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Foreign Aid under Quantitative Restrictions: Welfare Effects and International Factor Mobility

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  • Trisha Bezmen

Abstract

Using a two-country, general-equilibrium model of international trade, this paper incorporates pre-existing quantitative trade restrictions and international factor mobility into the transfer problem analysis. The effects of foreign aid on the welfare of both the donor and recipient nations are identified under each form of quantitative trade restriction: quotas and voluntary export restraints (VERs). In doing so, this paper identifies conditions under which international transfers are strictly Pareto-improving (i.e. increase global welfare). A central result of this analysis is the direct welfare effect of a transfer received by a nation with quota-constrained (VER-constrained) imports is enhanced (may be enhanced) by a worsening of the recipient's terms of trade. Copyright © 2006 The Author; Journal compilation © 2006 Blackwell Publishing Ltd.

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  • Trisha Bezmen, 2006. "Foreign Aid under Quantitative Restrictions: Welfare Effects and International Factor Mobility," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 709-721, September.
  • Handle: RePEc:bla:reviec:v:14:y:2006:i:4:p:709-721
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    1. Hatzipanayotou, Panos & Michael, Michael S., 1995. "Foreign aid and public goods," Journal of Development Economics, Elsevier, vol. 47(2), pages 455-467, August.
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    7. J. Peter Neary, 1985. "International Factor Mobility, Minimum Wage Rates, and Factor-Price Equalization: A Synthesis," The Quarterly Journal of Economics, Oxford University Press, vol. 100(3), pages 551-570.
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    10. Kemp, Murray C. & Wong, Kar-yiu, 1993. "Paradoxes associated with the administration of foreign aid," Journal of Development Economics, Elsevier, vol. 42(1), pages 197-204, October.
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    Cited by:

    1. Henrik Egbert & Nadeem Naqvi, 2011. "Market-dependent Production Set," MAGKS Papers on Economics 201145, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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