Financing growth through foreign aid and private foreign loans: Nonlinearities and complementarities
Subhayu Bandyopadhyay (),
Sajal Lahiri and
Journal of International Money and Finance, 2015, vol. 56, issue C, 75-96
Are the growth consequences of foreign aid and foreign private loans different for the recipient nations? In this study, we analyze in a unified way, how these two instruments affect economic growth of 131 developing nations over the period 1996–2010. We find that there are diminishing returns to foreign aid, while there are increasing returns to foreign loans. Using these estimated non-linearities, we find a critical level of international financial transfer, where 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. In addition, we analyze the interaction between these two types of transfers, and find evidence of complementarity. Disaggregation of aid into grants and concessional loans suggests that it is in fact the former that exhibits concave relationship with growth.
Keywords: Foreign aid; Offshore bank loans; Interaction between aid and loans; Economic growth (search for similar items in EconPapers)
JEL-codes: F35 O10 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:56:y:2015:i:c:p:75-96
Access Statistics for this article
Journal of International Money and Finance is currently edited by J. R. Lothian
More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().