Evaluating Alternative Explanations

This chapter evaluates alternative explanations for differences in borrowing portfolios across developing countries. The analysis suggests that borrowing portfolios result from the interaction of supply- and demand-side factors, through their relative importance differs across creditors. Loans from private creditors are more heavily shaped by creditors’ preferences, while recipient preferences strongly affect borrowing from public creditors. The analysis finds no evidence that recognizing Taiwan negatively affects the loan volume obtained from China. Recipient governments do not appear to decide among creditors based on the interest rate of loans offered. Borrowing portfolios do not depend on the use to which the loan is put as differences in borrowing portfolios across coalitions remain irrespective of infrastructure needs, humanitarian emergencies, and debt crises. This suggests that recipients do not use particular creditors for specific projects. Lastly, domestic political considerations appear more important in determining governments’ borrowing decisions than their ideological alignment with creditor governments.