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Are debt repayment incentives undermined by foreign aid?

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  • Bjørnskov, Christian
  • Schröder, Philipp J.H.

Abstract

This paper investigates the effects of inflows of foreign aid on the debt repayment behavior of developing countries. The paper first delineates the overall incentives to committing to timely debt repayment in a war of attrition-type model. A set of panel estimates including 93 developing countries shows that foreign aid is strongly negatively associated with repayment incentives. The findings pertain to both total debt service and service on publically guaranteed debt. A set of conditional estimates suggest that the main findings generalize to the majority of developing countries.

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  • Bjørnskov, Christian & Schröder, Philipp J.H., 2013. "Are debt repayment incentives undermined by foreign aid?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1073-1091.
    • Handle: RePEc:eee:jcecon:v:41:y:2013:i:4:p:1073-1091
    DOI: 10.1016/j.jce.2013.04.004
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    3. Fløgstad, Cathrin N. & Nordtveit, Ingvild, 2014. "Lending to developing countries: How do official creditors respond to sovereign defaults?," Working Papers in Economics 01/14, University of Bergen, Department of Economics.

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    More about this item

    Keywords

    Foreign aid; External debt; Debt service; Political economy;
    All these keywords.

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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