Impact of multilateral development finance institutions on economic growth

Abstract

This paper contributes to filling the existing gap in the literature on the macroeconomic impact of development finance institutions (DFIs). By using the Generalized Method of Moments (GMM) for panel data analyses, we study the relationship between the investments of a selected sample of multilateral DFIs and economic growth for a sample of 101 countries in the period 1986-2009. Our findings suggest that investment by multilateral DFIs plays a positive and significant role in fostering economic growth in recipient countries, and that their impact is stronger in lower-income countries than in higher-income countries. Indeed, a 10% increase in multilateral DFIs’ investment commitments may increase growth by 1.3% in lower-income countries, and by 0.9% in higher-income countries. Multilateral DFIs’ investments in the infrastructure, industry and agribusiness sectors play the biggest role in fostering economic growth: lower-income countries benefit mainly from investments directed to the agribusiness and infrastructure sectors, whereas higher-income countries take advantage mostly of investments in the infrastructure and industry sectors.

Citation

Massa, I. Impact of multilateral development finance institutions on economic growth. Overseas Development Institute, London, UK (2011) 26 pp.

Impact of multilateral development finance institutions on economic growth

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