Effects of debt relief under the enhanced HIPC Initiative and the MDRI on developing countries using a time-shifted difference-in differences strategy.

Abstract

The IMF and World Bank launched the Heavily Indebted Poor Countries (HIPC) Initiative in 1996 to alleviate the debt overhang problem in developing countries. They amended the program to the Enhanced HIPC Initiative in 1999 and added an extension, the Multilateral Debt Relief Initiative (MDRI), in 2005. The initiatives included a decision point, in which countries began receiving debt relief conditional on reform, and a completion point, in which countries received debt relief in full. Each HIPC reached the decision point and completion point at different times. I exploited this variation in treatment dates by applying a time-shifted difference-in-differences strategy to determine the effect of the Enhanced HIPC Initiative and the MDRI. I found that debt relief under these initiatives increased capital investment, enrollment rates, male employment rates, and GDP per capita. Household consumption increased, but mainly in the short run. Foreign direct investment and female employment rates were unaffected.