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The Relationship between Aid and Debt in Developing Countries

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  • Miles B. Cahill
  • Paul N. Isely

Abstract

This paper constructs a model in which debt and aid are complementary. Specifically, the model shows how aid can be extracted from industrialized country governments by LDCs to finance debts. Policy implications for understanding debt crises are outlined. Using recent World Bank data, the fundamental equations of the model are estimated. While it is found that the model overestimates the actual amount of aid and debt, the relationship between aid, GDP and absorption; and debt, aid, GDP and absorption is of the predicted direction.

Suggested Citation

  • Miles B. Cahill & Paul N. Isely, 2000. "The Relationship between Aid and Debt in Developing Countries," The American Economist, Sage Publications, vol. 44(2), pages 78-91, October.
    • Handle: RePEc:sae:amerec:v:44:y:2000:i:2:p:78-91
    DOI: 10.1177/056943450004400209
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    References listed on IDEAS

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    Cited by:

    1. Maitra, Biswajit, 2019. "Macroeconomic impact of public debt and foreign aid in Sri Lanka," Journal of Policy Modeling, Elsevier, vol. 41(2), pages 372-394.

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