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Growth, Debt Burdens and Alleviating Effects of Foreign Aid in Least Developed Countries

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Author Info
Bjerg, Christina (Department of Economics, Aarhus School of Business)
Bjørnskov, Christian () (Department of Economics, Aarhus School of Business)
Holm, Anne (Department of Economics, Aarhus School of Business)

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Abstract

In this paper, we explore the potential growth effects of foreign aid when in conjunction with severe debt problems. We first argue that aid, when used to finance debt repayments, does not lead to Dutch Disease while still alleviating an economic problem. A set of empirical estimates show that while inflows of foreign aid in general are not associated with growth in a sample of 38 Least Developed Countries, an interaction term with the level of external debt is significant. We take this as suggestive evidence of an alleviating effect of aid in these countries and offer some tentative thoughts on the implications for future aid policies

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Publisher Info
Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 07-1.

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Length: 31 pages
Date of creation: 01 Jan 2007
Date of revision:
Handle: RePEc:hhs:aareco:2007_001

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Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Phone: +45 89 486396
Fax: +45 8615 5175
Web page: http://www.asb.dk/departments/nat.aspx
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Related research
Keywords: Economic growth; foreign aid; external debt;

Find related papers by JEL classification:
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
F35 - International Economics - - International Finance - - - Foreign Aid
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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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. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 66-92, August. [Downloadable!] (restricted)
  2. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-41, September. [Downloadable!] (restricted)
  3. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  4. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November. [Downloadable!] (restricted)
  5. Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1.
    Other versions:
    • Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1.
  6. Dollar, David & Easterly, William, 1999. "The Search for the Key: Aid, Investment and Policies in Africa," Journal of African Economies, Oxford University Press, vol. 8(4), pages 546-77, December.
    Other versions:
  7. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February. [Downloadable!] (restricted)
  8. Raghuram Rajan & Arvind Subramanian, 2005. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," IMF Working Papers 05/127, International Monetary Fund. [Downloadable!]
    Other versions:
  9. Easterly, William, 2002. "How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief," World Development, Elsevier, vol. 30(10), pages 1677-1696, October. [Downloadable!] (restricted)
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