Abstract

http://ssrn.com/abstract=1948020
 
 

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Should Easier Access to International Credit Replace Foreign Aid?


Subhayu Bandyopadhyay


West Virginia University; Institute for the Study of Labor (IZA)

Sajal Lahiri


Southern Illinois University Carbondale - Department of Economics

Javed Younas


affiliation not provided to SSRN


IZA Discussion Paper No. 6024

Abstract:     
We examine the interaction between foreign aid and binding borrowing constraint for a recipient country. We also analyze how these two instruments affect economic growth via non-linear relationships. First of all, we develop a two-country, two-period trade-theoretic model to develop testable hypotheses and then we use dynamic panel analysis to test those hypotheses empirically. Our main findings are that: (i) better access to international credit for a recipient country reduces the amount of foreign aid it receives, and (ii) there is a critical level of international financial transfer, and the marginal effect of foreign aid is larger than that of loans if and only if the transfer (loans or foreign aid) is below this critical level.

Number of Pages in PDF File: 44

Keywords: foreign aid, foreign loans, borrowing constraint, economic growth, fungibility, public input

JEL Classification: F34, F35, O11, O16

working papers series


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Date posted: October 23, 2011  

Suggested Citation

Bandyopadhyay, Subhayu and Lahiri, Sajal and Younas, Javed, Should Easier Access to International Credit Replace Foreign Aid?. IZA Discussion Paper No. 6024. Available at SSRN: http://ssrn.com/abstract=1948020

Contact Information

Subhayu Bandyopadhyay (Contact Author)
West Virginia University ( email )
Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Sajal Lahiri
Southern Illinois University Carbondale - Department of Economics ( email )
MC 415
1000 Faner Drive
Carbondale, IL 62901
United States
Javed Younas
affiliation not provided to SSRN ( email )
No Address Available
Feedback to SSRN


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