Publication: To Give or to Forgive? Aid versus Debt Relief
Loading...
Published
2011-10-01
ISSN
Date
2012-03-19
Author(s)
Editor(s)
Abstract
Is generalized debt relief an effective development strategy, or should assistance be tailored to countries' characteristics? To answer this question, the authors build a simple model in which recipient governments reveal their creditworthiness if donors offer them to choose between aid and debt relief. Since offering such a menu is costly, it is preferred by donors only when the cost of assistance is low, and the probability that an indebted country is creditworthy is high enough. For lower probabilities and higher costs of assistance, donors prefer a policy of only debt relief. Very limited aid is the preferred policy only for high costs of assistance, and low probabilities that the government is creditworthy.
Link to Data Set
Citation
“Cordella, Tito; Missale, Alessandro. 2011. To Give or to Forgive? Aid versus Debt Relief. Policy Research working paper ; no. WPS 5859. © World Bank. http://hdl.handle.net/10986/3625 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication The Economic Value of Weather Forecasts: A Quantitative Systematic Literature Review(Washington, DC: World Bank, 2025-09-10)This study systematically reviews the literature that quantifies the economic benefits of weather observations and forecasts in four weather-dependent economic sectors: agriculture, energy, transport, and disaster-risk management. The review covers 175 peer-reviewed journal articles and 15 policy reports. Findings show that the literature is concentrated in high-income countries and most studies use theoretical models, followed by observational and then experimental research designs. Forecast horizons studied, meteorological variables and services, and monetization techniques vary markedly by sector. Estimated benefits even within specific subsectors span several orders of magnitude and broad uncertainty ranges. An econometric meta-analysis suggests that theoretical studies and studies in richer countries tend to report significantly larger values. Barriers that hinder value realization are identified on both the provider and user sides, with inadequate relevance, weak dissemination, and limited ability to act recurring across sectors. Policy reports rely heavily on back-of-the-envelope or recursive benefit-transfer estimates, rather than on the methods and results of the peer-reviewed literature, revealing a science-to-policy gap. These findings suggest substantial socioeconomic potential of hydrometeorological services around the world, but also knowledge gaps that require more valuation studies focusing on low- and middle-income countries, addressing provider- and user-side barriers and employing rigorous empirical valuation methods to complement and validate theoretical models.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Labor Demand in the Age of Generative AI: Early Evidence from the U.S. Job Posting Data(Washington, DC: World Bank, 2025-11-18)This paper examines the causal impact of generative artificial intelligence on U.S. labor demand using online job posting data. Exploiting ChatGPT’s release in November 2022 as an exogenous shock, the paper applies difference-in-differences and event study designs to estimate the job displacement effects of generative artificial intelligence. The identification strategy compares labor demand for occupations with high versus low artificial intelligence substitution vulnerability following ChatGPT’s launch, conditioning on similar generative artificial intelligence exposure levels to isolate substitution effects from complementary uses. The analysis uses 285 million job postings collected by Lightcast from the first quarter of 2018 to the second quarter of 2025Q2. The findings show that the number of postings for occupations with above-median artificial intelligence substitution scores fell by an average of 12 percent relative to those with below-median scores. The effect increased from 6 percent in the first year after the launch to 18 percent by the third year. Losses were particularly acute for entry-level positions that require neither advanced degrees (18 percent) nor extensive experience (20 percent), as well as those in administrative support (40 percent) and professional services (30 percent). Although generative artificial intelligence generates new occupations and enhances productivity, which may increase labor demand, early evidence suggests that some occupations may be less likely to be complemented by generative artificial intelligence than others.Publication The Lasting Effects of Working while in School(Washington, DC: World Bank, 2025-08-18)This paper provides the first experimental evidence on the long-term effects of work-study programs, leveraging a randomized lottery design from a national program in Uruguay. Participation leads to a persistent 11 percent increase in formal labor earnings, observable seven years after the program. Effects are stronger for youth who participate during pivotal educational transitions and are larger for vulnerable youth and men, while remaining positive for women and non-vulnerable youth. The program is highly cost-effective, with average impacts exceeding those of job training programs and comparable to early childhood investments.Publication It’s Not (Just) the Tariffs: Rethinking Non-Tariff Measures in a Fragmented Global Economy(Washington, DC: World Bank, 2025-10-22)As tariffs have declined, non-tariff measures (NTMs) have become central to trade policy, especially in high-income countries and regulated sectors like food and green technologies. Although NTMs may serve legitimate goals, they could also sort countries and firms into or out of markets based on compliance capacity and differences in product mix. Documenting recent advances in the estimation of ad valorem equivalents (AVEs), this paper uncovers new patterns of use and exposure of NTMs. High-income countries rely more heavily on NTMs relative to tariffs, while low- and middle-income countries face steeper AVEs on their exports. Firm-level evidence shows that NTMs disproportionately affect smaller firms, leading to market exit and concentration. Poorly designed NTMs can harm productivity and welfare, while coordinated, capacity-aware use can deliver inclusive outcomes. Policy design, transparency, and diagnostics must evolve to reflect the growing role—and risks—of NTMs in a fragmented global trade landscape.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Global Development Finance 2006 : The Development Potential of Surging Capital Flows, Volume 1. Review, Analysis, and Outlook(2006)Global Development Finance is the World Bank's annual review of global financial conditions facing developing countries. The current volume provides analysis of key trends and prospects, including coverage of capital originating from developing countries themselves. Robust global growth and a favorable financing environment provided the context for a record expansion of private capital flows to developing countries in 2005. Many low-income countries still have little or no access to international private capital, and instead depend largely on official finance from bilateral and multilateral creditors to support their development objectives. Capital flows are changing due to financial integration among developing countries, financial innovations, domestic debt markets, and the global role of the Euro. Net official flows continue to decline as official lending falls and there is more aid and debt relief for the poorest countries. To ensure economic stability, developing countries must manage capital flows with effective macroeconomic policies, prudent accumulation of reserves, careful management of oil-export revenues, and improvements in standards for the corporate sector.Publication The Chrysler Effect : The Impact of the Chrysler Bailout on Borrowing Costs(2010-10-01)Did the U.S. government's intervention in the Chrysler reorganization overturn bankruptcy law? Critics argue that the government-sponsored reorganization impermissibly elevated claims of the auto union over those of Chrysler's other creditors. If the critics are correct, businesses might suffer an increase in their cost of debt because creditors will perceive a new risk, that organized labor might leap-frog them in bankruptcy. This paper examines the financial market where this effect would be most detectible, the market for bonds of highly unionized companies. The authors find no evidence of a negative reaction to the Chrysler bailout by bondholders of unionized firms. They thus reject the notion that investors perceived a distortion of bankruptcy priorities. To the contrary, bondholders of unionized firms reacted positively to the Chrysler bailout. This evidence suggests that bondholders interpreted the Chrysler bailout as a signal that the government will stand behind unionized firms. The results are consistent with the notion that too-big-to-fail government policies generate moral hazard in the credit markets.Publication Sustaining the Recovery in Times of Uncertainty(World Bank, Washington, DC, 2010-10)This edition of the Middle East and North Africa (MENA) regional economic update shows that recovery in the region is below historical trends. Its economic prospects depend on global developments and continued strengths in emerging-market demand and oil price trends. Growth in the region is expected to average 4% in 2010, an increase of slightly less than 2 percentage points (pp) over growth in 2009 and weak compared to increases of 5.6pp in advanced economies and 4.5pp in developing nations. Only by 2011 and 2012 is MENA s growth expected to return to the average rates achieved prior to the economic and financial crisis. Recovery has been driven by the global economic rebound and, to varying degrees, by domestic stimulus. Industrial production, which in MENA is dominated by oil, has nearly reached its pre-crisis peak, largely due to the strong recovery in emerging markets, especially Asia. However, the upturn has weakened in recent months because the global slowdown has arrived sooner and is occurring faster than previously anticipated, and there are serious concerns about the sustainability of the global recovery. In response, MENA governments have continued to stimulate their economies in 2010, and even those that did not use any type of fiscal stimulus in 2009 have started implementing fiscal measures in 2010. The economic recovery in MENA has been much less vigorous than the recovery in countries that suffered sharp output contractions. The sustainability of the recovery in Gulf Cooperation Council (GCC) economies depends on developments in the rest of the world, and on the extent to which they affect oil markets. The outlook for the global economy and oil markets in the second half of 2010 remains uncertain, and a decline in oil prices cannot be ruled out.Publication The Concept of Odious Debt : Some Considerations(2008-07)Despite the popularity of the term among advocates of debt forgiveness, there is little agreement on a workable definition of "odious" debts and there are but few examples where the concept has been invoked in law to justify non-payment of sovereign debts. Most often, these have been cases when a successor state or government has refused to honor certain debts contracted by its predecessor state or government. Repudiating sovereign debts on broader grounds - such as that money may have been misused by the borrower or that results were not as hoped for at the outset of lending - would create real risks not only of reduced financial flows to poorer countries as a result of the danger of ex post challenges to lenders' claims, but also of moral hazard and lack of project ownership. This paper presents a discussion of the extant legal and financial environment facing developing country sovereign borrowers and develops a proposed approach within this environment to address issues of concern underlying the concept of odious or illegitimate debt. The authors make the case for focusing attention on codes of conduct along the lines of the Equator Principles and on refining forward-looking attempts to increase aid effectiveness and recover stolen assets.Publication Debt Relief and Beyond : Lessons Learned and Challenges Ahead(World Bank, 2009)Heavily indebted low-income countries benefited from significant debt relief over the past decade. Under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI), assistance of about $117 billion in nominal terms had been committed to 35 HIPC as of end-April 2009. This debt relief represents about half of the 2007 Gross Domestic Product (GDP) of these countries, whose debt burden is expected to drop by more than 80 percent once full debt relief is granted. As a result of relief already provided, debt-service payments have plummeted and expenditures on pro-poor growth programs increased. The book is divided into four parts. Part one examines the design of debt-relief initiatives and provides evidence of its effect on education, health, and economic growth. Part two describes the risks and opportunities developing countries face following debt relief. It identifies how they can safeguard debt sustainability; describes the role of sovereign risk for private sector access to capital; and draws lessons from the experience of market-access countries on the links between sovereign debt and development. Part three examines the concept and various policy proposals of dealing with 'odious' debt. Part four looks at debt management, debt restructuring, and the interplay between debt and fiscal policies. It provides guidance on debut sovereign bond issues; examines the issuance and management of sub-national debt; describes the challenges of crafting fiscal policy and managing debt and oil revenues in a (temporarily) oil-rich country (the Republic of Congo); and draws lessons from Chile's experiences using debt swaps in the 1980s.
Users also downloaded
Showing related downloaded files
Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication Lebanon Economic Monitor, Fall 2022(Washington, DC, 2022-11)The economy continues to contract, albeit at a somewhat slower pace. Public finances improved in 2021, but only because spending collapsed faster than revenue generation. Testament to the continued atrophy of Lebanon’s economy, the Lebanese Pound continues to depreciate sharply. The sharp deterioration in the currency continues to drive surging inflation, in triple digits since July 2020, impacting the poor and vulnerable the most. An unprecedented institutional vacuum will likely further delay any agreement on crisis resolution and much needed reforms; this includes prior actions as part of the April 2022 International Monetary Fund (IMF) staff-level agreement (SLA). Divergent views among key stakeholders on how to distribute the financial losses remains the main bottleneck for reaching an agreement on a comprehensive reform agenda. Lebanon needs to urgently adopt a domestic, equitable, and comprehensive solution that is predicated on: (i) addressing upfront the balance sheet impairments, (ii) restoring liquidity, and (iii) adhering to sound global practices of bail-in solutions based on a hierarchy of creditors (starting with banks’ shareholders) that protects small depositors.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.