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Virtuous Circles and the Case for Aid

Listed author(s):
  • Patrick Carter

    ()

  • Jonathan Temple

    ()

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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File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp15636.pdf
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Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 14/636.

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Length: 36 pages
Date of creation: May 2014
Date of revision: 12 Oct 2015
Handle: RePEc:bri:uobdis:14/636
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