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The trade balance and the terms of trade in a two-country two-sector OLG economy

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Author Info
María Dolores Guilló () (Universidad de Alicante, Campus San Vicente, Dpto. Fundamentos del Análisis Económico, 03071 Alicante, Spain)

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Abstract

We consider a two-country, two-sector OLG model. It is shown that the trade balance and the relative price of exports are always positively related when exports are labor intensive regardless of the elasticity of intertemporal substitution in consumption. A large response of savings to future prices becomes a sufficient condition for an inverse relation between these variables only if exports are capital intensive. In this case, a rise in the terms of trade can be followed by a trade balance decline if consumption goods are capital intensive and the income effect implied on savings is negative and large.

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Publisher Info
Article provided by Springer in its journal Spanish Economic Review.

Volume (Year): 3 (2001)
Issue (Month): 1 ()
Pages: 71-80
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Handle: RePEc:spr:specre:v:3:y:2001:i:1:p:71-80

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Related research
Keywords: Terms of trade; trade balance; two-sector OLG;

Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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This page was last updated on 2009-12-17.

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