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Untying the motives of giving grants vs. loans

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  • Gaibulloev, Khusrav
  • Younas, Javed

Abstract

The aid allocation literature has assumed that two forms of aid flows – grants and concessional loans – are determined identically. Its findings reflect average behavioral patterns based on an aggregate of these two distinct transfer types. This analysis shows that the past findings generally apply to grants but not to concessional loans. In particular, the amount of grants decreases with income, whereas the amount of concessional loans increases with income. However, donors increase both grants and loans to politically aligned administrations during election years irrespective of recipients’ income level. Other econometric issues such as endogeneity of income and cross-sectional dependence are taken into account.

Suggested Citation

  • Gaibulloev, Khusrav & Younas, Javed, 2018. "Untying the motives of giving grants vs. loans," European Journal of Political Economy, Elsevier, vol. 51(C), pages 1-14.
    • Handle: RePEc:eee:poleco:v:51:y:2018:i:c:p:1-14
    DOI: 10.1016/j.ejpoleco.2017.04.004
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    2. Minasyan, Anna, 2018. "US aid, US educated leaders and economic ideology," European Journal of Political Economy, Elsevier, vol. 55(C), pages 244-257.
    3. Le Van, Cuong & Pham, Ngoc-Sang & Pham, Thi Kim Cuong, 2021. "Development loans, poverty trap, and economic dynamics," MPRA Paper 110870, University Library of Munich, Germany.

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    More about this item

    Keywords

    Foreign aid; Grants; Concessional loans; Welfare;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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