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Government Spending Multipliers in Developing Countries: Evidence from Lending by Official Creditors

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  • Aart Kraay

Abstract

I use a novel loan-level dataset covering lending by official creditors to developing country governments to construct an instrument for government spending. Loans from official creditors typically finance multiyear public spending projects, with disbursements linked to the stages of project implementation. The identification strategy exploits the long lags between approval and eventual disbursement of these loans to isolate a predetermined component of public spending associated with past loan approval decisions taken before the realization of contemporaneous shocks. In a large sample of 102 developing countries over the period 1970-2010, the one-year spending multiplier is reasonably-precisely estimated to be around 0.4.

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  • Aart Kraay, 2014. "Government Spending Multipliers in Developing Countries: Evidence from Lending by Official Creditors," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 170-208, October.
  • Handle: RePEc:aea:aejmac:v:6:y:2014:i:4:p:170-208
    Note: DOI: 10.1257/mac.6.4.170
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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