Abstract
Studies on the contribution of concessional debt to economic development are sketchy. The paucity of empirical studies on this subject is even more glaring in the context of the English-speaking West African countries. Bilateral and multilateral aid donors have intensified the flow of official assistance to the developing countries of the world with the aim to bridge the developmental gap between the less developed countries and the industrialized countries of the world. The question that often arises is whether such aids have yielded the desired results among the recipient countries. Against this backdrop, we examined the effect of concessional debt on the economic development in the West African Monetary Zone (WAMZ) using cross-sectional data from 1975-2014. The panel cointegration and panel unit root tests were employed to test for long-run relationship and stationarity of the series respectively. Our model was analysed with both fixed and random effect panel regression while the Hausman test be used to determine the best and appropriate choice between the two. Our findings reveal that multilateral and bilateral concessional debts have significant positive effect on standard of living in the West African Monetary Zone. The panel cointegration test also indicates that there is no long-run relationship between concessional debt and per capita income. We conclude that inflow of concessional aid from multilateral and bilateral donors has had remarkable influence on the standard of living in the region. We recommend that concessional aid to the less developed countries be intensified. However, recipient countries should have a credible external borrowing guideline scribed in their legislation to check against excessive borrowing and also ensure that aid received is used for the intended (developmental) purposes. External institutions and aid agencies should also be involved in the entire aid administration with aim of ensuring that aid is extended based on need, not political ties. 
 
 JEL: A10; B20; C01
 
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Highlights
In developing countries, an essential element of the development finance landscape is the concessional loans extended to developing countries by bilateral and multilateral donors
Bilateral and multilateral aid donors have intensified the flow of official assistance to the developing countries of the world with the aim to bridge the developmental gap between the less developed countries and the industrialized countries of the world
Looking at our region of interest, closer economic ties and autonomy of currencies in the West African Monetary Zone (WAMZ) region compared to the Francophone West African nations, justified our reason to single out the region for the assessment since they have economic independence so to say as well as independence of policy frameworks
Summary
An essential element of the development finance landscape is the concessional loans extended to developing countries by bilateral and multilateral donors. The cutoff is the level of income above which countries lose their eligibility for concessional loans or aids It is argued the motivation of recipient countries to remain at cutoff rate is predicated by optimal concessional lending. Filling this particular knowledge gap will enable us to make a better country-by-country comparisons drawn from the regional empirical findings Against this backdrop, we carry out this study with the goal of determining the effects of concessional debt on the economic development of the West African Monetary zone. Multilateral and bilateral aid agencies have continued to show strong commitment in helping less developed countries (LDCs) and LICs achieve sustainable economic development as reflected in the 2015 modernized debt concessionality which increased the grant element from 25 percent to 45 percent, and reduced discount rate from 10 percent to 5 percent (OECD, 2014). Mechanisms, justification and macro-economic targets of loan concessions are yet a key motivation for this study
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