Andrew Sherman - Writing Sample

Debt, Debt Service, and Governance:
Enabling Conditions for Debt Forgiveness as an Aid Modality
Drew Sherman
MPA Candidate – Indiana University
School of Public and Environmental Affairs
F560 – Public Finance and Budgeting

Drew Sherman
F560 – PublicFinance andBudgeting
2
Introduction
Debt today is a pervasive tool used to finance activities in all aspects of society, including
development. Households use it to pay for their homes, college education, and cars. Commercial
and industrial entities use debt to facilitate growth and new business opportunities. National,
regional, and local governments may utilize debt to finance economic development,
infrastructure projects, and social programs until future revenue can pay off debt stocks. In many
cases this is an effective tool which drives economic growth, social prosperity, and raises the
standard of living; however, for entities and/or households that find themselves unable to finance
their debt, it can be a devastating burden which stagnates performance. In this paper, we will
review literature related to debt, debt forgiveness, other aid modalities, and the role of
governance in foreign aid. This meta-analysis will give a better idea as to the current state of
debt-related economic conditions and the future of international debt policy. We will use a
multivariate regression to determine which macroeconomic and governance-related factors
influence the amount of debt forgiven over the last 30 years. This analysis will test the
hypothesis that debt and governance conditions have a relationship with the amount of debt
forgiveness a recipient country can expect.
Literature Review
Why do countries incur public debt? Public debt financing is not a new concept, and
luckily the father of modern economics is able to help us answer that question. In his iconic
work, The Wealth of Nations, Adam Smith delivers a descriptive perspective on public financing
and public debt (1776). In peacetime, sovereign states tend to match outlays and receipts as
much as possible. Expenditures (outlays) include both the essential functions of government
(health, education, infrastructure, etc.) and other discretionary spending strongly desired by

Drew Sherman
3
citizens (poverty reduction, economic development, and social programs). The majority of
revenues (receipts) are collected through taxation, though other mechanisms exist.
This theory is rather straightforward, but it requires the assumption of responsible
governance by that sovereign state1. Smith’s good governance assumption leads us to believe
that each marginal dollar spent will lead to the most effective additional benefit to the state
(Smith, 1776). Under these conditions the government should have policies which allow for the
effective distribution and allocation of government resources, and stabilization of the economy
when introduced to external or internal forces (Mikesell, 2014).
However, in times of exigent circumstances – such as war, economic recession, disaster,
or public health emergency – a government has the responsibility to incur additional expenses
immediately to address such events. In this short-term period, raising tax revenues to match
expenditure would be burdensome and slow. The government would need to determine the
expected deficit, calculate debt liability, propose and enact new tax rates, and then collect the
additional funds from taxpayers. Unfortunately, tax payers may also need substantial time to earn
additional income to pay for a tax increase. As a result, the government will choose to sell debt
assets to fund its immediate needs on the assurance to its creditors that it will pay them back with
interest in the future (Smith, 1776).
To make this debt financing possible, the creditors must be confident that the obligations
will be paid back in the long-run2. Stronger creditor confidence due to positive economic outlook
and perceived good governance means the creditor will be willing to lend more money, while
1 Good governance is described here as rational decision-making,thepropensity to seek a zero-profit, and/or
alternatively the decisions to saveor to incur debt which promote the best interests of the sovereign state both
economically and socially.
2 Today, credit ratings maintained by companies likeFitch,Moody’s, and S&P are used as an indicator of creditor
confidence and issuer creditworthiness (Finney,2016).

Drew Sherman
4
low confidence that comes from a stagnating economy or perceived poor governance might lead
the creditor to go to great lengths to protect their assets and reduce their exposure in the
marketplace. If the government feels it is unlikely to garner lender support in the future, it will
choose to save in advance of any potential exigent circumstances to cover resulting budget
deficits. This “rainy day” fund is an example of a budget stabilization tool that many U.S. states
and other governments include in their annual budgets (Mikesell, 2014).
Alternatively, many modern countries are able to close or reduce budget deficits with
strategies other than acquiring debt or hoarding revenues into savings accounts. Today over 130
countries receive Official Development Assistance3 (ODA) flows and other forms of foreign aid.
During the Cold War much of this ODA was used to financially support countries within larger
alliances to advance political and military objectives (Mavrotas, 2007). Now, ODA flows are
primarily directed to development and supporting economic and social conditions in recipient
countries.
During the 1990s foreign direct investment (FDI) began to surge, serving as another
important condition for country-level economic and social development. FDI is particularly
successful at bringing a developing country into the global marketplace, improving its trade
orientation and increasing competitive innovation. Botchwey linked this increase to a belief that
the global free market could be trusted to finance development in poorer countries and the spread
of globalization. However, he found that FDI flows were heavily concentrated among just a few
middle-income countries, mostly neglecting the Least Developed Countries. A handful of
middle-income countries accounted for over 90% of capital market flows and FDI flows during
3 Some countries are both recipients and donors of ODA (Organisation for Economic Co-operation and
Development, 2015).

Drew Sherman
5
the 1990s (Botchwey, 2000). Additionally, there is also some evidence that countries receiving
large sums of foreign aid will receive less FDI4 (Beladi & Beladi, 2007). Unfortunately, low-
income countries also lack many of the prerequisite conditions which are associated with rapid
growth in FDI in the 1990s5 (Botchwey, 2000). These prerequisites include access to
international markets, geography and natural resources, as well as conditions of good governance
which make foreign aid more effective (Mavrotas, 2007; Bigsten, 2007; Sachs, 2005).
In the following sections, we will explore additional literature about the effectiveness of
foreign aid by discussing aid structure, implementation, and enabling conditions which allow for
these financing tools to encourage economic growth and social prosperity. We will also review
the 1982 Debt Crisis and the 1997 East Asian Financial Crisis and look at the subsequent aid
policies adopted by the global community in addressing the developing world’s debt overhang
and rising debt burden.
Does foreign aid work? First, we must understand what it means for aid to work. White
examines the aid-poverty link in order to better understand the relationship that aid has with
economic growth. How should aid be allocated to maximize poverty-reducing impact? This is a
difficult question to answer, but does provide direction for our research. Aid is considered robust
and effective at inducing growth if it improves human capital6, and can be delivered directly or
indirectly. Direct foreign aid activities can be in the form of building a new hospital, or by
paying for primary school tuition. These activities are what we typically imagine when we think
4 Foreign aid can reduce sector-specific foreign investment by limitingcompetitiveness in that sector. Some
evidence also suggests thatpriceeffects resultingfrom foreign aid hinder economic growth and local industry.
5 Rapid FDI growth requires a favorablepolicy environment,high growth rates, lowtransaction costs,and market
size.
6 Human capital consistsof physical and mental health and well-being,as well as educational capacity and other
intangiblecharacteristics.Some studies consider resiliencein evaluatinghuman capital,buthere we’re only
consideringmeasurableconditionsrelated to human capital,namely health and education.

Drew Sherman
6
of foreign aid. Indirect activities are meant to improve the economic environment in which
poverty-stricken countries operate. Foreign investment that leads to an export-oriented economy,
thus re-balancing the terms of trade7 for individuals, is a way to boost economic activity to make
acquiring health and educational resources more affordable. Indirect efforts at reducing poverty
may partially improve human capital, but the multidimensional nature of poverty requires more
concerted efforts at improving standards of living and life outcomes.
Aid tends to work better in countries with sound policies and good governance8.
Specifically, the recipient country must be sure that its fiscal, monetary, and trade policies are all
adequate and effective in creating an environment conducive to translating foreign aid resources
to real economic results9 (Mavrotas, 2007; White, 2007). In some instances, governments can
still impact growth independent of their policy conditions (White, 2007). Unfortunately, aid
flows in the international community are largely inconsistent and unreliable10. There is some
evidence that this inconsistency limits economic growth in countries which heavily rely on aid
flows. Improving aid forecasting is a vital area which could build resiliency among developing
nations (Mavrotas, 2007).
Recent evidence also supports Smith’s (1776) claim that the expectation of external
financial flows may reduce savings. The rationale behind this lack of savings is consistent with
the original theories: budgetary shortfalls are less drastic when deficits are reduced by foreign
aid, but donors expect money to be put to use immediately, not hoarded, and current policy
7 Terms of trade refers to the relativepurchasingpower for a country or an individual.Increasingpurchasingpower
allows for the acquisition of more productive resources due to lower costs,higher income, or both.
8 Mavrotas cites Burnsideand Dollar,1997.
9 Perceived good governance can improve a recipient counties creditworthiness,which increases probability of
future lending.
10 International institutions arenotrequired by lawto provide foreign aid,and economic circumstances may cause
the donor country to be more conservativeduringrecessions,which adversely affects recipientcountries.

Drew Sherman
7
conditions cause developing countries to have a high expectation of being bailed out during
exigent circumstances like a public health emergency or natural disaster. This presents one of the
major challenges in foreign aid: the balance between capacity building and aid dependence.
Policy coherence becomes convoluted as countries balance their own tax revenues with debt
relief, grants, FDI, private donations, and in-kind aid in the form of food assistance. If the
balance shifts toward reliance on external resources, then countries will experience a disincentive
to take back ownership of domestic revenue provision (Mavrotas, 2007).
Bigsten (2007) encourages international financial institutions and foreign donors to re-
think the way they structure aid packages to developing countries. Traditionally, struggling
institutions in the recipient country are forced to comply with very restrictive and austere
policies11 to receive aid; however, this has led to poor implementation as a result of misaligned
goals and expectations (Thomas, 1999; Bigsten, 2007). Instead, Bigsten recommends that
governments must be committed to their own policies, and foreign donors must channel
resources into development programs that the recipient country actually believes in. However,
mutual agreement is necessary, as donors will withhold funding if they do not support a program.
A great deal of foreign aid is earmarked for specific uses. Since the 1990s at the end of
the Cold War, the primary aim for aid has been poverty reduction. Due to the fungibility of aid,
poverty reduction programs can include infrastructure, public health, fighting disease, and food
and nutritional assistance (White, 2007). Not all activities which aim to reduce poverty result in
increased incomes. Some interventions focus on standard of living, reducing costs, and providing
essential goods and services which the recipient is otherwise unable to purchase given their
11 IMF and World Bank encourage budget cuts to balancethe budget, but this reduces funds to be used on
activities which improvehuman capital and reduce poverty.

Drew Sherman
8
capacity constraints. This finding informs us that not all aid has specific and measurable
economic outcomes (White, 2007), but we also know that not all fungible aid resources are
directed toward social programs which focus on improving human capital (Botchwey, 2000).
This separation of economic and social outcomes makes evaluating the effectiveness of aid
difficult, but we can see that building capacity12 for development is an important prerequisite of
growth and a characteristic of fungible aid resources.
Given certain enabling conditions like sound policy, good governance, and trade
orientation, foreign aid can contribute to a rise in human capital through economic growth and
social programs which build capacity. Without these conditions, aid effectiveness decreases, and
in some cases, may even result in losses in terms of trade. The expectations for debt relief are
consistent with these assumptions.
We can look back to the mid-20th century for effective alternatives to debt financing.
Europe, devastated by the activities during World War II, suffered economically and was largely
unable to rebuild its industry and boost productivity on its own. In 1948, Congress passed the
Economic Cooperation Act, also known as the Marshall Plan13. The intent of the Marshall Plan
was to aid in rebuilding Western Europe by generating a resurgence of industrialization and
foreign investment. The United States received huge dividends as recovering economies began
do demand more American goods (Office of the Historian, 2016). An important feature of the
Marshall Plan was the unconditional nature of the aid and investment. Delivering this aid in the
form of grants, rather than loans, enabled Europe to grow quickly and to sustain that growth by
12 Capacity here is described by the presence of availableresources which can be directed to a particularpurpose.
In some cases,unconditional aid may increasecapacity,but the government will chooseto use that capacity to
lower its taxpayer burden or to increasebureaucratcompensation.
13 Marshall Plan isthenamesake of the former Secretary of State, George C. Marshall.The ECA approved funding
that would riseto over $12 billion directed to Western Europe.

Drew Sherman
9
avoiding major debt obligations and by choosing development strategies which provided the
most effective additional benefit for each marginal dollar spent (Sachs, 2005).
Today, organizations like the International Monetary Fund (IMF) and the World Bank
provide enormous funding capabilities to developing nations in the form of conditional loans and
grants, meaning the recipient country is required to meet certain conditions and measures as a
pre-condition of receiving aid, and must continue to meet expectations to stay current on their
obligations. In many instances, which we will discuss later, conditional agreements can be
effective, but come with important drawbacks.
To further understand why this paper targets debt forgiveness, we will briefly review
recent debt crises which have devastated global economies and continue to hinder economic
performance. The first event is the 1982 debt crisis, which was a result of increasing
deregulation14 and commodity price shocks15 (Palac-McMiken, 1995). The resulting debt
overhang owned by many of the Least Developed Countries (LDCs) had devastating effects once
the crisis materialized. At that time, U.S. policy tended to protect large commercial banks with
high debt exposure, encouraging countries to continue debt service, but a tipping point was
finally reached when Mexico and other HIPCs decided to suspend debt service indefinitely.
Banks were no longer able to recoup the full value of their debt exposure and began to sell debt
assets at discounted prices (Palac-McMiken, 1995; Sachs & Huizinga, 1987).
14 Globally,financial institutionsbegan to offer more foreign debt in a relatively unregulated market. Lack of
oversightand understandingof financial implicationsmixed with periods of massiveinvestment led to acquisition
of largelong-term debt stocks.Among non-oil producingcountries the shareof publicly-guaranteed debt rose
from 25 to 41% in the decade before the crisis.
15 Oil prices increased dramatically in 1973-74 and 1979-80,incentivizingOPEC countries to double-down on
investments in oil extraction.Banks recycled new money as additional lendingcapacity.When priceshocks
occurred, oil-importingcountries could notafford higher prices,and borrowed to cover deficit.Terms of trade
negatively impacted net-importers by reducingpurchasingpower.

Drew Sherman
10
Similarly, in 1997 the East Asian Financial Crisis many more countries struggled with
unsustainable debts. This crisis was characterized mostly by foreign direct investments which
were stymied by financial mismanagement and the burden of public debt. Liability and exposure
were more heavily concentrated among a few private institutions. Some investors lost confidence
that governments would meet debt service targets, and sold debt assets to other creditors at
discount prices on the secondary market. Governments in need of new lending were unable to
access new funds (Botchwey, 2000). Today, the global economy is still recovering from the
effects of the Great Recession. Many rich and developing countries were forced to take on debt
to cover massive deficits. Debt and debt forgiveness will continue to be important in
international development for years, so understanding the conditions which lead to debt
forgiveness is increasingly important.
Data
We have accessed our data from the World Bank’s world development indicators, which
are updated quarterly. There are 217 countries and small nations included in our data. The world
development indicators cover years from 1960 to 2016, but for the scope of this paper, we have
limited ourselves to the years from 1989 to 2015. These years have the most complete data and
immediately follow the years of interest discussed during the literature review. During the
selected year we can analyze the debt forgiveness conditions which follow the 1980s debt crisis,
1990s financial crisis, and the onset of the HIPC Initiative in the 2000s (The World Bank, 2016).
Methodology
We will run a multivariate regression with the total amount of debt forgiven for each
country in the 27-year period as the dependent variable. The independent variables are the
average value of exports as a percentage of Gross Domestic Product, the average debt stocks as a
percentage of Gross National Income, and the average debt service as a percentage of national

Drew Sherman
11
expenditure. Other independent variables include the country’s inclusion in the HIPC or OECD.
Countries which belong to neither are represented in the intercept of the regression equation.
Before we run the regression we anticipate the model regression equation to be the following:
𝐷𝑒𝑏𝑡 𝐹𝑜𝑟𝑔𝑖𝑣𝑒𝑛𝑒𝑠𝑠 = 𝛽1 + 𝛽2
( 𝐸𝑥𝑝) + 𝛽3
( 𝑆𝑡𝑜𝑐𝑘) + 𝛽4
( 𝑆𝑒𝑟𝑣) + 𝛽5
( 𝐻𝐼𝑃𝐶) + 𝛽6
Figure 1. Definition Rationale
DF
($)
Total amount of debt forgiven in the
designated decade
This is our dependent variable because we want to
understand what conditions make it more likely for
a country to have its debt forgiven.
Exp
(% )
Average Value of Exports as a percentage
of Gross Domestic Product in the
designated decade
This gives us an idea of a country’s trade
orientation and participation in the global economy.
Countries which are relatively export heavy are
expected to withstand greater debts before
rescheduling.
Serv
(% )
Average amount of debt service as a
percentage of total expenditure in the
designated decade
Debt service is an indication of the pressure a
country’s debt burden is putting on discretionary
spending,potentially squeezing out spending on
education, healthcare, infrastructure, and
development.
Stock
(% )
Average debt stockas a percentage of Gross
National Income in the designated decade
Debt stock is used to measure the debt overhang for
a country, while considering the actual economic
potential to overcome future debt obligations.
Creditors may not lend to countries with large debt
stocks.
HIPC Heavily Indebted Poor Countries (dummy) We have identified that 36 countries have become
eligible for debt relief as a result of an inability to
pay existing debts.This will inform us of the effect
of the HIPC Initiative.
OECD Organization for Economic Co-operation
and Development (dummy)
We also want to test to see if a relatively wealthy
and well-governed subset ofcountries has an effect
on the amount of debt forgiven.
Debt forgiveness is selected as the dependent variable in this model because it frees up
economic resources for uses other than debt service. The fungible nature of aid means that a
reduced share of expenditures used for debt service may result in a higher proportion of funds
allocated to activities which promote economic growth16. Debt forgiveness was a necessity
16 Spending on infrastructure,health,education, and other poverty-reducing activities which promote
development is optimal.

Drew Sherman
12
following the 1980s financial crisis, but gained traction in the late 1990s as an effective policy by
the World Bank and International Monetary Fund to aid developing countries.
We consider exports as a percentage of Gross Domestic Product to consider trade
orientation. Our literature generally considers net-exporters to be more capable of withstanding
commodity price shocks, disasters, and other exigent circumstances17. An exporting trade
orientation allows a country to avoid the need to finance deficits by selling debt. This might lead
us to believe that net-exporting countries might actually reduce the amount of debt that is
forgiven.
Debt stock is discussed quite a bit in our literature. Several authors cite secondary market
discount prices that result from doubt in a country’s ability to cover its debt obligations. We use
debt stock as a percentage of Gross National Income to measure this ability. As obligations
exceed revenue generation (GNI) creditors become skeptical that they will recoup their debt
exposure from less creditworthy countries, and begin to sell off debt assets at discount prices.
Results
The initial regression found only two of the five independent variables to be significant at
the .05 level, however the model as a whole is still significant at that level. Parameter estimates
for the initial regression and the tests for significance are shown in Table 1. When including all
independent variables, we could still reject the null hypothesis for the model, which states that
there is no relationship on the variation in debt forgiveness with respect to the other variables. To
refine our model, we begin to eliminate non-significant independent variables. In sequential
order, we removed the independent variables with non-significant effects on debt forgiveness at
17 Priceshocks can causelargedeficits as higher prices mustbe paid for imports, reducingthe terms of trade. Also,
disasters or external pressures mightresultin significantunplanned expenses,causingdeficits which must be
financed through aid or debt; however, net-exporters have a stronger revenue base and are more resilient.

Drew Sherman
13
the .05 level. First, we removed the exports as a percentage of GDP, then debt stock as a
percentage of GNI, and lastly we excluded the dummy variable OECD. Our final multivariate
regression included only debt service as a percentage of total expenditure and the dummy
variable which represents status as a country that meets the eligibility standards as a Heavily
Indebted Poor Country.
𝑫𝒆𝒃𝒕 𝑭𝒐𝒓𝒈𝒊𝒗𝒆𝒏𝒆𝒔𝒔 = −$𝟏𝟖𝟖,𝟏𝟗𝟔, 𝟓𝟒𝟗 − $𝟗𝟖,𝟕𝟒𝟔, 𝟐𝟗𝟗( 𝑺𝒆𝒓𝒗) − $𝟐, 𝟑𝟖𝟔,𝟏𝟔𝟓, 𝟐𝟓𝟎( 𝑯𝑰𝑷𝑪)
This refined multivariate regression has an F-statistic of 22.10, which is significant at the
.05 level. We can still reject the null hypothesis that there is no relationship between the variation
in debt forgiveness with respect to debt service and status as an HIPC. In the refined regression
model, for each one percent (.01) increase in debt service as a percentage of expenditure, the
recipient country’s debt stock is reduced by $98,746,299 over the 27-year period18. If the country
has reached the post-completion point for the HIPC Initiative the country’s debt stock is reduced
by $2,386,165,250 over the 27-year period. Our adjusted R2 is .1719, which indicates that
17.19% of the variation in debt forgiveness can be explained by the relationship in the model.
This is a relatively small relationship, but has some practical usefulness in understanding why a
country may receive debt forgiveness. Parameter estimates and tests for significance are shown
in Table 2.
Discussion
We can conclude that there is a significant relationship in our model, which has limited
predictive capability in determining the amount of debt forgiveness a recipient country can
expect. As illustrated in the literature review, there are many conditions which influence a
country’s economic performance. Some argued that an export-oriented economy is favorable for
18 The negative valuereflects a reduction in debt stock, which can also be described as an increasein the amount
of debt forgiven.

Drew Sherman
14
countries trying to manage their debt (Berg & Sachs, 1988), but that isn’t clear in our model.
Several also note the weight that debt stock can have on fulfilling obligations (Palac-McMiken,
1995; Sachs & Huizinga, 1987), but we do not see a significant relationship in our model from
these independent variables.
Debt service as a percentage of national expenditure remains the most relevant measure
of the strain a country faces in financing for its future. The fact that a higher debt service ratio
results in debt being forgiven indicates that the payments were unsustainable and forced the
government to sacrifice spending in more important areas. This finding is also paired with the
significant relationship that exists among HIPC countries, indicating that the international
creditors prefer to work with debtor nations that can demonstrate good governance and a desire
to reform their economic policies according to standards set by the International Monetary Fund
and the World Bank.
We have reason to believe that countries which reach the post-completion point for the
HIPC Initiative and see their debt stocks reduced will eventually experience subsequent
reductions in poverty and an aggregate rise in standard of living, assuming policies and reforms
are long-lasting and effective. With heavier scrutiny from the international community we can
hope that countries will appropriate these aid inflows in ways that will raise human capital and
close the gap between local and global economic markets. This observation is reinforced through
seeing the rise in Foreign Direct Investment as countries begin to prosper and investor
confidence increases (Botchwey, 2000). Additionally, as debt stock decreases and debt service
becomes more manageable, we will see more countries borrow responsible to invest for their
future, rather than to cover deficits caused by poor terms of trade or lack of a revenue capital
base.

Drew Sherman
15
Throughout the literature on aid effectiveness and the willingness of the international
community to provide support to developing nations, the role of governance and sound economic
policy are two of the most important considerations in making a country eligible for foreign aid
(International Monetary Fund, 2016; Berg & Sachs, 1988; Cassimon & Van Campenhout, 2007;
Lahiri, 2007; Mavrotas, 2007; Thomas, 1999; White, 2007). The most important factor is still the
presence and pervasiveness of poverty, but these can be better addressed when enabling
conditions exist. By withholding aid until a policy and governance preconditions are met the
international community is able to make the aid they deliver more effective.
The fungibility of most aid also presents challenges. There is no guarantee that money
freed up through debt forgiveness will result in poverty-reducing activities, but it does make that
spending more probable. When the recipient country takes ownership of their own development
agenda we are more likely to see the next marginal dollar spent on areas like health, education,
or infrastructure. Some areas which could be improved upon would be in the selection and use of
variables to interpret our data, as well as the incompleteness of our data. Only about 90 of the
217 countries had complete information for the 27-year period selected. Most debt data are
provided by the creditors, but a more complete data bank would have been more informative.
Also, there are two adjustments which should be made if trying to replicate this analysis.
First, debt forgiveness should be measured as a percentage of total debt stock at the time relief
was granted. This gives us a better idea as to the magnitude of forgiveness relative to the
economy of each country. Second, we should have created a dummy variable for whether the
country was a net exporter or importer to determine true trade orientation. Instead, we were only
able to measure the extent to which a national economy engaged with the global economy, which
is important, but not robust.

Drew Sherman
16
If we had complete data, it would have been interesting to exclude all but the 36 HIPC
countries and to run a regression to see if any patterns or relationships emerge within the sub-
group. Knowing that each country has reached the post-completion point for the HIPC Initiative
we could refine our analysis to better understand the conditions among these countries that
influence the amount of debt forgiven.
Conclusion
In this paper we discussed the reasons why nations accumulate debt, and the
macroeconomic conditions which may cause the debt to be unsustainable or damaging to the
debtor country. We identified several conditions through our literature review, and used some of
these to analyze our data from the World Development Indicators in a multivariate regression,
controlling for status as a Heavily Indebted Poor Country, according to the World Bank and
International Monetary Fund.
We found debt service as a percentage of expenditure and status as an HIPC nation to be
significant. This relationship was relatively weak, most likely due to other economic factors not
fully discussed in the scope of this paper, such as the Great Recession19 and the onset of the
Millennium Development Goals and Sustainable Development Goals20. Debt financing will
continue as a tool for economic development, infrastructure projects, and social programs.
Additionally, as economies continue to become more interconnected, national governments must
adhere to the standards of international economic policy and good governance. However, in poor
economic times or in cases of exigent circumstances, we must have the capability to identify
19 Economies all over the world stagnated and suffered major losses in capital duringthis time,those that financed
these losses by sellingdebt will need to pay off those liabilities in thecoming years.
20 International policy in the last20 years has taken development more seriously.New revenue sources and aid
inflows mighthave made debt forgiveness less necessary for some countries because of the increased capacity
they experienced and will experience duringthis time. MDGs and SDGs are targeting human capital goals,butdebt
forgiveness is justone tool that contributes to these targets.

Drew Sherman
17
when a country’s debt burden is unsustainable and to correct it before its citizens experience
losses in economic or human capital.

Drew Sherman
18
Exhibits
Table 1 - Initial Model Parameter Estimate t-statistic Pr<F
Exp (%) $1,708,903 .20 .8442
Stock (%) -$2,136,325 -.42 .6728
*Serv (%) -$99,140,452 -3.33 .0010
*HIPC -$2,324,628,906 -3.22 .0015
OECD -$762,711,570 -1.18 .2379
* The independent variable is significant at the .01 level.
Table 2 - Refined Model Parameter Estimate t-statistic Pr<F
*Serv (%) -$98,746,299 -3.97 <.0001
*HIPC -$2,386,165,250 -3.76 .0002
* The independent variable is significant at the .01 level.
Bibliography
Beladi, H.,& Beladi, R. (2007). Does Foreign Aid Impede Foreign Investment. In S. Lahiri, Theory and
Practice of Foreign Aid (pp. 55-63). Amsterdam, NLD:Elsevier Science & Technology.
Berg, A.,& Sachs,J. (1988). The debt crisis structural explanations of country performance. Journal of
Development Economics, 29(3),271-306. doi:10.1016/0304-3878(88)90046-6
Bigsten, A. (2007). Aid and Economic Development in Africa. In S. Lahiri, Theory and Practice of
Foreign Aid (pp. 289-307). Amsterdam, NLD: Elsevier Science & Technology.
Botchwey, K. (2000). Financing for Development: current trends and issues for the future. United Nations
Conference on Trade and Development. Retrieved October 13,2016, from
http://unctad.org/en/Docs/ux_tdxrt1d11.en.pdf
Cassimon, D., & Van Campenhout, B. (2007, December). Aid Effectiveness, Debt Relief and Public
Finance Response: Evidence from a Panelof HIPC Countries. Review of World Economics,742-
763. doi:10.1007/s10290-007-0130-z
Finney, D. (2016). A Brief History of Credit Rating Agencies. Retrieved from Investopedia:
http://www.investopedia.com/articles/bonds/09/history-credit-rating-agencies.asp

Drew Sherman
19
International Monetary Fund. (2016, September 20). Debt Relief Underthe Heavily Indebted Poor
Countries (HIPC) Initiative. Retrieved from International Monetary Fund: www.imf.org
Lahiri, S. (2007). Theory and Practice of Foreign Aid. Amsterdam,NLD:Elsevier Science &
Technology. Retrieved from http://www.ebrary.com
Mavrotas, G. (2007). Scaling Up of Foreign Aid and the Emerging New Agenda. In S. Lahiri, Theory and
Practice of Foreign Aid (pp. 211-226). Amsterdam, NLD: Elsvier Science & Technology.
Office of the Historian. (2016, November 3). Marshall Plan,1948. Retrieved from Office of the
Historian: http://history.state.gov/milestones
Organisation for Economic Co-operation and Development. (2003). Papers on Official Development
Assistance (ODA). Paris:OECD Publishing.
Organisation for Economic Co-operation and Development. (2015, January 1). DAC List of ODA
Recipients. Retrieved from OECD:www.oecd.org
Palac-McMiken, E. D. (1995). Rescheduling,Creditworthiness, and Market Prices. Aldershot: Avebury.
Sachs, J. (2005). The End of Poverty: Economic Possibilitiesof Our Time. Penguin Publishing.
Sachs, J.,& Huizinga, H. (1987). U.S. Commercial Banks and the Developing Country Debt Crisis.
National Bureau of Economic Research.
Smith, A. (1776). An Inquiry into the Nature and Causesof the Wealth of Nations.
The World Bank. (2013). International Debt Statistics. Washington, D.C.: The World Bank.
The World Bank. (2016). Debt Data. Retrieved from The World Bank:
http://datatopics.worldbank.org/debt/
The World Bank. (2016). World Development Indicators. Retrieved from The World Bank:
http://data.worldbank.org/data-catalog/world-development-indicators
Thomas, C. (1999). International Debt Forgiveness and Global Poverty Reduction. FordhamUrban Law
Journal,27(5).
White, H. (2007). Evaluating Aid Imact: Approaches and Findings. In S. Lahiri , Theory and Practice of
Foreign Aid (pp. 187-207). Amsterdam, NLD: Elsevier Science & Technology.

Andrew Sherman - Writing Sample

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (18)

Similar to Andrew Sherman - Writing Sample

Similar to Andrew Sherman - Writing Sample (20)

Andrew Sherman - Writing Sample