Transfers and the Terms of Trade in an Overlapping Generations Model
AbstractThis 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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Bibliographic InfoPaper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 138.
Length: 23 pages
Date of creation: Aug 2005
Date of revision:
Other versions of this item:
- Partha Sen & Emily T. Cremers, 2010. "Transfers and the Terms of Trade in an Overlapping Generations Model," Working Papers id:3004, eSocialSciences.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-08-20 (All new papers)
- NEP-DGE-2005-08-20 (Dynamic General Equilibrium)
- NEP-INT-2005-08-20 (International Trade)
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