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The impact of the Heavily Indebted Poor Countries initiative on growth and investment in Africa

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  • Djimeu, Eric W.

Abstract

Between 1996 and 2014, 30 Sub-Saharan African (SSA) countries benefited from debt relief under the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI). The architects of the HIPC initiative and MDRI posited that these programs would spur growth and investment. This paper exploits the variability of participation in the HIPC initiative and MDRI across time and country, in order to identity the effect of participation on growth and investment. I find that the decision point and post-completion point periods of the enhanced HIPC initiative are associated with a 1.762 percentage point and 3.139 percentage point increase in public investment, respectively. The impact is higher in countries with low access to international capital markets. The enhanced HIPC initiative increases private investment by 1.838 percentage points during the post-completion point period in countries with low access to international capital, for approximately two years, but has no effect on growth or foreign direct investment. I find no effect of the original HIPC initiative or MDRI on growth, private investment, public investment or foreign direct investment. I find no heterogeneous impact of the enhanced HIPC initiative on growth and foreign direct investment by level of indebtedness, access to international capital markets, or institutional quality. As the measures of institutional quality have barely changed between 1996 and 2014 in HIPC countries, the results of this paper suggest that without a strong improvement in institutional quality, debt relief is unlikely to boost investment and growth in Africa. Possible future debt relief in SSA countries should be associated with a component directly aimed at improving institutional quality. If an improvement of institutional quality is not feasible in the short run, debt relief in SSA countries should aim to support public investment.

Suggested Citation

  • Djimeu, Eric W., 2018. "The impact of the Heavily Indebted Poor Countries initiative on growth and investment in Africa," World Development, Elsevier, vol. 104(C), pages 108-127.
  • Handle: RePEc:eee:wdevel:v:104:y:2018:i:c:p:108-127
    DOI: 10.1016/j.worlddev.2017.11.002
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    References listed on IDEAS

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    Cited by:

    1. Marin Ferry & Marc Raffinot, 2019. "Curse or Blessing? Has the Impact of Debt Relief Lived up to Expectations? A Review of the Effects of the Multilateral Debt Relief Initiatives for Low-Income Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 55(9), pages 1867-1891, September.
    2. repec:eee:rensus:v:94:y:2018:i:c:p:600-608 is not listed on IDEAS

    More about this item

    Keywords

    HIPC initiative; Debt relief; Growth; Investment; Sub-Saharan Africa;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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