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Grants vs. Loans

Tito Cordella () and Hulya Ulku

IMF Staff Papers, 2007, vol. 54, issue 1, 139-162

Abstract: Under what conditions should grants be preferred to loans? To answer this question, we present a simple model à la Krugman (1988) and show that, for any given level of development assistance, higher concessionality is good for growth if countries are poor, have bad policies, and have high debt obligations. We then test our model by estimating a modified growth model for a panel of developing countries, and find evidence supporting most of our predictions. IMF Staff Papers (2007) 54, 139–162. doi:10.1057/palgrave.imfsp.9450002

Date: 2007
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