Loans o Grants?

Daniel Cohen (1, 2, 3, 4) , Helmut Reisen (4, 5)

1 PJSE - Paris-Jourdan Sciences Economiques
2 PSE - Paris School of Economics
3 CEPR - Center for Economic Policy Research
4 OCDE - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development
5 AFD - Agence française de développement

We argue in this paper that canceling 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.

Domains: Humanities and Social Sciences; Economics and Finance

Daniel Cohen, Helmut Reisen. Loans o Grants?. Review of World Economics, 2007, 143 (4), pp.764-782. ⟨10.1007/s10290-007-0131-y⟩. ⟨halshs-00754255⟩