This paper shifts the debate on measuring the impacts of DFIs that support the private sector. Traditional impact assessments focus on micro-level impacts – but this paper argues that DFIs can play an important role in tackling global challenges. This requires an expansion of the focus of DFIs from addressing capital market failures to addressing market and coordination failures associated with technology adoption and the environment (in some cases DFIs already do this).
The paper develops a general methodology for estimating the aggregate impact of DFIs on investment (especially during financial crises and in post-conflict periods) and the ability of DFIs to improve energy efficiency. Using regression analyses, based on available data from EIB, EBRD, IFC and CDC, we find that DFIs increased total investment and improved energy efficiency in recipient countries compared with the constructed counterfactual. A one percentage point increase in DFI as a percentage of gross domestic product (GDP) would lead to a 0.8 percentage point change in the investment to GDP ratio. Hence, for 26 countries, DFIs have kept investment to GDP ratios more than 1.5 percentage points higher than would otherwise have been the case. We also find that investment by DFIs has increased total, post-conflict investment. We argue that such macro evidence is more appropriate for estimating leverage effects than the static financial additionality or leverage measures presented by DFIs. Further work could examine in which situations DFIs have the greatest leverage impact, and what policy levers could be used to improve the impact of DFIs in tackling global challenges.
Willem te Velde, D. The role of development finance institutions in tackling global challenges. Overseas Development Institute, London, UK (2011) 34 pp.