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Does multilateral lending aid capital accumulation? Role of intellectual capital and institutional quality

Nemlioglu, Ilayda and Mallick, Sushanta 2020. Does multilateral lending aid capital accumulation? Role of intellectual capital and institutional quality. Journal of International Money and Finance 108 , 102155. 10.1016/j.jimonfin.2020.102155

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Abstract

This paper investigates whether multilateral lending is more effective in accumulating capital in countries with a higher level of innovation. Specifically, we examine the role of the World Bank or IMF financing on the capital stock using data from 175 countries over the period 1970-2017, while considering different types of long-term external flows namely FDI and debt. We find that FDI as a long-term inflow influences domestic capital stock positively, but non-G7 countries, even with a higher level of innovation are unable to benefit from greater FDI flows in boosting their capital stock, which we explain considering institutional quality differences across countries. With regard to foreign debt flows, the multilateral lending only benefits the borrowing country if it has a greater level of intellectual capital or if those funds are used in financing innovative activities. As opposed to short-term IMF loans, World Bank lending tends to be directed more towards long-term development goals, thereby helping boost productive capital. Exploiting a policy intervention with TRIPs agreement, the paper uncovers that countries with better institutional quality and greater innovation generate a higher level of capital stock.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HG Finance
Publisher: Elsevier
ISSN: 0261-5606
Date of First Compliant Deposit: 17 February 2020
Date of Acceptance: 6 February 2020
Last Modified: 08 Sep 2020 13:08
URI: http://orca.cf.ac.uk/id/eprint/129681

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