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Virtuous Circles and the Case for Aid

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  • Temple, Jonathan
  • Carter, Patrick

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.

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  • Temple, Jonathan & Carter, Patrick, 2015. "Virtuous Circles and the Case for Aid," CEPR Discussion Papers 10880, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10880
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    Cited by:

    1. Carter, Patrick, 2014. "Aid allocation rules," European Economic Review, Elsevier, vol. 71(C), pages 132-151.
    2. repec:hal:spmain:info:hdl:2441/22vv42pfks8jbb5qstg53r5mfl is not listed on IDEAS
    3. Carter, Patrick & Postel-Vinay, Fabien & Temple, Jonathan, 2015. "Dynamic aid allocation," Journal of International Economics, Elsevier, vol. 95(2), pages 291-304.
    4. Jonathan Temple & Huikang Ying & Patrick Carter, 2014. "Transfers and Transformations: Remittances, Foreign Aid, and Growth," Bristol Economics Discussion Papers 14/649, School of Economics, University of Bristol, UK, revised 02 Dec 2014.
    5. Douch, Mustapha & Edwards, Huw & Landman, Todd & Mallick, Sushanta, 2022. "Aid effectiveness: Human rights as a conditionality measure," World Development, Elsevier, vol. 158(C).
    6. repec:spo:wpmain:info:hdl:2441/22vv42pfks8jbb5qstg53r5mfl is not listed on IDEAS

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    Keywords

    Amplification effects; Foreign aid; Vicious circles; Virtuous circles;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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