Loans or Grants?

Daniel Cohen, Pierre Jacquet and Helmut Reisen

No DP2007-06, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: We argue in this paper that cancelling the debt of the poorest countries was a good thing, but that it should not imply that the debt instrument should be foregone. Debt and debt cancellations are indeed two complementary instruments which, if properly managed, perform better than either loans or grants taken in isolation. The core of the intuition, which we develop in a simple two-period model, relates to the fact that the poorest countries are also the most volatile, so that contingent facilities, explicitly incorporating debt cancellation mechanisms, are a valuable instrument.

Keywords: Economic assistance and foreign aid; International finance; Foreign loans (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-dev
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Working Paper: Loans or Grants? (2010)
Journal Article: Loans or Grants? (2007)
Working Paper: Loans or Grants (2007)
Working Paper: Loans o Grants? (2007)
Working Paper: Loans o Grants? (2007)
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