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Foreign aid and developing countries' creditworthiness

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  • Philipp Harms

    ()
    (Study Center Gerzensee and University of Konstanz)

  • Michael Rauber

    ()
    (University of Konstanz)

Abstract

We explore whether foreign aid affects developing countries' creditworthiness, as proxied by the Institutional Investor's measure of country credit risk. Based on a simple model of international borrowing and lending, we develop the hypothesis that aid reduces the likelihood that borrowers in a given country default on their foreign debt. We then test this hypothesis, using a panel data set that covers a large number of developing countries in the 1980s and 1990s. Our empirical findings support the notion that aid improves countries' standing vis-a-vis international capital markets. However, the strength of this effect differs across types of aid and country groups.

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Bibliographic Info

Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 04.05.

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Length: 38 pages
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:szg:worpap:0405

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References

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  1. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
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  22. repec:rus:hseeco:123922 is not listed on IDEAS
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  26. International Monetary Fund, 1998. "The Relative Importance of Political and Economic Variables in Creditworthiness Ratings," IMF Working Papers 98/46, International Monetary Fund.
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Cited by:
  1. Elizabeth Asiedu & Yi Jin & Boaz Nandwa, 2009. "Does Foreign Aid Mitigate the Adverse Effect of Expropriation Risk on Foreign Direct Investment?," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200905, University of Kansas, Department of Economics.

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