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Loans or Grants?

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  • Daniel Cohen
  • Pierre Jacquet
  • Helmut Reisen

Abstract

In this paper they argue 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. 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 they 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. [Discussion Paper No. 2007/06]

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Bibliographic Info

Paper provided by eSocialSciences in its series Working Papers with number id:3218.

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Date of creation: Nov 2010
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Handle: RePEc:ess:wpaper:id:3218

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Keywords: grants; loans; developing countries;

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References

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  1. Hulya Ulku & Tito Cordella, 2004. "Grants Versus Loans," IMF Working Papers 04/161, International Monetary Fund.
  2. Robert Powell, 2003. "Debt Relief, Additionality, and Aid Allocation in Low Income Countries," IMF Working Papers 03/175, International Monetary Fund.
  3. Iman Sugema & Anis Chowdhury, 2005. "Aid and Fiscal Behaviour in Indonesia: The case of a lazy government," Centre for International Economic Studies Working Papers, University of Adelaide, Centre for International Economic Studies 2005-06, University of Adelaide, Centre for International Economic Studies.
  4. Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY & Lisa CHAUVET & Pierre JACQUET & Bertrand SAVOYE, 2003. "Attenuating through Aid the Vulnerability to Price Shocks," Working Papers 200325, CERDI.
  5. Rodrik, Dani, 1995. "Why is there Multilateral Lending?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1207, C.E.P.R. Discussion Papers.
  6. Sanjeev Gupta & Benedict Clements & Emanuele Baldacci & Carlos Mulas-Granados, 2004. "The persistence of fiscal adjustments in developing countries," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 11(4), pages 209-212.
  7. Cohen, Daniel & Fally, Thibault & Villemot, Sébastien, 2006. "In Favour of a Fund to Stabilize Commodity Exporters' Income," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5550, C.E.P.R. Discussion Papers.
  8. Matthew Odedokun, 2004. "Multilateral and Bilateral Loans versus Grants: Issues and Evidence," The World Economy, Wiley Blackwell, vol. 27(2), pages 239-263, 02.
  9. Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance, EconWPA 0407010, EconWPA.
  10. 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.
  11. Odedokun, Matthew, 2003. "Economics and Politics of Official Loans versus Grants Panoramic Issues and Empirical Evidence," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  12. Louise Young, 2002. "Determining the Discount Rate for Government Projects," Treasury Working Paper Series 02/21, New Zealand Treasury.
  13. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 85(5), pages 1138-51, December.
  14. Cohen, Daniel, 2001. "The HIPC Initiative: True and False Promises," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 4(3), pages 363-80, Winter.
  15. 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).
  16. Reisen, Helmut & von Maltzan, Julia, 1999. "Boom and Bust and Sovereign Ratings," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 2(2), pages 273-93, July.
  17. Reisen, Helmut & Soto, Marcelo, 2001. "Which Types of Capital Inflows Foster Developing-Country Growth?," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 4(1), pages 1-14, Spring.
  18. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 92-96, May.
  19. 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.
  20. Bulow, Jeremy & Rogoff, Kenneth S., 2005. "Grants versus Loans for Development Banks," Scholarly Articles 11129181, Harvard University Department of Economics.
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Citations

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Cited by:
  1. Axel Dreher & Florian Mölders & Peter Nunnenkamp, 2007. "Are NGOs the Better Donors? A Case Study of Aid Allocation for Sweden," KOF Working papers, KOF Swiss Economic Institute, ETH Zurich 07-180, KOF Swiss Economic Institute, ETH Zurich.
  2. George Mavrotas & Peter Nunnenkamp, 2007. "Foreign Aid Heterogeneity: Issues and Agenda," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 143(4), pages 585-595, December.
  3. Marchesi, Silvia & Missale, Alessandro, 2013. "Did High Debts Distort Loan and Grant Allocation to IDA Countries?," World Development, Elsevier, Elsevier, vol. 44(C), pages 44-62.
  4. Johansson, Pernilla, 2009. "Grants to needy countries? A study of aid composition between 1975 and 2005," Working Papers, Lund University, Department of Economics 2009:19, Lund University, Department of Economics.
  5. Almuth Scholl, 2013. "Debt Relief for Poor Countries: Conditionality and Effectiveness," Working Paper Series of the Department of Economics, University of Konstanz, Department of Economics, University of Konstanz 2013-23, Department of Economics, University of Konstanz.

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