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

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

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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Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 27 (2011)
Issue (Month): 1 (March)
Pages: 143-153

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Handle: RePEc:eee:poleco:v:27:y:2011:i:1:p:143-153
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505544

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