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Does Lower Debt Buy Higher Growth? The Impact of Debt Relief Initiatives on Growth

Author

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  • Sandra Marcelino
  • Ivetta Hakobyan

Abstract

In 1996, the IMF and the World Bank introduced the Heavily Indebted Poor Countries Initiative—a comprehensive debt relief program aimed at reducing the external debt burden of eligible countries to sustainable levels, provided they carry out strong programs of macroeconomic adjustment and structural reforms designed to promote growth and reduce poverty. Now that the HIPC Initiative is nearly completed, this paper investigates whether the initiative managed to spur growth, either directly or indirectly through investment. In contrast to earlier studies, we conclude that there is some evidence of positive effects of the HIPC Initiative on growth. Such evidence suggests that the HIPC Initiative and MDRI have helped HIPC-eligible countries to reach higher growth, but it remains unclear whether this is through higher investment or another channel. Also, the analysis illustrates that it is hard to disentangle pure debt-relief effects from other concurrent factors.

Suggested Citation

  • Sandra Marcelino & Ivetta Hakobyan, 2014. "Does Lower Debt Buy Higher Growth? The Impact of Debt Relief Initiatives on Growth," IMF Working Papers 14/230, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:14/230
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    References listed on IDEAS

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    8. Junko Koeda, 2006. "A Debt Overhang Model for Low-Income Countries; Implications for Debt Relief," IMF Working Papers 06/224, International Monetary Fund.
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    1. repec:eee:wdevel:v:104:y:2018:i:c:p:108-127 is not listed on IDEAS
    2. Maximilien Kaffo Melou & Mariusz A. Sumlinski & Chris Geiregat, 2014. "An Application of the "Fan-Chart Approach" to Debt Sustainability in Post-HIPC Low-Income Countries," IMF Working Papers 14/102, International Monetary Fund.
    3. José Augusto Lopes da Veiga & Alexandra Ferreira-Lopes & Tiago Neves Sequeira, 2016. "Public Debt, Economic Growth and Inflation in African Economies," South African Journal of Economics, Economic Society of South Africa, vol. 84(2), pages 294-322, June.

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