Foreign Aid under Quantitative Restrictions: Welfare Effects and International Factor Mobility
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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Volume (Year): 14 (2006)
Issue (Month): 4 (09)
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