On the substitutability between foreign aid and international credit

Subhayu Bandyopadhyay, Sajal Lahiri and Javed Younas ()

No 2012-043, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We examine the effect of relaxing a binding borrowing constraint for a recipient country on theamount of foreign aid it receives. We do so by developing a two-country, two-period trade-theoretic model. The relaxation of the borrowing constraint reduces the flow of foreign aid, suggesting that the donor views developing nations' access to international credit markets as a substitute for foreign aid.

Keywords: Foreign aid program; International finance (search for similar items in EconPapers)
Date: 2012
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Journal Article: On the substitutability between foreign aid and international credit (2013)
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DOI: 10.20955/wp.2012.043

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