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Competitive conditions in development finance

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  • McHugh, Christopher A.

Abstract

This paper evaluates the competitive conditions in development finance and the implications for successfully mobilising private sector finance in order to achieve the United Nations Sustainable Development Goals (SDGs). Using a market definition of cross-border development finance, the analysis uses financial data for 61 development banks from FitchConnect from 2010–2019 and applies the Panzar–Rosse test, supplemented with additional tests for market equilibrium, to gauge the competitive conditions. The key finding is that the international development finance market is in long-term equilibrium and is structured as a competitive oligopoly. The implication is that successful mobilisation of private sector finance will require more innovative structural and funding solutions. Crowding-in of private sector banks on existing terms and in large scale is likely to fall short due to lack of profitability and risk appetite. This has direct implications for the ability of the global financial system to deliver the SDGs.

Suggested Citation

  • McHugh, Christopher A., 2023. "Competitive conditions in development finance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:intfin:v:83:y:2023:i:c:s1042443123000094
    DOI: 10.1016/j.intfin.2023.101741
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    Cited by:

    1. Arth Mishra, 2023. "The infrastructure catalyst: analysing the impact of development finance institutions on private infrastructure financing in developing countries," CSAE Working Paper Series 2023-13, Centre for the Study of African Economies, University of Oxford.

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    More about this item

    Keywords

    Competitive conditions; Development banks; Sustainable development goals; Capital mobilisation; Panzar–Rosse;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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