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Low Income Countries, Credit Rationing and Debt Relief: Bye bye international financial market?

Author

Listed:
  • Marc Raffinot

    () (LEDa, UMR DIAL-Paris-Dauphine)

  • Baptiste Venet

    () (PSL, Université Paris-Dauphine, LEDa, UMR DIAL)

Abstract

(english) Low Income Countries (LICs) have a very limited access to international financial markets. Since the 90's, LICs have been granted debt relief by bilateral creditors and by international financial institutions. Did those debt relief initiatives send a negative message to the lenders, deterring them to lend to the LICs? For assessing this we use a new extended concessionality rate of financing flows. We assess the impact of debt relief on this concessionality rate implementing a Granger causality test using panel data, a methodology perfected by Hurlin (2004, 2005), Hurlin and Venet (2004) and Dumitrescu and Hurlin (2012). We show that for the 28 LICs of our panel, there is a robust causal relationship from debt relief to the concessionality rate of financing flows (either positive or negative). The reverse causality is also significant, but to a lesser extent. _________________________________ (français) Les pays à faible revenu (PFR) ont un accès très limité au marché financier international. Depuis la fin des années 90, la plupart des PFR ont bénéficié de réductions de dette de la part de leurs créanciers bilatéraux et multilatéraux. Ces réductions de dette ont-elles envoyé un signal négatif aux prêteurs, qui les auraient détournés de prêter à ces pays, ou, au contraire, un message positif d’accroissement de la capacité à rembourser ? Pour analyser ceci, nous utilisons un nouveau taux de concessionalité élargi, et une nouvelle base de données sur les réductions de dette en termes d’encours. Nous effectuons un test de Granger en panel, une méthode mise au point par Hurlin (2004, 2005), Hurlin et Venet (2004) et Dumitrescu et Hurlin (2012). Nous montrons que pour les 28 PFR de notre panel, les réductions de dette ont un impact significatif (positif ou négatif) sur le taux de concessionalité élargie. La causalité inverse est aussi significative, mais dans une moindre mesure.

Suggested Citation

  • Marc Raffinot & Baptiste Venet, 2013. "Low Income Countries, Credit Rationing and Debt Relief: Bye bye international financial market?," Working Papers DT/2013/03, DIAL (Développement, Institutions et Mondialisation).
  • Handle: RePEc:dia:wpaper:dt201303
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    References listed on IDEAS

    as
    1. Christophe Hurlin, 2005. "Un test simple de l'hypothèse de non-causalité dans un modèle de panel hétérogène," Revue économique, Presses de Sciences-Po, vol. 56(3), pages 799-809.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    3. Gelos, R. Gaston & Sahay, Ratna & Sandleris, Guido, 2011. "Sovereign borrowing by developing countries: What determines market access?," Journal of International Economics, Elsevier, vol. 83(2), pages 243-254, March.
    4. Christophe Hurlin, 2004. "Testing Granger causality in Heterogeneous panel data models with fixed coefficients," Post-Print halshs-00257395, HAL.
    5. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    6. Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012. "Testing for Granger non-causality in heterogeneous panels," Economic Modelling, Elsevier, vol. 29(4), pages 1450-1460.
    7. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
    8. Easterly, William, 2002. "How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief," World Development, Elsevier, vol. 30(10), pages 1677-1696, October.
    9. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1," MPRA Paper 17452, University Library of Munich, Germany.
    10. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    11. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    12. Christophe HURLIN, 2007. "Testing Granger Non-Causality in Heterogeneous Panel Data Models with Fixed Coefficients," LEO Working Papers / DR LEO 1547, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    13. repec:dau:papers:123456789/4089 is not listed on IDEAS
    14. Christophe Hurlin & Baptiste Venet, 2008. "Financial Development and Growth: A Re-Examination using a Panel Granger Causality Test," Working Papers halshs-00319995, HAL.
    15. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
    16. Danny Cassimon & Bjorn Van Campenhout, 2008. "Comparative Fiscal Response Effects Of Debt Relief: An Application To African Hipcs," South African Journal of Economics, Economic Society of South Africa, vol. 76(3), pages 427-442, September.
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    More about this item

    Keywords

    Debt relief; Low Income countries; Causality in panels; Access to the financial market; concessionality; Réduction de dette; Pays à faible revenu; causalité en panel; accès au marché financier; concessionalité.;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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