Does Trade Liberalization Benefit Young and Old Alike?
In an overlapping generations model, capital and labor produce two tradable goods. A kleptocratic government spends the tariff revenue. Trade liberalization benefits the retired generation if and only if the relative price of the capital-intensive good rises. Starting from autarky, a small liberalization benefits subsequent generations if and only if it hurts the retired one, a result reminiscent of the Stolper-Samuelson theorem. However, the terms-of-trade effect means a large liberalization may simultaneously raise the welfare of all generations. Copyright 1998 by Blackwell Publishing Ltd.
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Volume (Year): 6 (1998)
Issue (Month): 1 (February)
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References listed on IDEAS
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- Ruffin, Roy J & Yoon, Young Deak, 1993. "International Capital Movements in the Solow and Overlapping Generations Growth Models," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 123-135, June.
- Galor, Oded, 1994. "Tariffs, Income Distribution and Welfare in a Small Overlapping-Generations Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 173-192, February.
- Pablo Serra, 1991. "Short-run and Long-run Welfare Implications of Free Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 24(1), pages 21-33, February.