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Aid and public sector borrowing in developing countries

Author

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  • Simon Feeny

    (RMIT University, Melbourne, Australia)

  • Mark McGillivray

    (World Institute for Development Economics Research, Helsinki, Finland)

Abstract

This paper analyses the relationship between public sector borrowing and foreign development aid. It is concerned specifically with the public sector borrowing requirement net of aid, questioning the assumption that aid and this type of borrowing are substitutes for one another. After looking at the public sector budget constraint and various conditions under which aid might lead to an increase in this borrowing, the paper surveys the empirical results of literature on aid and public sector fiscal behaviour. It finds that the results of a number of studies are consistent with aid leading to increases in this borrowing. Further investigation, in the form of econometric analysis of panel data, also points to this outcome. Copyright © 2003 John Wiley & Sons, Ltd.

Suggested Citation

  • Simon Feeny & Mark McGillivray, 2003. "Aid and public sector borrowing in developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(8), pages 989-998.
    • Handle: RePEc:wly:jintdv:v:15:y:2003:i:8:p:989-998
    DOI: 10.1002/jid.1028
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    References listed on IDEAS

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    1. Mark McGillivray & Akhter Ahmed, 1999. "Aid, adjustment and public sector fiscal behaviour in the Philippines," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 4(2), pages 381-391.
    2. White, Howard, 1994. "Foreign aid, taxes and public investment: A further comment," Journal of Development Economics, Elsevier, vol. 45(1), pages 155-163, October.
    3. Cashel-Cordo, Peter & Craig, Steven G., 1990. "The public sector impact of international resource transfers," Journal of Development Economics, Elsevier, vol. 32(1), pages 17-42, January.
    4. Swaroop, Vinaya & Jha, Shikha & Sunil Rajkumar, Andrew, 2000. "Fiscal effects of foreign aid in a federal system of governance: The case of India," Journal of Public Economics, Elsevier, vol. 77(3), pages 307-330, September.
    5. Khan, Haider Ali & Hoshino, Eiichi, 1992. "Impact of foreign aid on the fiscal behavior of LDC governments," World Development, Elsevier, vol. 20(10), pages 1481-1488, October.
    6. Zafar Iqbal, 1997. "Foreign Aid and the Public Sector: A Model of Fiscal Behaviour in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(2), pages 115-129.
    7. Franco-Rodriguez, Susana & Morrissey, Oliver & McGillivray, Mark, 1998. "Aid and the Public Sector in Pakistan: Evidence with Endogenous Aid," World Development, Elsevier, vol. 26(7), pages 1241-1250, July.
    8. Susana Franco‐Rodriguez, 2000. "Recent developments in fiscal response with an application to Costa Rica," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 429-441, April.
    9. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," The World Bank Economic Review, World Bank, vol. 12(1), pages 29-58, January.
    10. Pack, Howard & Pack, Janet Rothenberg, 1990. "Is Foreign Aid Fungible? The Case of Indonesia," Economic Journal, Royal Economic Society, vol. 100(399), pages 188-194, March.
    11. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-265, May.
    12. Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 355-369, November.
    13. World Bank, 2000. "World Development Indicators 2000," World Bank Publications - Books, The World Bank Group, number 13828, December.
    14. Mark McGillivray & Oliver Morrissey, 2001. "Fiscal Effects of Aid," WIDER Working Paper Series DP2001-61, World Institute for Development Economic Research (UNU-WIDER).
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    Cited by:

    1. 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.
    2. Þule AKKOYUNLU & Max STERN, 2018. "An empirical analysis of Diaspora bonds," Journal of Economics and Political Economy, KSP Journals, vol. 5(1), pages 57-80, March.
    3. Feeny, Simon & McGillivray, Mark, 2010. "Aid and public sector fiscal behaviour in failing states," Economic Modelling, Elsevier, vol. 27(5), pages 1006-1016, September.
    4. Gilles Nancy & Boriana Yontcheva, 2006. "Does NGO Aid Go to the Poor? Empirical Evidence from Europe," IMF Working Papers 2006/039, International Monetary Fund.
    5. Agapova, Anna & Vishwasrao, Sharmila, 2020. "Financial sector foreign aid and financial intermediation," International Review of Financial Analysis, Elsevier, vol. 72(C).
    6. Bhavan, T. & Xu, Changsheng & Zhong, Chunping, 2010. "Growth effect of aid and its volatility: An individual country study in South Asian economies," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 3(3), pages 1-9, October.
    7. Neira, Isabel & Lacalle-Calderón, Maricruz & Portela, Marta, 2016. "Official development assistance, social capital and growth in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    8. Mayr, Karin, 2010. "Optimal Deficit and Debt in the Presence of Foreign Aid," World Development, Elsevier, vol. 38(1), pages 19-27, January.

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