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How defensive were lending and aid to HIPC?

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  • Silvia Marchesi
  • Alessandro Missale

Abstract

We investigate whether defensive lending and defensive granting motivated the transfer of resources by official donors to low income countries. We estimate a dynamic panel of 75 low-income IDA and IDA-Blend countries for the period 1982 to 2008, where the sample includes 41 HIPC and a control group of other 34 low- income countries. Our results point to no evidence of defensive lending as opposed to strong evidence of defensive granting. Both bilateral and multilateral donors reduce their loans as the debt they hold increases (where such “correction” is actually weaker in the case of multilateral loans to HIPC). Official donors provide more grants as multilateral debt increases where this effect is significant only for debt- ridden HIPC countries. This result is consistent with a substitution of grants for loans and the new approach to debt sustainability, but questions the efficiency and selectivity of the aid policy.

Suggested Citation

  • Silvia Marchesi & Alessandro Missale, 2012. "How defensive were lending and aid to HIPC?," Working Papers 220, University of Milano-Bicocca, Department of Economics, revised Feb 2012.
    • Handle: RePEc:mib:wpaper:220
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    Cited by:

    1. Anna Tykhonenko & Donnat Grégory, 2022. "Debt Relief: The Day After, Financing Low-Income Countries," Post-Print hal-04298772, HAL.
    2. Fløgstad, Cathrin N. & Nordtveit, Ingvild, 2014. "Lending to developing countries: How do official creditors respond to sovereign defaults?," Working Papers in Economics 01/14, University of Bergen, Department of Economics.
    3. Silvia Marchesi & Emanuela Sirtori, 2011. "Is two better than one? The effects of IMF and World Bank interaction on growth," The Review of International Organizations, Springer, vol. 6(3), pages 287-306, September.
    4. Bjerg, Christina & Bjørnskov, Christian & Holm, Anne, 2011. "Growth, debt burdens and alleviating effects of foreign aid in least developed countries," European Journal of Political Economy, Elsevier, vol. 27(1), pages 143-153, March.
    5. Johansson, Pernilla, 2009. "Grants to needy countries? A study of aid composition between 1975 and 2005," Working Papers 2009:19, Lund University, Department of Economics.

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    More about this item

    Keywords

    debt relief; foreign aid; highly indebted poor countries.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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