Achieving the 2030 Agenda: Can Development Finance Institutions Make the Impossible Possible? Empirical Analysis of the Relationship of Rule of Law and the Mobilization of Private Investments through Development Finance Institutions towards the 2030 Agend

Abstract: According to recent estimates, the implementation of the 2030 Agenda requires additional investments of USD 2.5 trillion USD per year. Development Finance Institutions (DFIs) are designed to be one of the key players in mobilizing the required investments from the private sector. However, too little investment is mobilized in countries where it is most needed. Drawing on previous findings on economic and institutional determinants of investments, this study aims to address potential reasons for the existing investment gaps by exploring the relationship between a country’s quality of rule of law and private investments mobilized by DFIs. Multiple linear regression with fixed effects is deployed to analyze compiled panel data based on the most recent information on mobilized private investments (MPIs), covering 45 countries from 2012-2017. The results indicate a strong positive relationship between improvement in the quality of rule law and MPIs in countries with generally weak rule of law. However, limited representativeness of the utilized data curtails the reliability of general inferences. Yet, the study delineates how and in which areas improved data availability could strengthen the explanatory power of the findings and significantly advance the debate on the role of DFIs in financing the 2030 Agenda.