Policy Article
Grants Versus Loans: Much Ado About (Almost) Nothing
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JEL Classification
F35
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Emerging Markets & Developing Countries
When President Bush proposed in July 2001 to provide up to half of aid supplied by development banks as grants, this sparked an intense debate. We discuss concerns that a shift from loans to grants would deplete future aid resources so that donors could not sustain their aid efforts. As concerns the recipients, the incentive effects of loans and grants are addressed. Finally, we raise the question whether the form in which aid is delivered may matter for economic growth in recipient countries.
