Loans or Grants
AbstractWe argue in this paper that cancelling the debt of the poorest countries was a good thing, but that it should not imply that the debt instrument should be foregone. We claim that debt and debt cancellations are indeed two complementary instruments which, if properly managed, perform better than either loans or grants taken in isolation. The core of the intuition, which we develop in a simple two-period model, relates to the fact that the poorest countries are also the most volatile, so that contingent facilities, explicitly incorporating debt cancellation mechanisms, are a valuable instrument. Based on this idea, we present one of the lending scheme that could be applied to the poorest countries and calibrate the cost that would have to be borne by the creditors, were they to incorporate contingencies clause in their lending strategy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6024.
Date of creation: Jan 2007
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- Daniel Cohen & Pierre Jacquet & Helmut Reisen, 2007. "Loans or Grants?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(4), pages 764-782, December.
- Daniel Cohen & Pierre Jacquet & Helmut Reisen, 2010. "Loans or Grants?," Working Papers id:3218, eSocialSciences.
- Cohen, Daniel & Jacquet, Pierre & Reisen, Helmut, 2007. "Loans or Grants?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Daniel Cohen, 2000.
"The HIPC Initiative: True and False Promises,"
OECD Development Centre Working Papers
166, OECD Publishing.
- Dani Rodrik, 1995.
"Why is there Multilateral Lending?,"
NBER Working Papers
5160, National Bureau of Economic Research, Inc.
- Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004.
"Counting chickens when they hatch: The short-term effect of aid on growth,"
- Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.
- Reisen, Helmut & Soto, Marcelo, 2001. "Which Types of Capital Inflows Foster Developing-Country Growth?," International Finance, Wiley Blackwell, vol. 4(1), pages 1-14, Spring.
- Ramey, Garey & Ramey, Valerie A, 1995.
"Cross-Country Evidence on the Link between Volatility and Growth,"
American Economic Review,
American Economic Association, vol. 85(5), pages 1138-51, December.
- Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
- Hulya Ulku & Tito Cordella, 2004. "Grants Versus Loans," IMF Working Papers 04/161, International Monetary Fund.
- Cohen, Daniel & Fally, Thibault & Villemot, Sébastien, 2006.
"In Favour of a Fund to Stabilize Commodity Exporters' Income,"
CEPR Discussion Papers
5550, C.E.P.R. Discussion Papers.
- Daniel Cohen & Thibault Fally & Sébastien Villemot, 2007. "In Favour of a Fund to Stabilise Commodity Exporters' Income," OECD Development Centre Policy Insights 50, OECD Publishing.
- Jeremy Bulow & Kenneth Rogoff, 2005. "Grants versus Loans for Development Banks," American Economic Review, American Economic Association, vol. 95(2), pages 393-397, May.
- Nunnenkamp, Peter & Thiele, Rainer & Wilfer, Tom, 2005. "Grants versus loans: Much ado about (almost) nothing," Kiel Economic Policy Papers 4, Kiel Institute for the World Economy (IfW).
- Louise Young, 2002. "Determining the Discount Rate for Government Projects," Treasury Working Paper Series 02/21, New Zealand Treasury.
- Helmut Reisen & Julia von Maltzan, 1999.
"Boom and Bust and Sovereign Ratings,"
OECD Development Centre Working Papers
148, OECD Publishing.
- Iman Sugema & Anis Chowdhury, 2005. "Aid and Fiscal Behaviour in Indonesia: The case of a lazy government," Centre for International Economic Studies Working Papers 2005-06, University of Adelaide, Centre for International Economic Studies.
- Matthew Odedokun, 2004. "Multilateral and Bilateral Loans versus Grants: Issues and Evidence," The World Economy, Wiley Blackwell, vol. 27(2), pages 239-263, 02.
- Sanjeev Gupta & Benedict Clements & Emanuele Baldacci & Carlos Mulas-Granados, 2004. "The persistence of fiscal adjustments in developing countries," Applied Economics Letters, Taylor & Francis Journals, vol. 11(4), pages 209-212.
- Odedokun, Matthew, 2003. "Economics and Politics of Official Loans versus Grants Panoramic Issues and Empirical Evidence," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
- Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
- Ratha, Dilip, 2001. "Complementarity between multilateral lending and private flows to developing countries : some empirical results," Policy Research Working Paper Series 2746, The World Bank.
- Silvia Marchesi & Alessandro Missale, 2004.
"What does motivate lending and aid to the HIPCs?,"
Development Working Papers
189, Centro Studi Luca d\'Agliano, University of Milano.
- Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY & Lisa CHAUVET & Pierre JACQUET & Bertrand SAVOYE, 2003. "Attenuating through Aid the Vulnerability to Price Shocks," Working Papers 200325, CERDI.
- Almuth Scholl, 2013. "Debt Relief for Poor Countries: Conditionality and Effectiveness," Working Paper Series of the Department of Economics, University of Konstanz 2013-23, Department of Economics, University of Konstanz.
- Axel Dreher & Florian Mölders & Peter Nunnenkamp, 2007.
"Are NGOs the Better Donors? A Case Study of Aid Allocation for Sweden,"
KOF Working papers
07-180, KOF Swiss Economic Institute, ETH Zurich.
- Axel Dreher & Florian Mölders & Peter Nunnenkamp, 2007. "Are NGOs the Better Donors? A Case Study of Aid Allocation for Sweden," Kiel Working Papers 1383, Kiel Institute for the World Economy.
- Silvia Marchesi & Alessandro Missale, 2012.
"Did high debts distort loans and grants allocation to IDA countries?,"
226, University of Milano-Bicocca, Department of Economics, revised Aug 2012.
- Marchesi, Silvia & Missale, Alessandro, 2013. "Did High Debts Distort Loan and Grant Allocation to IDA Countries?," World Development, Elsevier, vol. 44(C), pages 44-62.
- Johansson, Pernilla, 2009. "Grants to needy countries? A study of aid composition between 1975 and 2005," Working Papers 2009:19, Lund University, Department of Economics.
- George Mavrotas & Peter Nunnenkamp, 2007. "Foreign Aid Heterogeneity: Issues and Agenda," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(4), pages 585-595, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.