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Transfers and the Terms of Trade in an Overlapping Generations Model

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Author Info
Emily T. Cremers (National University of Singapore)
Partha Sen (Delhi School of Economics)

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Abstract

This paper explores the steady state welfare implications of permanent transfers in a two-country, two-sector overlapping generations model. At the golden rule and with Walrasian stability, we demonstrate that the change in the (static) terms of trade always works in favor of a transfer paradox. The conditions under which the transfer paradox is obtained are independent of factor intensity rankings and also whether the donor or recipient has the higher savings propensity. In contrast, conditions under which a change in the intertemporal terms of trade delivers a Pareto-improving transfer depend upon both of the above and also on the initial position of the world capital-labor ratio relative to the golden rule.

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Publisher Info
Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 138.

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Length: 23 pages
Date of creation: Aug 2005
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Handle: RePEc:cde:cdewps:138

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Related research
Keywords: Transfer paradox; Pareto-improving transfers; two-sector overlapping generations model;

Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F35 - International Economics - - International Finance - - - Foreign Aid
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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References listed on IDEAS
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  1. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-86, November. [Downloadable!] (restricted)
  2. Slobodan Djajic & Sajal Lahiri & Pascalis Raimondos-Moller, 1998. "The Transfer Problem and the Intertemporal Terms of Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 427-436, May.
  3. Turunen-Red, Arja H. & Woodland, Alan D., 1988. "On the multilateral transfer problem : Existence of Pareto improving international transfers," Journal of International Economics, Elsevier, vol. 25(3-4), pages 249-269, November. [Downloadable!] (restricted)
  4. Gale, David, 1974. "Exchange equilibrium and coalitions : An example," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 63-66, March. [Downloadable!] (restricted)
  5. Tan, Kim-Heng, 1998. "International Transfers from Rich to Poor Nations," Review of International Economics, Blackwell Publishing, vol. 6(3), pages 461-71, August.
  6. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1985. "The Generalized Theory of Transfers and Welfare: Exogenous (Policy-imposed) and Endogenous (Transfer-induced) Distortions," The Quarterly Journal of Economics, MIT Press, vol. 100(3), pages 697-714, August. [Downloadable!] (restricted)
  7. Murray C. Kemp & Koji Shimomura, 2003. "A Theory of Involuntary Unrequited International Transfers," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 686-715, June. [Downloadable!] (restricted)
  8. Stiglitz, Joseph E, 1970. "Factor Price Equalization in a Dynamic Economy," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 456-88, May-June. [Downloadable!] (restricted)
  9. Haaparanta, Pertti, 1989. "The intertemporal effects of international transfers," Journal of International Economics, Elsevier, vol. 26(3-4), pages 371-382, May. [Downloadable!] (restricted)
  10. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-18, September. [Downloadable!] (restricted)
  11. Yano, Makoto, 1991. "Temporary transfers in a simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 54(2), pages 372-388, August. [Downloadable!] (restricted)
  12. Ichiro Gombi & Shinsuke Ikeda, 2003. "Habit Formation And The Transfer Paradox," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 361-380. [Downloadable!] (restricted)
  13. Galor, O & Polemarchakis, H M, 1987. "Intertemporal Equilibrium and the Transfer Paradox," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 147-56, January. [Downloadable!] (restricted)
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  14. Eaton, Jonathan, 1989. "Foreign public capital flows," Handbook of Development Economics, in: Hollis Chenery† & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 25, pages 1305-1386 Elsevier. [Downloadable!] (restricted)
  15. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November. [Downloadable!] (restricted)
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