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Growth, debt burdens and alleviating effects of foreign aid in least developed countries

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  • Bjerg, Christina
  • Bjørnskov, Christian
  • Holm, Anne

Abstract

We explore the potential growth effects of foreign aid when in conjunction with severe debt problems. When used to finance debt repayments, aid may not lead to Dutch Disease while it still alleviates an economic problem. A set of empirical estimates shows that although 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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  • Bjerg, Christina & Bjørnskov, Christian & Holm, Anne, 2011. "Growth, debt burdens and alleviating effects of foreign aid in least developed countries," European Journal of Political Economy, Elsevier, vol. 27(1), pages 143-153, March.
    • Handle: RePEc:eee:poleco:v:27:y:2011:i:1:p:143-153
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    6. Mfouapon Alassa & Kamdem Cyrille Bergaly & Mohammadou Nourou, 2022. "Agricultural Foreign Aid Allocation in Sub-Saharan Africa: The importance of Democracy and Quality of Governance," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(3), pages 84-100, March.
    7. Fahmida Khatun & Syed Yusuf Saadat & Md. Kamruzzaman, 2019. "FINANCE FOR SDGs: Addressing Governance Challenge of Aid Utilisation in Bangladesh," CPD Working Paper 125, Centre for Policy Dialogue (CPD).
    8. Felicitas Nowak‐Lehmann & Axel Dreher & Dierk Herzer & Stephan Klasen & Inmaculada Martínez‐Zarzoso, 2012. "Does foreign aid really raise per capita income? A time series perspective," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(1), pages 288-313, February.
    9. Winston Moore & Chrystol Thomas, 2010. "A meta‐analysis of the relationship between debt and growth," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 9(3), pages 214-225, September.
    10. Andreas FREYTAG & Julian SCHMIED, 2019. "Debt Relief And Good Governance: New Evidence Of Developing Countries For The Period 1990-2013," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 19(1), pages 15-32.
    11. Sulin Sardoschau & Alexandra Jarotschkin, 2023. "Chinese Aid in Africa: Attitudes and Conflict," Rationality and Competition Discussion Paper Series 451, CRC TRR 190 Rationality and Competition.
    12. Lis, Piotr, 2018. "The impact of armed conflict and terrorism on foreign aid: A sector-level analysis," World Development, Elsevier, vol. 110(C), pages 283-294.
    13. Boateng, Elliot & Agbola, Frank W. & Mahmood, Amir, 2021. "Foreign aid volatility and economic growth in Sub-Saharan Africa: Does institutional quality matter?," Economic Modelling, Elsevier, vol. 96(C), pages 111-127.
    14. Justesen, Mogens K., 2012. "Democracy, dictatorship, and disease: Political regimes and HIV/AIDS," European Journal of Political Economy, Elsevier, vol. 28(3), pages 373-389.
    15. Adam, Antonis & Tsarsitalidou, Sofia, 2022. "The effect of international development association's (IDA) aid on conflict. A fuzzy regression discontinuity approach," European Journal of Political Economy, Elsevier, vol. 74(C).
    16. Young, Andrew T. & Sheehan, Kathleen M., 2014. "Foreign aid, institutional quality, and growth," European Journal of Political Economy, Elsevier, vol. 36(C), pages 195-208.
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    18. Ahmad, Ahmad Hassan & Pentecost, Eric J. & Stack, Marie M., 2023. "Foreign aid, debt interest repayments and Dutch disease effects in a real exchange rate model for African countries," Economic Modelling, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    Economic growth Foreign aid External debt Cross-country analysis;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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