The Relationship Between Aid and Debt: Preliminary Empirical Evidence

Miles Cahill () and Paul Isely
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Miles Cahill: Department of Economics, College of the Holy Cross
Paul Isely: Department of Economics, Grand Valley State University

No 9803, Working Papers from College of the Holy Cross, Department of Economics

Abstract: Preliminary tests are conducted on the Cahill and Isely (1998) model. In this model, the level of external debt is partially determined by foreign aid. Specifically, this model suggests that the level of external debt for an LDC is positively related to GDP and aid, but is negatively related to absorbtion. Preliminary empirical tests find support for this model, despite the fact there are serious data issues. However, support was not found for the proposition that aid is provided to keep LDCs stable. Because they are generally supportive, the results suggest that more detailed testing of the model is warranted. Future tests are outlined to address some of the shortcomings of these preliminary tests.

Keywords: international lending; developing countries; aid (search for similar items in EconPapers)
JEL-codes: F34 (search for similar items in EconPapers)
Pages: 9 pages
Date: 1998-01
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Published in The American Economist, Vol. 44:2, Fall 2000, pp. 78-91.

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