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Intergenerational Welfare And Trade

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  • CREMERS, EMILY T.

Abstract

This paper examines the dynamic effects of international commodity trade by merging two benchmark environments, namely, the static factor endowments model and the neoclassical growth model. Two main questions are asked. First, how does commodity trade affect the capital-accumulation paths of two trade partners? Second, do the welfare effects associated with these dynamics serve to reinforce or mitigate the well-known welfare effects associated with the static factor endowments model? It is demonstrated that trade will eventually, if not immediately, narrow the difference in domestic capital accumulation paths. This narrowing introduces a negative welfare effect that is large enough to worsen overall welfare for the country whose capital accumulation has declined. Thus, although the dynamic effects of trade are large enough to dominate the static effects, they do not reinforce the concept of mutually advantageous trade.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 9 (2005)
Issue (Month): 05 (November)
Pages: 585-611

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Handle: RePEc:cup:macdyn:v:9:y:2005:i:05:p:585-611_04

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  13. Pablo Serra, 1991. "Short-run and Long-run Welfare Implications of Free Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 24(1), pages 21-33, February.
  14. Galor, Oded, 1986. "Time preference and international labor migration," Journal of Economic Theory, Elsevier, vol. 38(1), pages 1-20, February.
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  19. Cremers, Emily, 2001. "General Equilibrium with Trade Balance and Real Interest Rate Parity," Staff General Research Papers 34859, Iowa State University, Department of Economics.
  20. Cremers, Emily T., 2006. "Dynamic efficiency in the two-sector overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 1915-1936, November.
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Cited by:
  1. Cremers, Emily T., 2006. "Dynamic efficiency in the two-sector overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 1915-1936, November.

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