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Dropping the debt for the new millennium: is it such a good idea?

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  • Tim Allen

    (Development Studies Institute, London School of Economics, London, UK)

  • Diana Weinhold

    (Development Studies Institute, London School of Economics, London, UK)

Abstract

This paper examines the economic analyses and popular rhetoric surrounding the debt relief initiatives of Jubilee 2000 www.jubilee2000uk.org and the World Bank www.worldbank.org . It is pointed out that simplistic calls to 'drop the debt' may be counter-productive. There is no point in just demonizing debt. It has to be asked if debt cancellation is a particularly effective use of scarce aid resources. A serious look at historical evidence is required. In particular we consider the views of William Easterly on the adverse effects of continuing waves of debt relief on the governments of impoverished countries. We provide a brief empirical analysis in a panel data set using fixed effects estimation. Although our results are not consistent with Easterly's, many of the points that he and others have raised cannot simply be set aside. Copyright © 2000 John Wiley & Sons, Ltd.

Suggested Citation

  • Tim Allen & Diana Weinhold, 2000. "Dropping the debt for the new millennium: is it such a good idea?," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(6), pages 857-875.
    • Handle: RePEc:wly:jintdv:v:12:y:2000:i:6:p:857-875
    DOI: 10.1002/1099-1328(200008)12:6<857::AID-JID712>3.0.CO;2-6
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    References listed on IDEAS

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    1. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 255-296, National Bureau of Economic Research, Inc.
    2. Dollar, David & Svensson, Jakob, 2000. "What Explains the Success or Failure of Structural Adjustment Programmes?," Economic Journal, Royal Economic Society, vol. 110(466), pages 894-917, October.
    3. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    4. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    5. Easterly, William, 1999. "How did highly indebted poor countries become highly indebted? : reviewing two decades of debt relief," Policy Research Working Paper Series 2225, The World Bank.
    6. Deshpande, Ashwini, 1997. "The debt overhang and the disincentive to invest," Journal of Development Economics, Elsevier, vol. 52(1), pages 169-187, February.
    7. Andrew M. Warner, 1992. "Did the Debt Crisis Cause the Investment Crisis?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1161-1186.
    8. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and the World Economy, pages 275-284, National Bureau of Economic Research, Inc.
    9. Rodrik, Dani, 1998. "Why Is Trade Reform So Difficult in Africa?," Journal of African Economies, Centre for the Study of African Economies, vol. 7(0), pages 43-69, June.
    10. Sebastian Edwards, 1989. "Structural Adjustment Policies in Highly Indebted Countries," NBER Chapters, in: Developing Country Debt and the World Economy, pages 249-262, National Bureau of Economic Research, Inc.
    11. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
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    Cited by:

    1. Jones, Sam, 2015. "Aid Supplies Over Time: Addressing Heterogeneity, Trends, and Dynamics," World Development, Elsevier, vol. 69(C), pages 31-43.
    2. Robbie Mochrie, 2003. "Economic and Theological Approaches to Debt Cancellation," WIDER Working Paper Series DP2003-16, World Institute for Development Economic Research (UNU-WIDER).
    3. Neumayer, Eric, 2002. "Is Good Governance Rewarded? A Cross-national Analysis of Debt Forgiveness," World Development, Elsevier, vol. 30(6), pages 913-930, June.

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