Based on a neoclassical growth model for open low income economies this paper shows that development strategies, which rely on net borrowing abroad lead to a position of sustainable foreign indebtedness (provided that all capital imports are used for investment financing), but turn out to be...

Using a two-country two-good model, we examine the welfare effects of foreign aid that facilitates factor movement between industries in the recipient country. The government of the donor country produces a public input, which the recipient's government is forced to purchase by spending aid as...