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Economics Department, University of South Africa, Pretoria, South Africa
South Africa
Nicholas M. Odhiambo
Department of Economics, University of South Africa, P.O Box 392, UNISA 0003, Pretoria, South Africa
South Africa
Vol 26 No 2 (2017), Articles, pages 113-128
Submitted: 03-12-2017 Accepted: 03-12-2017 Published: 03-12-2017
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This article explores the theoretical link and transmission mechanism through which
official development assistance (ODA) or foreign aid affects poverty. The study also
presents some major debates on the effectiveness of foreign aid on development in
general and poverty reduction in particular. The main findings from this exploratory study
suggest that there is no generally accepted economic theory upon which foreign aid
allocation is based. Several theories have been advanced, but most of them have been
heavily criticized. As a result, there are two distinct and extreme lines of thoughts: those
who believe that foreign aid can contribute to a virtuous circle of economic growth and
poverty reduction against the other group, which contends that foreign aid leads to a
vicious cycle of poverty and stunted development. Finally, a third group assumes that once
we distinguish channels through which foreign aid affects development, we may notice
several degrees of positive impact on development and diminution of poverty, depending
on the choice of channel, the recipient country features and the domestic economic

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