Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/58649
Authors: 
Bandyopadhyay, Subhayu
Lahiri, Sajal
Younas, Javed
Year of Publication: 
2011
Series/Report no.: 
Discussion Paper series, Forschungsinstitut zur Zukunft der Arbeit 6024
Abstract: 
We examine the interaction between foreign aid and binding borrowing constraint for a recipient country. We also analyze how these two instruments affect economic growth via non-linear relationships. First of all, we develop a two-country, two-period trade-theoretic model to develop testable hypotheses and then we use dynamic panel analysis to test those hypotheses empirically. Our main findings are that: (i) better access to international credit for a recipient country reduces the amount of foreign aid it receives, and (ii) there is a critical level of international financial transfer, and 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.
Subjects: 
foreign aid
foreign loans
borrowing constraint
economic growth
fungibility
public input
JEL: 
F34
F35
O11
O16
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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