Working Papers, Department of Economics, Aarhus School of Business, University of Aarhus
Are Debt Repayment Incentives Undermined by Foreign Aid?
() and Philipp J.H. Schr÷der
Abstract: 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
Keywords: Foreign aid; external debt; debt service; political economy; (follow links to similar papers)
JEL-Codes: O15; (follow links to similar papers)
48 pages, November 24, 2010
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