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

Author/Editor:

Wolfgang Mayer ; Alex Mourmouras

Publication Date:

March 1, 2004

Electronic Access:

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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.

Series:

Working Paper No. 04/38

Subject:

English

Publication Date:

March 1, 2004

ISBN/ISSN:

9781451845723/1018-5941

Stock No:

WPIEA0382004

Format:

Paper

Pages:

28

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