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Aid and public sector borrowing in developing countries
Author(s) -
Feeny Simon,
McGillivray Mark
Publication year - 2003
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.1028
Subject(s) - public sector , economics , budget constraint , constraint (computer aided design) , panel data , aid effectiveness , developing country , public economics , econometric analysis , macroeconomics , microeconomics , econometrics , economic growth , economy , engineering , mechanical engineering
This paper analyses the relationship between public sector borrowing and foreign development aid. It is concerned specifically with the public sector borrowing requirement net of aid, questioning the assumption that aid and this type of borrowing are substitutes for one another. After looking at the public sector budget constraint and various conditions under which aid might lead to an increase in this borrowing, the paper surveys the empirical results of literature on aid and public sector fiscal behaviour. It finds that the results of a number of studies are consistent with aid leading to increases in this borrowing. Further investigation, in the form of econometric analysis of panel data, also points to this outcome. Copyright © 2003 John Wiley & Sons, Ltd.