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Measuring the potential contribution of development finance institutions to economic transformation

Research reports

Written by Alberto Lemma

Hero image description: Asian Development Bank Image credit:Asian Development Bank Image license:CC BY-NC 2.0

Economic transformation is defined as the continuous process of moving labour and other resources from low- to high-productivity sectors (structural change) and raising within-sector productivity growth. Evidence suggests the economic transformation of developing countries drives job creation and improves livelihoods by increasing per capita incomes.

With the UK Department for International Development (DFID) channelling increasing amounts of UK aid through development finance institutions (DFIs) as part of the department’s core goal of reducing poverty, it is important to evaluate the extent to which the investments made by DFIs are contributing to economic transformation.

This report provides an overview of the economic transformation potential of DFIs (focusing on DFID’s strategic priority DFIs – the CDC Group UK and the International Finance Corporation) based on publicly available portfolio data. It finds some exposure and capacity to channel investments towards economic transformation sectors. Finally, the report proposes 13 indicators that DFIs could use to assess the transformational potential of their investments. Such indicators can be used both for investment decision-making and, post-investment, for impact monitoring and evaluation.

Alberto Lemma