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A brief review of the role of development finance institutions in promoting jobs and productivity change

Research reports

Written by Isabella Massa

Research reports

This study examines the linkages between development finance institutions (DFIs), employment, and productivity change.

In particular, it shows that DFIs may enhance job opportunities and productivity change through a number of channels, which are: (i) additionality; (ii) demonstration effects; (iii) technical change; and (iv) forward and backward linkages.

The evidence emerging from the existing literature shows that DFIs have generated a significant amount of direct, indirect and induced jobs, as well as promoted innovation (and therefore productivity) in several different sectors ranging from health to education, environment, ICT, insurance, and infrastructure.

Although there is no consensus in the academic literature, recent DFI studies find that productivity increases may lead to additional employment creation, thus highlighting DFIs’ potential to promote high-productivity jobs. Moreover, it appears that DFIs are most likely to generate jobs and benefit the poor through interventions directed at improving access to finance, infrastructure, investment climate and training.

However, notwithstanding recent improvements, there are still gaps in the existing methodologies used to assess the economy-wide em ployment effects and the impact of DFIs’ investments on productivity change, which need to be addressed in the future.

Isabella Massa