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Short-run and Long-run Welfare Implications of Free Trade

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  • Pablo Serra

Abstract

The author considers a two-factor (capital and labor), two-good (consumption and investment goods), one-country, overlapping-generations model. For the case in which the closed economy follows an efficient path, the author proves, that if trade lowers (raises) the relative price of the capital-intensive good, the current old people, who only own capital, lose (gain) from the opening of the economy, while all subsequent generations, whose only endowment is labor, benefit (lose) from it. It is also shown that the country gains from trade in the sense that the generations made better off by trade can compensate those that lose from the opening of the economy.

Suggested Citation

  • 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.
  • Handle: RePEc:cje:issued:v:24:y:1991:i:1:p:21-33
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    Cited by:

    1. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in dynamic Heckscher-Ohlin models: overlapping generations versus infinitely lived consumers," Staff Report 377, Federal Reserve Bank of Minneapolis.
    2. Cremers, Emily T., 2005. "Intergenerational Welfare And Trade," Macroeconomic Dynamics, Cambridge University Press, vol. 9(05), pages 585-611, November.
    3. Gokcekus, Omer & Tower, Edward, 1998. "Does Trade Liberalization Benefit Young and Old Alike?," Review of International Economics, Wiley Blackwell, vol. 6(1), pages 50-58, February.
    4. Fedotenkov, Igor & van Groezen, Bas & Meijdam, Lex, 2012. "International trade with pensions and demographic shocks," MPRA Paper 74874, University Library of Munich, Germany, revised 31 May 2016.

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