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Is There Moral Hazard in the Heavily Indebted Poor Countries (HIPC) Initiative Debt Relief Process?

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  • Joshua C. Hall, Serkan Karadas and Minh Tam T. Schlosky

    (West Virginia University, Sewanee: The University of the South, Sewanee: The University of the South)

Abstract

The Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) were created by the IMF and World Bank to help low-income countries reduce their debt burden and to facilitate reaching the Millennium Development Goals. After entering the decision point of the HIPC Initiative stage, countries receive interim aid while following a strategic path to improve their macroeconomic stability via structural reforms. Many countries reached the completion point of the HIPC Initiative stage within a few years, receiving a substantial amount of debt relief. Other countries remained in the interim period for almost a decade. We explore the relationship between the level of corruption in HIPC countries and the length of time between the decision and the completion point. We use survival-time models to estimate the effect of various characteristics of the countries on the probability that each country will exit the interim period. The results show that countries with lower corruption and better rule of law complete the HIPC process faster.

Suggested Citation

  • Joshua C. Hall, Serkan Karadas and Minh Tam T. Schlosky, 2018. "Is There Moral Hazard in the Heavily Indebted Poor Countries (HIPC) Initiative Debt Relief Process?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 43(3), pages 1-24, September.
    • Handle: RePEc:jed:journl:v:43:y:2018:i:3:p:1-24
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    Cited by:

    1. Minh Tam Schlosky & Andrew Young, 2017. "Can foreign aid motivate institutional reform? An evaluation of the HIPC Initiative," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing Limited, vol. 6(2), pages 242-258, August.

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    More about this item

    Keywords

    Debt Relief; HIPC; Moral Hazard; Survival Time Model; Foreign Aid;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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