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Are Debt Repayment Incentives Undermined by Foreign Aid?

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  • Wp 10-20

    Final published version, 309 KB, PDF document

This paper investigates the effects of inflows of foreign aid on the debt repayment behaviour of developing countries. The paper first delineates the overall incentives to committing to timely repayment in a war of attrition-type model. A set of panel estimates including 93 developing countries shows that foreign aid is strongly negatively associated with repayment incentives. The findings pertain to both total debt service and service on publically guaranteed debt. Only countries that tend to vote predominantly with the US in the UN General Assembly are not significantly discouraged from servicing their debt by inflows of foreign aid.
Original languageEnglish
Place of publicationAarhus
PublisherAarhus School of Business, Aarhus University, Department of Economics
Number of pages48
ISBN (Print)9788778825148
ISBN (Electronic)9788778825155
Publication statusPublished - 2010

    Research areas

  • Foreign aid, External debt, Debt servoce, Political economy

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