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What Has 100 Billion Dollars Worth of Debt Relief Done for Low- Income Countries?

  • Nicolas Depetris Chauvin

    (Princeton University - Inter-American Development Bank)

  • Aart Kraay

    (World Bank)

Between 1989 and 2003, low-income countries received $100 billion in debt relief. The stated objectives for much of this debt relief have been to reduce debt overhang and to free up recipient government resources for development spending that would otherwise have been used for debt service. In this paper we empirically assess the extent to which debt relief has been successful in meeting these objectives, using a newly-constructed database measuring the present value of debt relief for 62 low-income countries. We find little evidence that debt relief has affected the level and composition of public spending in recipient countries. We also do not find evidence that debt relief has raised growth, investment rates or the quality of policies and institutions among recipient countries. Although we cannot rule out the possibility that our failure to find evidence of positive impacts of debt relief is due to a variety of data and statistical problems, the evidence reported here does suggest that some skepticism is in order regarding the likely benefits of further large-scale debt relief.

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File URL: http://econwpa.repec.org/eps/if/papers/0510/0510001.pdf
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Paper provided by EconWPA in its series International Finance with number 0510001.

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Length: 60 pages
Date of creation: 02 Oct 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0510001
Note: Type of Document - pdf; pages: 60
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Raghuram G. Rajan, 2005. "Aid and Growth: What Does The Cross-Country Evidence Really Show?," Working Papers id:54, eSocialSciences.
  2. Baunsgaard, Thomas & Keen, Michael, 2010. "Tax revenue and (or?) trade liberalization," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 563-577, October.
  3. Graham Bird & Alistair Milne, 2003. "Debt Relief for Low Income Countries: Is it Effective and Efficient?," The World Economy, Wiley Blackwell, vol. 26(1), pages 43-59, January.
  4. Serkan Arslanalp & Peter Blair Henry, 2004. "Helping the Poor to Help Themselves: Debt Relief or Aid," NBER Working Papers 10230, National Bureau of Economic Research, Inc.
  5. Jean Imbs & Romain Ranciere, 2005. "The Overhang Hangover," Working Papers 219, Barcelona Graduate School of Economics.
  6. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  7. Serkan Arslanalp & Peter Blair Henry, 2004. "Is Debt Relief Efficient?," NBER Working Papers 10217, National Bureau of Economic Research, Inc.
  8. Burnside Craig & Fanizza Domenico, 2005. "Hiccups for HIPCs? Implications of Debt Relief for Fiscal Sustainability and Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-39, May.
  9. William Easterly & Ross Levine & David Roodman, 2004. "Aid, Policies, and Growth: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 774-780, June.
  10. Jonathan Isham & Daniel Kaufmann, 1999. "The Forgotten Rationale For Policy Reform: The Productivity Of Investment Projects," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 149-184, February.
  11. Craig Burnside & David Dollar, 2004. "Aid, Policies, and Growth: Reply," American Economic Review, American Economic Association, vol. 94(3), pages 781-784, June.
  12. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," World Bank Economic Review, World Bank Group, vol. 12(1), pages 29-58, January.
  13. 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.
  14. Christina Daseking & Robert Powell, 1999. "From toronto Terms to the HIPC Initiative; A Brief History of Debt Relief for Low-Income Countries," IMF Working Papers 99/142, International Monetary Fund.
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