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Aid and public sector borrowing in developing countries

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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.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 15 (2003)
Issue (Month): 8 ()
Pages: 989-998

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Handle: RePEc:wly:jintdv:v:15:y:2003:i:8:p:989-998

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Web page: http://www3.interscience.wiley.com/journal/5102/home

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  1. Cashel-Cordo, P. & Craig, S.G., 1988. "The Public Sector Impact Of International Resource Transfers," Papers, Houston - Department of Economics 24, Houston - Department of Economics.
  2. 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 258-65, May.
  3. 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, Elsevier, vol. 77(3), pages 307-330, September.
  4. Susana Franco-Rodriguez, 2000. "Recent developments in fiscal response with an application to Costa Rica," Journal of International Development, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(3), pages 429-441.
  5. Susana Franco-Rodriguez, & Mark McGillivray, & Oliver Morrissey, . "Aid and the Public Sector in Pakistan: Evidence with Endogenous Aid," Discussion Papers 98/2, University of Nottingham, CREDIT.
  6. White, Howard, 1994. "Foreign aid, taxes and public investment: A further comment," Journal of Development Economics, Elsevier, Elsevier, vol. 45(1), pages 155-163, October.
  7. Pack, Howard & Pack, Janet Rothenberg, 1990. "Is Foreign Aid Fungible? The Case of Indonesia," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(399), pages 188-94, March.
  8. 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, Pakistan Institute of Development Economics, vol. 36(2), pages 115-129.
  9. Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, Elsevier, vol. 34(1-2), pages 355-369, November.
  10. Khan, Haider Ali & Hoshino, Eiichi, 1992. "Impact of foreign aid on the fiscal behavior of LDC governments," World Development, Elsevier, Elsevier, vol. 20(10), pages 1481-1488, October.
  11. Franco-Rodriguez, Susana & Morrissey, Oliver & McGillivray, Mark, 1998. "Aid and the Public Sector in Pakistan: Evidence with Endogenous Aid," World Development, Elsevier, Elsevier, vol. 26(7), pages 1241-1250, July.
  12. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," World Bank Economic Review, World Bank Group, World Bank Group, vol. 12(1), pages 29-58, January.
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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. Feeny, Simon & McGillivray, Mark, 2009. "Aid and Public Sector Fiscal Behaviour in Failing States," MPRA Paper 21801, University Library of Munich, Germany.
  3. Gilles Nancy & Boriana Yontcheva, 2006. "Does NGO Aid Go to the Poor? Empirical Evidence From Europe," IMF Working Papers 06/39, International Monetary Fund.
  4. Mayr, Karin, 2010. "Optimal Deficit and Debt in the Presence of Foreign Aid," World Development, Elsevier, Elsevier, vol. 38(1), pages 19-27, January.

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