EconPapers    
Economics at your fingertips  
 

Effects of development aid (grants and loans) on the economic dynamics of the recipient country

Cuong Le Van, Ngoc-Sang Pham and Thi Kim Cuong Pham

Mathematical Social Sciences, 2023, vol. 125, issue C, 101-112

Abstract: This paper investigates the nexus between foreign aid (in both forms: grant and loan), poverty trap, and economic development in a recipient country by using a Solow model with two new ingredients: a development loan and a fixed cost in the production process. The presence of this fixed cost generates a poverty trap. We show that foreign aid may help the country to escape from the poverty trap and converge to a stable steady state in the long run, but only if (i) the country’s characteristics, such as saving rate, initial capital, governance quality, and productivity are good enough, (ii) the fixed cost is relatively low, and (iii) the loan rule is generous enough. We also show that our model with foreign aid has room for endogenous cycles, unlike the standard Solow model.

Keywords: Economic growth; Foreign aid; Development loan; Grant; Poverty trap; Endogenous cycle (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165489623000574
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Effects of development aid (grants and loans) on the economic dynamics of the recipient country (2023) Downloads
Working Paper: Effects of development aid (grants and loans) on the economic dynamics of the recipient country (2023) Downloads
Working Paper: Effects of development aid (grants and loans) on the economic dynamics of the recipient country (2023) Downloads
Working Paper: Effects of development aid (grants and loans) on the economic dynamics of the recipient country (2023) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:matsoc:v:125:y:2023:i:c:p:101-112

DOI: 10.1016/j.mathsocsci.2023.06.003

Access Statistics for this article

Mathematical Social Sciences is currently edited by J.-F. Laslier

More articles in Mathematical Social Sciences from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-23
Handle: RePEc:eee:matsoc:v:125:y:2023:i:c:p:101-112