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
Authors registered in the RePEc Author Service: Ngoc-Sang Pham

No 2023-2, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: This paper investigates the nexus between foreign aid (in both forms: grant andloan), poverty trap, and economic development in a recipient country by using a Solowmodel 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 thatforeign aid may help the country to escape from the poverty trap and converge to astable steady-state in the long run, but only if (i) the country’s characteristics, such assaving rate, initial capital, governance quality, and productivity are good enough, (ii)the fixed cost is relatively low, and (iii) loan rule is generous enough. We also showthat our model with foreign aid has room for endogenous cycles, unlike the standardSolow model.

Keywords: Development loan; economic dynamics; economic growth; foreign aid; grant; poverty trap (search for similar items in EconPapers)
JEL-codes: O11 O19 O41 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2023
New Economics Papers: this item is included in nep-fdg and nep-gro
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://economix.fr/pdf/dt/2023/WP_EcoX_2023-2.pdf (application/pdf)

Related works:
Journal Article: Effects of development aid (grants and loans) on the economic dynamics of the recipient country (2023)
Working Paper: Effects of development aid (grants and loans) on the economic dynamics of the recipient country (2023)
Working Paper: Effects of development aid (grants and loans) on the economic dynamics of the recipient country (2023)
Working Paper: Effects of development aid (grants and loans) on the economic dynamics of the recipient country (2023)
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:drm:wpaper:2023-2

Access Statistics for this paper

More papers in EconomiX Working Papers from University of Paris Nanterre, EconomiX Contact information at EDIRC.
Bibliographic data for series maintained by Valerie Mignon ( this e-mail address is bad, please contact ).