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Grants vs. Loans

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  • Tito Cordella
  • Hulya Ulku

Abstract

Under what conditions should grants be preferred to loans? To answer this question, we present a simple model à la Krugman (1988) and show that, for any given level of development assistance, higher concessionality is good for growth if countries are poor, have bad policies, and have high debt obligations. We then test our model by estimating a modified growth model for a panel of developing countries, and find evidence supporting most of our predictions. IMF Staff Papers (2007) 54, 139–162. doi:10.1057/palgrave.imfsp.9450002

Suggested Citation

  • Tito Cordella & Hulya Ulku, 2007. "Grants vs. Loans," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 139-162, May.
  • Handle: RePEc:pal:imfstp:v:54:y:2007:i:1:p:139-162
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    Cited by:

    1. Johansson, Pernilla, 2009. "Grants to needy countries? A study of aid composition between 1975 and 2005," Working Papers 2009:19, Lund University, Department of Economics.

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