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Should Easier Access to Credit Replace Foreign Aid? A Trade-theoretic Analysis


  • Subhayu Bandyopadhyay

    () (St. Louis Fed)

  • Sajal Lahiri

    () (Southern Illinois University Carbondale)

  • Javed Younas

    () (American University of Sharjah)


We develop a two-period trade-theoretic model for a recipient country with credit constraints and develop a necessary and sufficient condition for replacing foreign aid by credit to be welfare improving.

Suggested Citation

  • Subhayu Bandyopadhyay & Sajal Lahiri & Javed Younas, 2013. "Should Easier Access to Credit Replace Foreign Aid? A Trade-theoretic Analysis," Economics Bulletin, AccessEcon, vol. 33(3), pages 2320-2327.
  • Handle: RePEc:ebl:ecbull:eb-13-00310

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    References listed on IDEAS

    1. Stephen D. Williamson, 1987. "Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing," The Quarterly Journal of Economics, Oxford University Press, vol. 102(1), pages 135-145.
    2. Lahiri, Sajal & Raimondos-Moller, Pascalis, 1997. "Competition for aid and trade policy," Journal of International Economics, Elsevier, vol. 43(3-4), pages 369-385, November.
    3. Saqib Jafarey & Sajal Lahiri, 2009. "Developing Country Borrowing From A Monopolistic Lender: Strategic Interactions And Endogenous Leadership," The Japanese Economic Review, Japanese Economic Association, vol. 60(2), pages 191-207.
    4. Bandyopadhyay, Subhayu & Lahiri, Sajal & Younas, Javed, 2013. "On the substitutability between foreign aid and international credit," Economics Letters, Elsevier, vol. 118(2), pages 255-257.
    5. Bernhard Paasche & Stanley E. Zin, 2001. "Competition and Intervention in Sovereign Debt Markets," NBER Working Papers 8679, National Bureau of Economic Research, Inc.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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    More about this item


    Foreign aid; borrowing constraint; welfare; fungibility; public input.;

    JEL classification:

    • F1 - International Economics - - Trade


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