FINANCIAL LIBERALIZATION AND THE AID GROWTH RELATIONSHIP IN INDIA

James Ang

No 10-09, Development Research Unit Working Paper Series from Monash University, Department of Economics

Abstract: 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.

Keywords: aid; financial liberalization; India. (search for similar items in EconPapers)
JEL-codes: E44 O16 O53 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2009-06-01
New Economics Papers: this item is included in nep-cwa and nep-dev
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Related works:
Working Paper: Financial Liberalization and the Aid-Growth Relationship in India (2009)
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