Amid the polycrises of Covid-19, the conflict in Ukraine and the intensification of geopolitical tensions, mid-size European donors face pressures to leverage development cooperation to secure their foreign policy goals. These donors now deploy a diverse toolbox of development levers to...

We examine the effect of relaxing a binding borrowing constraint for a recipient country on the amount of foreign aid it receives. We do so by developing a two-country, two-period trade-theoretic model. The relaxation of the borrowing constraint reduces the flow of foreign aid, suggesting that...