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The Political Economy of Conditional and Unconditional Foreign Assistance: Grants vs. Loan Rollovers

Author/Editor: Mourmouras, Alex | Mayer, Wolfgang
Authorized for Distribution: March 1, 2004
Electronic Access: Free Full Text (PDF file size is 358KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Improving the effectiveness of financial assistance programs is a priority of international financial institutions (IFIs). This paper examines the effectiveness of alternative assistance instruments in a dynamic political economy framework. Economic policies of the receiving country are distorted by the influence of a domestic interest group. The assistance-providing IFI aims at reducing these distortions. The IFI provides assistance either as grants or loans, and either conditionally on reducing policy distortions or unconditionally. The paper shows that, other things constant, one-time grants are more effective than loan rollovers when assistance is unconditional, but that the opposite is true when assistance is conditional.
 
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Series: Working Paper No. 04/38
Subject(s): Political economy | Conditionality | Financial assistance | Economic models | Loans
Author's keyword(s): IMF | conditionality | common agency models | grants vs. loans
 
English  
    Published:   March 1, 2004        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA0382004   Pages:   27
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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