Debt Relief and Good Governance: New Evidence

47 Pages Posted: 23 Mar 2017

See all articles by Andreas Freytag

Andreas Freytag

University of Jena - Department of Economics

Jonatan Pettersson

Stockholm University

Julian Schmied

Max-Planck-Institute for Demographic Research

Date Written: February 2017

Abstract

Since the introduction of the HIPC Initiative in the early 2000s, indebted LICs had to show a decent governance performance before their debts were forgiven. We discuss the hypothesis that during the follow-up, Multilateral Debt Relief Initiative (MDRI), the World Bank has refrained from this policy, and that debt relief decisions are rather politically driven. We test different political economy theories by applying panel models to a set of debtor and creditor countries, respectively. Our main finding shows, that improvements in governance quality led to higher levels of debt forgiveness in 2000-2004, but not in the subsequent periods.

Keywords: debt relief, World Bank, MDRI, HIPC, political economy, development aid

JEL Classification: O200

Suggested Citation

Freytag, Andreas and Pettersson, Jonatan and Schmied, Julian, Debt Relief and Good Governance: New Evidence (February 2017). CESifo Working Paper Series No. 6360, Available at SSRN: https://ssrn.com/abstract=2939013

Andreas Freytag (Contact Author)

University of Jena - Department of Economics ( email )

Carl-Zeiss-Str. 3
07743 Jena
Germany

Jonatan Pettersson

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Julian Schmied

Max-Planck-Institute for Demographic Research ( email )

Konrod-Zuse Straße 1
Rostock, 18055
Germany

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