Aid withdrawal as punishment for defaulting sovereigns? An empirical analysis

Arbeitspapier

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 enforcement 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%.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: MAGKS Joint Discussion Paper Series in Economics ; No. 20-2012

Classification and Topics

• Classification: Wirtschaft ; International Lending and Debt Problems ; Foreign Aid ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Single Equation Models; Single Variables: Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
• Subject: Sovereign defaults ; Default costs ; Foreign aid ; Sanctions ; Entwicklungshilfe ; Internationale Wirtschaftshilfe ; Staatsbankrott ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Brandt, Jana ; Jorra, Markus
• Event: Veröffentlichung
• (who): Philipps-University Marburg, Faculty of Business Administration and Economics
• (where): Marburg
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/73070
• Last update: 10.03.2025, 11:45 AM CET