Innovation – Development finance institutions and job creation

April 2012 to March 2013

This project examines the linkages between development finance institutions (DFIs) and job creation and productivity change.

Ensuring high and sustained economic growth rates in low income countries, combined with high levels of social development, is unlikely to be achieved without productivity changes based on widespread economic diversification and structural transformation.

Innovation and technological development involves a process of learning and building up technological and human capabilities. Finance is often needed to address capital market failures in these processes. This study aims to understand whether and how DFIs can create jobs whilst promoting productivity and long-term growth.

DFIs provide financial instruments and address (capital) market failures. They can promote both employment and productivity change, and sometimes support one at the expense of the other.

The employment effect is either through the direct creation of jobs in firms DFIs support, indirectly through outsourcing and backward linkages related to supplying these firms, and via induced job effects through more, cheaper and better quality provision of infrastructure.

DFIs can also promote productivity by, for example, stimulating technology-intensive sectors (e.g. promising ICT sectors), introducing new technologies and supporting innovation at the level of firm management.