Aid and Debt Relief in Africa: Have They Been Substitutes or Complements?

SummaryMuch attention has been paid to helping economies in sub-Saharan Africa (SSA) to achieve the Millennium Development Goals (MDGs). The conventional instruments for providing assistance have been foreign aid disbursements and debt relief. But have debt relief initiatives complemented or substituted for other aid? Has debt relief been additional? This paper examines the evolving relationship between debt relief and other foreign aid in SSA using recently constructed and improved data. Estimating a model of aid allocation for 42 SSA countries using panel data for 1988–2006, it finds that the relationships between debt, debt relief, aid, and resource transfers have changed over time. This paper interprets how policy changes may have modified the underlying relationship between aid and debt relief.