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Virtuous Circles and the Case for Aid

Research output: Contribution to journalArticle

  • Paddy Carter
  • Jon Temple
Original languageEnglish
Number of pages29
JournalIMF Economic Review
Early online date16 Nov 2016
DateAccepted/In press - 12 Aug 2016
DateE-pub ahead of print (current) - 16 Nov 2016


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.

    Research areas

  • Foreign aid, amplification effects, virtuous circles, vicious circles

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    Rights statement: This is the author accepted manuscript (AAM). The final published version (version of record) is available online via Springer at Please refer to any applicable terms of use of the publisher.

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