Debt Relief, Investment and Growth

From 1989 to 2004 the donor community provided approximately $400 billion in debt relief to developing countries in an attempt to promote growth and reduce poverty. Using a sample of 118 developing countries, this paper empirically assesses the impact of debt relief on growth via (1) resources made available for investment from reduced debt service payments and (2)improved incentives to invest from a reduced debt stock. Although the results show no general evidence of a growth effect from debt relief, the study provides certain evidence that it promotes investment and thereby growth in countries not classified as HIPCs.