What does motivate lending and aid to the HIPCs?
We examine both grants and net loans made to low income countries during the last two decades to understand the main reasons that motivated the behaviour of both donors and creditors. We find that the total amount of transfers to HIPCs, as compared to non-HIPCs, have been increasing with their debt level. Greater net transfers have taken the form of net loans from multilateral organizations and grants in exchange for loans from bilateral institutions. The evidence thus suggests that HIPCs have kept receiving large amounts of resources just because of their high indebtedness, thereby supporting both the hypothesis of defencive lending and defencive granting.
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