Global Politics Review
Vol. 4, no. 1 (April 2018): 6-30.
GPR ID: 2464-9929_v04_i01_p006
Received: March 19, 2018. Accepted: April 9, 2018. Published: April 30, 2018.
ABSTRACT: In 1996 the IMF and World Bank launched the Heavily Indebted Poor Countries (HIPC) initiative. The initiative provided debt relief to all those countries characterized by high levels of debt and poor economic outcomes. This study aims to establish whether the debt cut freed up resources for expenditures in health and education. The author runs a regression of health and educations expenditures on debt and on some institutional variables, which are included to control for the quality of institutions. Results show that these countries do not suffer from debt overhang since there is little correlation between debt — either as outstanding debt or as debt service — and spending in health and education. On the other hand, improvements in institutional quality increases the amount of funding allocated to these sectors, proving that institutions play a major role for the development of these poor countries.
Keywords: Debt Relief, HIPC, IMF, Governance, Corruption, Development Spending.