Working Papers,
Lund University, Department of Economics

Abstract: The donor community provided around $400 billion in debt relief to developing countries between 1989 and 2004. This paper empirically assesses the impact of debt relief on growth and investment by examining two potential mechanisms. The resource mechanism refers to the resources made available from reduced debt service payments whereas the incentive mechanism takes into account the incentive effects of a reduced debt stock. Based on a sample of 61 developing countries between 1989 and 2004, this study shows that debt relief did not affect growth directly or through capital investment.

Keywords: Debt relief; growth; investment; developing countries; HIPC

JEL-codes: F34; F35; F43; O11; O16

31 pages, August 7, 2008

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Published as

Pernilla Johansson, (2010), 'Debt Relief, Investment and Growth', World Development, vol 38, no 9, pages 1204-1216

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