Assessing the Role of Financial Mechanisms in Advancing Global Targets in Low and Middle-Income Regions

Abstract

This paper analyses the contribution of various financial instruments to promoting global development and sustainability goals in low- and middle-income areas (LMIRs), including both public and private as well as hybrid instruments. It aims at determining the effectiveness of such financial mechanisms in accelerating development towards the targets established in the Sustainable Development Goals (SDGs), especially health and sanitation, climate action, and economic inclusion. The research employs a mixed methods design, which is a quantitative econometric analysis and qualitative policy analysis. The data is based on global financial sources, SDG monitoring tools, and domestic agencies, including different financial flows, i.e., developmental assistance, climate financing, and financial inclusion indicators. The models used to derive the relationship between financial mechanisms and global target outcomes are advanced panel regression models, i.e., fixed-effects and random-effects, where institutional quality and socio-economic factors are the moderating variables. The findings demonstrate that there are major positive impacts of public development finance, climate finance, and health financing on SDGs progression. In particular, climate finance has the greatest impact on climate action (β = 0.52, p < 0.01), and health financing has the greatest impact on health outcomes (β = 0.51, p < 0.01). Economic inclusion is related to financial inclusion (β = 0.24, p < 0.05). The effectiveness of the financial mechanisms is boosted by institutional quality and governance effectiveness. The paper concludes by stating that the financial mechanisms, although necessary, are better when there is good governance and good socio-economic conditions. The next research should be directed to improving financial inclusivity and consider a particular financial instrument to achieve the SDG.