Department of Economics and Business Economics

Are Debt Repayment Incentives Undermined by Foreign Aid?

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This paper investigates the effects of inflows of foreign aid on the debt repayment behavior
of developing countries. The paper first delineates the overall incentives to committing to
timely debt 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. A set of conditional estimates suggest that the main findings generalize
to the majority of developing countries
Original languageEnglish
JournalJournal of Comparative Economics
Pages (from-to)1073-1091
Number of pages19
Publication statusPublished - 2013

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ID: 53741419