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The gains from trade in a small monetary economy

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Author Info

  • George Darko
  • Richard Dusansky
  • Pankaj Maskara
  • Nadeem Naqvi

Abstract

In general equilibrium under constant returns to scale and perfect competition the normative theory of international trade is examined for a monetary, not a barter, economy. Persons exhibit flow demand for real balances just as they do for commodities because money provides well-being salient utility insofar as its content is desire fulfilment, satisfaction or usefulness. For such a monetary small open economy, an additional terms-of-trade effect or inflationary effect of a tariff is identified, which drives many unusual results including the sub-optimality of free trade, unless the exchange rate is flexible and the commodities and real balances are weakly separable.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09638190601037427
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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 15 (2006)
Issue (Month): 4 ()
Pages: 403-430

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Handle: RePEc:taf:jitecd:v:15:y:2006:i:4:p:403-430

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Related research

Keywords: Monetary economy; international trade; normative theory; tariff; quota; voluntary export constraint; exchange rate;

References

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  1. Boyle, Glenn W & Young, Leslie, 1988. "Asset Prices, Commodity Prices, and Money: A General Equilibrium, Rational Expectations Model," American Economic Review, American Economic Association, vol. 78(1), pages 24-45, March.
  2. Samuelson, Paul A & Sato, Ryuzo, 1984. "Unattainability of Integrability and Definiteness Conditions in the General Case of Demand for Money and Goods," American Economic Review, American Economic Association, vol. 74(4), pages 588-604, September.
  3. Kemp, Murray C, 1982. "The Monetary Determinants of Real Trade," Economica, London School of Economics and Political Science, vol. 49(195), pages 261-66, August.
  4. Dusansky, Richard, 1989. "The Demand for Money and Goods in the Theory of Consumer Choice with Money," American Economic Review, American Economic Association, vol. 79(4), pages 895-901, September.
  5. Neary, J Peter & Ruane, Frances, 1985. "International Capital Mobility, Shadow Prices and the Cost of Protection," CEPR Discussion Papers 58, C.E.P.R. Discussion Papers.
  6. Blejer, Mario I. & Hillman, Arye L., 1982. "On the dynamic non-equivalence of tariffs and quotas in the monetary model of the balance of payments," Journal of International Economics, Elsevier, vol. 13(1-2), pages 163-169, August.
  7. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
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