This paper looks at the ?grants versus loans? controversy. It questions the claim sometimes made that development institutions should refrain from making loans and should instead distribute ODA as outright grants only. It discusses various reasons why developing countries do not have full access to international capital markets beyond the traditionally invoked problem of weak governance and institutions and beyond factors within their own responsibility. There are market failures that justify ODA, and there is a priori no overall superiority of grants as compared to loans. To the contrary, we believe that loans may provide a superior solution, provided that they focus on the key issue of maintaining debt sustainability. Finally, and beyond the loans-versus-grants controversy, the paper also proposes to revisit the traditional paradigm of ODA.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.