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Debt Relief

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Author Info
Arslanalp, Serkan (Stanford U)
Henry, Peter B.

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Abstract

The G-8 Multilateral Debt Relief Initiative (MDRI) is the next step of the Highly Indebted Poor Countries Initiative (HIPC). There are two reasons why the MDRI is unlikely to help poor countries. First, the amount of money at stake is trivial. The roughly $2 billion of annual debt payments to be relieved under MDRI amounts to roughly 0.01 percent of the GDP of the OECD countries--a mere one-seventieth (1/70) of the quantity of official development assistance agreed to by world leaders on at least three separate occasions (1970, 1992, 2002). Second, the existence of debt overhang is a necessary condition for debt relief to generate economic gains. Since the world's poorest countries do not suffer from debt overhang, debt relief is unlikely to stimulate their investment and growth. The principal obstacle to investment and growth in the world's poorest countries is the fundamental inadequacy in these countries of the basic institutions that provide the foundation for profitable economic activity. In light of these facts, the MDRI may amount to a Pyrrhic victory: A symbolic win for advocates of debt relief that clears the conscience of the rich countries but leaves the real problems of the poor countries unaddressed.

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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1931.

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Date of creation: Apr 2006
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Handle: RePEc:ecl:stabus:1931

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References listed on IDEAS
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.:
  1. Fischer, Stanley & Hernandez-Cata, Ernesto, 1998. "Africa - Is This the Turning Point?," IMF Papers on Policy Analysis and Assessments 98/6, International Monetary Fund. [Downloadable!]
  2. Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, 06. [Downloadable!] (restricted)
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  3. Henry, Peter B., 2003. "Capital Account Liberalization, The Cost of Capital, and Economic Growth," Research Papers 1778, Stanford University, Graduate School of Business. [Downloadable!]
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  4. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
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  5. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Craig Burnside & David Dollar, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September. [Downloadable!] (restricted)
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  7. Paul R. Krugman, 1989. "Financing vs. Forgiving a Debt Overhang," NBER Working Papers 2486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Bulow, Jeremy & Rogoff, Kenneth, 1990. "Cleaning Up Third World Debt without Getting Taken to the Cleaners," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 31-42, Winter. [Downloadable!] (restricted)
  9. Serkan Arslanalp & Peter Blair Henry, 2005. "Is Debt Relief Efficient?," Journal of Finance, American Finance Association, vol. 60(2), pages 1017-1051, 04. [Downloadable!] (restricted)
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  10. Jeremy Bulow & Kenneth Rogoff, 2005. "Grants versus Loans for Development Banks," American Economic Review, American Economic Association, vol. 95(2), pages 393-397, May. [Downloadable!]
  11. Barry P. Bosworth & Susan M. Collins and Georgetown University, 2003. "The Empirics of Growth: An Update," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2003-2), pages 113-206. [Downloadable!]
  12. Paul R. Krugman, 1989. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  14. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer. [Downloadable!] (restricted)
  15. Stanley Fischer & Ernesto Hernández-Catá & Mohsin S. Khan, 1998. "Africa - Is This the Turning Point?," IMF Policy Discussion Papers 98/6, International Monetary Fund.
  16. Timothy Besley & Robin Burgess, 2003. "Halving Global Poverty," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 3-22, Summer. [Downloadable!] (restricted)
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(explanations, 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.)

  1. Arslanalp, Serkan & Henry, Peter B., 2003. "Debt Relief: What Do the Markets Think?," Research Papers 1810, Stanford University, Graduate School of Business. [Downloadable!]
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  2. Henry, Peter B. & Arslanalp, Serkan, 2003. "Is Debt Relief Efficient?," Research Papers 1837, Stanford University, Graduate School of Business. [Downloadable!]
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  3. Timothy W. Guinnane, 2004. "Financial Vergangenheitsbewältigung: The 1953 London Debt Agreement," Working Papers 880, Economic Growth Center, Yale University. [Downloadable!]
  4. Henry, Peter B., 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1974, Stanford University, Graduate School of Business. [Downloadable!]
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  5. Jean Imbs & Romain Rancière, 2005. "The Overhang Hangover," Economics Working Papers 878, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  6. Mark Aguiar & Manuel Amador & Gita Gopinath, 2007. "Investment Cycles and Sovereign Debt Overhang," NBER Working Papers 13353, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Chauvin, Nicolas Depetris & Kraay, Aart, 2006. "Who gets debt relief ?," Policy Research Working Paper Series 4000, The World Bank. [Downloadable!]
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