On 5 October 2015 Ms Catalina Martínez Gutiérrez defended her PhD thesis in Development Economics at the Graduate Institute. The committee was presided by Professor Martina Viarengo and included Professor Jean-Louis Arcand, thesis director, as well as Professor Annette Krauss from the University of Zurich. Ms Martinez Gutierrez tells us more about her research and findings.

The need for investment in development projects in low-income countries cannot be overstated. Is it possible to bring private capital to fill this financing gap? What trade-offs do private companies face when pursuing inclusive business models that directly address development needs in commercially viable ways? What are the best macroeconomic conditions that allow inclusive businesses to flourish? In the first and second chapters of my thesis, “Essays on the Role of Finance and the Private Sector in Development”, I propose answers to these questions considering the rich empirical evidence provided by microfinance. I find that there is an important role for regulation to manage the heterogeneous trade-offs that inclusive businesses face along their commercialisation path, and dynamically influence key macroeconomic drivers of market penetration.

Even if microfinance and other impact investments constitute an important amount of financial resources, they are still a negligible portion of the overall global financial markets. So far, private capital has largely failed to address development needs, and public capital plays a predominant role. In the absence of suitable market signals, how should these public resources be allocated? In the third chapter of my thesis, I critically assess the joint World Bank and IMF Debt Sustainability Framework, which influences the allocation of billions of dollars of development finance across low-income countries. I find low empirical support for the current framework, suggesting that it may be leaving some countries in poverty traps, and calling for urgent action to find alternative solutions.

Illustration by BoneDaddy.P7, September 2008, CC BY-SA.