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Transfers, the terms of trade, and capital accumulation

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  • Emily T. Cremers
  • Partha Sen

Abstract

In the context of a two-sector overlapping-generations model it is demonstrated that a steady-state transfer paradox may arise under commodity trade with stability and without distortions or bystanders. The existence of the paradox is due to the effect of the transfer on world capital accumulation, which is shown to always (i.e., for any ranking of factor intensities and savings rates) improve the donor's terms of trade. Transfers may also improve steady-state welfare for both donor and recipient and produce paradoxical welfare results along the transition path.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 42 (2009)
Issue (Month): 4 (November)
Pages: 1599-1616

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Handle: RePEc:cje:issued:v:42:y:2009:i:4:p:1599-1616

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  1. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, Econometric Society, vol. 60(6), pages 1351-86, November.
  2. Partha Sen & Emily T. Cremers, 2010. "The Transfer Paradox in a One-Sector Overlapping Generations Model," Working Papers id:2851, eSocialSciences.
  3. Polemarchakis, H M, 1983. "On the Transer Paradox," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 749-60, October.
  4. Galor, O. & Polemarchakis, H.M., 1984. "Intertemporal equilibrium and the transfor paradox," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1984014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Ichiro Gombi & Shinsuke Ikeda, 2003. "Habit Formation And The Transfer Paradox," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 54(4), pages 361-380.
  6. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in Dynamic Heckscher-Ohlin Models: Overlapping Generations Versus Infinitely Lived Consumers," NBER Working Papers 12566, National Bureau of Economic Research, Inc.
  7. Slobodan Djajic & Sajal Lahiri & Pascalis Raimondos-Moller, 1998. "The Transfer Problem and the Intertemporal Terms of Trade," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(2), pages 427-436, May.
  8. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, Elsevier, vol. 13(3-4), pages 353-364, November.
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