Does IDA Engage in Defensive Lending?
AbstractMultilateral development banks are sometimes thought to engage in "defensive lending" -- the practice of extending new loans purely in order to ensure that existing loans are repaid. We empirically examine this hypothesis using data on lending extended by and repayments to the International Development Association (IDA), which is the largest multilateral provider of concessional development loans to low-income countries. We argue that key institutional features of IDA both (i) potentially create incentives for defensive lending and also (ii) enable particularly sharp tests of the defensive lending hypothesis. We find that there is a surprisingly robust partial correlation between disbursements on new IDA loans and repayments on existing loans. However, a closer look at the evidence suggests that defensive lending is unlikely to be a major explanation for this relationship.
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Bibliographic InfoArticle provided by Università di Perugia, Dipartimento Economia, Finanza e Statistica in its journal Review of Economics and Institutions.
Volume (Year): 3 (2012)
Issue (Month): 2 ()
defensive lending; international development association;
Other versions of this item:
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F35 - International Economics - - International Finance - - - Foreign Aid
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
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- Claudio Raddatz, 2011.
"Multilateral Debt Relief through the Eyes of Financial Markets,"
The Review of Economics and Statistics,
MIT Press, vol. 93(4), pages 1262-1288, November.
- Raddatz, Claudio, 2009. "Multilateral debt relief through the eyes of financial markets," Policy Research Working Paper Series 4872, The World Bank.
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