Virtuous Circles and the Case for Aid

Jonathan Temple and Patrick Carter ()

No 10880, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: It is sometimes argued that foreign aid leads to a virtuous circle in which growth becomes self-reinforcing. We study two versions of this argument, using a modified neoclassical growth model in which the effects of parameter changes and capital accumulation are amplified. Simulations are used to quantify the welfare benefits from aid transfers. We find that, contrary to expectations, amplification makes only a modest difference to the welfare benefits from aid. This is true even when aid allows a faster exit from a vicious circle or poverty trap.

Keywords: Amplification effects; Foreign aid; Vicious circles; Virtuous circles (search for similar items in EconPapers)
JEL-codes: F35 O40 (search for similar items in EconPapers)
Date: 2015-10
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Related works:
Journal Article: Virtuous Circles and the Case for Aid (2017)
Working Paper: Virtuous Circles and the Case for Aid (2015)
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