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Aid Withdrawal as Punishment for Defaulting Sovereigns? An Empirical Analysis
This paper empirically investigates whether donor countries punish sovereign defaults by reducing foreign aid ows. Our findings reject the hypothesis formulated in the theoretical literature that a default leads to a loss of foreign aid for the defaulting country. Creditor countries directly aff...
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| Published in: | MAGKS - Joint Discussion Paper Series in Economics (Band 20-2012) |
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| Main Authors: | , |
| Format: | Work |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | PDF Full Text |
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| Summary: | This paper empirically investigates whether donor countries punish sovereign
defaults by reducing foreign aid
ows. Our findings reject the hypothesis formulated in the theoretical literature that a default leads to a loss of foreign
aid for the defaulting country. Creditor countries directly affected by the
default do not reduce their aid disbursements. Hence, foreign aid is not used
as a punishment instrument. Neither can it therefore serve as an enforce-
ment mechanism for international debt contracts. Furthermore, other donors
even raise the amount of development assistance allocated to the delinquent
country by about 15% on average. Overall the amount of foreign aid given
to the defaulting country increases by 6.4%. |
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| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2024.0134 |