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The macroeconomic effects of development finance institutions in sub-Saharan Africa

Research report

Written by Dirk Willem te Velde, Isabella Massa, Maximiliano Mendez-Parra

Hero image description: Rossing Uranium Mine lies about 70km inland from Swakopmund close to the small town of Arandis. Image credit:John Hogg/World Bank Image license:CC BY-NC-ND 2.0

Development finance institutions (DFIs) contribute to global development by investing in the private sector. The resources they provide aim to be additional to what the market can offer and to catalyse further investment. Typical projects supported by DFIs generate jobs, provide access to finance, promote the use of renewable energy and, in aggregate, contribute to economic growth and hence reduce poverty.

However, despite their increased importance in global debates, we lack sufficient information to assess how well DFIs are meeting ever-increasing expectations. DFIs have begun to assess their development impact by looking at the project level; only very recently have they started to look beyond this and develop guidelines to assess indirect effects.

This report addresses the gap in three ways. First, it provides the most complete literature review to date on the macroeconomic effects of DFIs. This provides a range of interesting findings, pointing to a number of positive
studies but also highlighting shortcomings. Second, it examines the data graphically and suggests DFIs can play a key role in kick-starting investment and renewable energy use in developing countries, and finally, it collects country-specific DFI investment data in sub-Saharan Africa and undertakes the most comprehensive econometric analysis of DFIs in the region.

Isabella Massa, Maximiliano Mendez-Parra and Dirk Willem te Velde