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The Relationship Between Aid and Debt: Preliminary Empirical Evidence


  • Miles Cahill

    () (Department of Economics, College of the Holy Cross)

  • Paul Iseley

    (Department of Economics, Grand Valley State University)


Preliminary tests are conducted on the Cahill and Isely (1998) model. In this model, the level of external debt is partially determined by foreign aid. Specifically, this model suggests that the level of external debt for an LDC is positively related to GDP and aid, but is negatively related to absorbtion. Preliminary empirical tests find support for this model, despite the fact there are serious data issues. However, support was not found for the proposition that aid is provided to keep LDCs stable. Because they are generally supportive, the results suggest that more detailed testing of the model is warranted. Future tests are outlined to address some of the shortcomings of these preliminary tests.

Suggested Citation

  • Miles Cahill & Paul Iseley, 1998. "The Relationship Between Aid and Debt: Preliminary Empirical Evidence," Working Papers 9803, College of the Holy Cross, Department of Economics.
  • Handle: RePEc:hcx:wpaper:9803

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    More about this item


    international lending; developing countries; aid;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems


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