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Local Financial Development and the Aid-Growth Relationship


  • Sayek, Selin
  • Nkusu, Mwanza


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

  • 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.
  • Handle: RePEc:zbw:gdec06:4746

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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


    Foreign aid; economic growth; poverty; financial development;

    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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