wiley Blackwell, vol. 5(1), pages 105-18, February.
- Liutang Gong & Heng-fu Zou, 2001. "Foreign Aid Reduces Labor Supply and Capital Accumulation," CEMA Working Papers 56, China Economics and Management Academy, Central University of Finance and Economics.
- Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2000. "A New Database on the Structure and Development of the Financial Sector," World Bank Economic Review, World Bank Group, vol. 14(3), pages 597-605, September.
- C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 17-41.
- Dalgaard, Carl-Johan & Hansen, Henrik & Tarp, Finn, 2002.
"On the Empirics of Foreign Aid and Growth,"
63696, University Library of Munich, Germany.
- Clive Bell & Peter L. Rousseau, 2000.
"Post-Independence India: A Case of Finance-Led Industrialization?,"
Vanderbilt University Department of Economics Working Papers
0019, Vanderbilt University Department of Economics.
- Bell, Clive & Rousseau, Peter L., 2001. "Post-independence India: a case of finance-led industrialization?," Journal of Development Economics, Elsevier, vol. 65(1), pages 153-175, June.
- King, Robert G. & Levine, Ross, 1993.
"Finance and growth : Schumpeter might be right,"
Policy Research Working Paper Series
1083, The World Bank.
- Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 99-125.
- James B. Ang, 2007.
"Are Financial Sector Policies Effective in Deeping the Malaysian Financial System,"
DEGIT Conference Papers
c012_031, DEGIT, Dynamics, Economic Growth, and International Trade.
- James B. Ang, 2008. "Are Financial Sector Policies Effective In Deepening The Malaysian Financial System?," Contemporary Economic Policy, Western Economic Association International, vol. 26(4), pages 623-635, October.
- James B. Ang, 2007. "Are Financial Sector Policies Effective In Deepening The Malaysian Financial System?," Monash Economics Working Papers 02-07, Monash University, Department of Economics.
- Kent P. Kimbrough, 1986. "Foreign Aid and Optimal Fiscal Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 19(1), pages 35-61, February.
- Thorsten Beck & Ross Levine, 2002.
"Stock Markets, Banks, and Growth: Panel Evidence,"
NBER Working Papers
9082, National Bureau of Economic Research, Inc.
- Ross Levine, 2004.
"Finance and Growth: Theory and Evidence,"
NBER Working Papers
10766, National Bureau of Economic Research, Inc.
- Steve Radelet, 2006. "A Primer on Foreign Aid," Working Papers 92, Center for Global Development.
- Caporale, Guglielmo Maria & Williams, Geoffrey, 2001. "Monetary Policy and Financial Liberalization: The Case of United Kingdom Consumption," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 177-197, April.
- Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005.
"Does financial liberalization spur growth?,"
Journal of Financial Economics,
Elsevier, vol. 77(1), pages 3-55, July.
- Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2001. "Does Financial Liberalization Spur Growth?," NBER Working Papers 8245, National Bureau of Economic Research, Inc.
- Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Working Paper Research 53, National Bank of Belgium.
- Eskander Alvi & Debasri Mukherjee & Elias Kedir Shukralla, 2008. "Aid, Policies, and Growth in Developing Countries: A New Look at the Empirics," Southern Economic Journal, Southern Economic Association, vol. 74(3), pages 693-706, January.
- Rebelo, Sergio, 1991.
"Long-Run Policy Analysis and Long-Run Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 99(3), pages 500-521, June.
- Hansen, Henrik & Tarp, Finn, 2000.
"Aid and Growth Regressions,"
62288, University Library of Munich, Germany.
- Panicos Demetriades & Kul B. Luintel, 1995.
"The Direct Costs of Financial Repression: Evidence from India,"
Keele Department of Economics Discussion Papers (1995-2001)
95/12, Department of Economics, Keele University.
- Panicos O. Demetriades & Kul B. Luintel, 1997. "The Direct Costs Of Financial Repression: Evidence From India," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 311-320, May.
- James B. Ang & Warwick J. McKibbin, 2005.
"Financial Liberalization, Financial Sector Development And Growth: Evidence From Malaysia,"
CAMA Working Papers
2005-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Ang, James B. & McKibbin, Warwick J., 2007. "Financial liberalization, financial sector development and growth: Evidence from Malaysia," Journal of Development Economics, Elsevier, vol. 84(1), pages 215-233, September.
- Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004.
"Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth,"
44, Center for Global Development.
- Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance 0407010, EconWPA.
- James H. Stock & Mark W. Watson, 1991.
"A simple estimator of cointegrating vectors in higher order integrated systems,"
Working Paper Series, Macroeconomic Issues
91-3, Federal Reserve Bank of Chicago.
- Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
- R. Lensink & H. White, 2001.
"Are There Negative Returns to Aid?,"
Journal of Development Studies,
Taylor & Francis Journals, vol. 37(6), pages 42-65.
- Renu Kohli & Kenneth Kletzer, 2001. "Financial Repression and Exchange Rate Management in Developing Countries; Theory and Empirical Evidence for India," IMF Working Papers 01/103, International Monetary Fund.
- Rousseau, Peter L. & Wachtel, Paul, 2002. "Inflation thresholds and the finance-growth nexus," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 777-793, November.
- Sayek, Selin & Nkusu, Mwanza, 2006.
"Local Financial Development and the Aid-Growth Relationship,"
Proceedings of the German Development Economics Conference, Berlin 2006
23, Verein für Socialpolitik, Research Committee Development Economics.
- Mwanza Nkusu & Selin Sayek, 2004. "Local Financial Development and the Aid-Growth Relationship," IMF Working Papers 04/238, International Monetary Fund.
- Papanek, Gustav F, 1973. "Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 120-30, Jan.-Feb..
- Burnside, Craig & Dollar, David, 1997.
"Aid, policies, and growth,"
Policy Research Working Paper Series
1777, The World Bank.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Collier, Paul & Dollar, David, 2001.
"Can the World Cut Poverty in Half? How Policy Reform and Effective Aid Can Meet International Development Goals,"
Elsevier, vol. 29(11), pages 1787-1802, November.
- Collier, Paul & Dollar, David, 2000. "Can the world cut poverty in half ? how policy reform and effective aid can meet international development goals," Policy Research Working Paper Series 2403, The World Bank.
- William Easterly & Ross Levine & David Roodman, 2004. "Aid, Policies, and Growth: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 774-780, June.
- Inder, Brett, 1993. "Estimating long-run relationships in economics : A comparison of different approaches," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 53-68.
- Stephen Knack, 2001. "Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests," Southern Economic Journal, Southern Economic Association, vol. 68(2), pages 310-329, October.
When requesting a correction, please mention this item's handle: RePEc:mos:druwps:2009-10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simon Angus)
If references are entirely missing, you can add them using this form.