Debt Relief: The Day After, Financing Developing Countries

Grégory Donnat and Anna Tykhonenko ()
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Grégory Donnat: Université Côte d'Azur, France

No 2023-07, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: Two decades after the Heavily Indebted Poor Countries (HIPC) initiatives were implemented with the goal of reducing the debt burden to sustainable levels, several developing countries are again facing challenges in repaying their external public debt. Here we examine the consequences of these initiatives on recent debt accumulation in these highly heterogeneous countries. To address this heterogeneity, we employ the Iterative Bayesian shrinkage procedure to model external public debt in panel data. In a departure from the existing empirical literature, shrinkage estimators reveal contrasting debt dynamics within the HIPCs. We show that HIPCs’ access to external financing was not diminished after the debt relief, but changed differently for these countries. The lending decisions of bilateral creditors are influenced by the economic conditions of HIPCs, in contrast to those of private investors. Furthermore, emerging countries, particularly those with commercial proximity, are more likely than other lenders to finance HIPCs.

Keywords: Debt Relief; External financing; Low-Income Countries; Bayesian shrinkage estimator (search for similar items in EconPapers)
JEL-codes: F34 H63 O16 O38 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2023-04, Revised 2024-12
New Economics Papers: this item is included in nep-cfn and nep-mfd
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Persistent link: https://EconPapers.repec.org/RePEc:gre:wpaper:2023-07

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