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The transfer paradox in a one-sector overlapping generations model

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  • Cremers, Emily T.
  • Sen, Partha

Abstract

This paper examines the effects of international income transfers on capital accumulation and welfare in a one-sector overlapping generations model. It is shown that a strong form of the transfer paradox - in which the donor country experiences a welfare gain while the recipient country experiences a welfare loss - may occur both in and out of steady state. In addition, it is shown that a weak form of the transfer paradox - where either the donor or recipient (but not both) experiences a paradoxical welfare effect - may characterize all segments of the transition path not already characterized by the strong transfer paradox.

Suggested Citation

  • Cremers, Emily T. & Sen, Partha, 2008. "The transfer paradox in a one-sector overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 1995-2012, June.
  • Handle: RePEc:eee:dyncon:v:32:y:2008:i:6:p:1995-2012
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    References listed on IDEAS

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    1. Galor, Oded & Ryder, Harl E., 1989. "Existence, uniqueness, and stability of equilibrium in an overlapping-generations model with productive capital," Journal of Economic Theory, Elsevier, vol. 49(2), pages 360-375, December.
    2. Gale, David, 1974. "Exchange equilibrium and coalitions : An example," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 63-66, March.
    3. Jagdish N. Bhagwati & Richard A. Brecher & Tatsuo Hatta, 1985. "The Generalized Theory of Transfers and Welfare: Exogenous (policy-Imposed) and Endogenous (Transfer-Induced) Distortion," The Quarterly Journal of Economics, Oxford University Press, vol. 100(3), pages 697-714.
    4. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," Review of Economic Studies, Oxford University Press, vol. 56(1), pages 1-19.
    5. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-618, September.
    6. repec:ebl:ecbull:v:6:y:2006:i:3:p:1-8 is not listed on IDEAS
    7. O. Galor & H. M. Polemarchakis, 1987. "Intertemporal Equilibrium and the Transfer Paradox," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 147-156.
    8. Haaparanta, Pertti, 1989. "The intertemporal effects of international transfers," Journal of International Economics, Elsevier, vol. 26(3-4), pages 371-382, May.
    9. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
    10. Mitsuyoshi Yanagihara, 2006. "The strong transfer paradox in an overlapping generations framework," Economics Bulletin, AccessEcon, vol. 6(3), pages 1-8.
    11. Tan, Kim-Heng, 1998. "International Transfers from Rich to Poor Nations," Review of International Economics, Wiley Blackwell, vol. 6(3), pages 461-471, August.
    12. Sosin, Kim H & Fairchild, Loretta G, 1984. "Nonhomotheticity and Technological Bias in Production," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 44-50, February.
    13. Yano, Makoto, 1983. "Welfare aspects of the transfer problem," Journal of International Economics, Elsevier, vol. 15(3-4), pages 277-289, November.
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    Citations

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    Cited by:

    1. Emily T. Cremers & Partha Sen, 2009. "Transfers, the terms of trade, and capital accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 42(4), pages 1599-1616, November.
    2. Jung Young-Cheol & Quyen Nguyen V., 2012. "The Global Transmission of Government Debt," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-24, July.
    3. Kojun Hamada & Mitsuyoshi Yanagihara, 2014. "Donor Altruism and the Transfer Paradox in an Overlapping Generations Model," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 905-922, November.
    4. Capello, Marcelo & Figueras, Alberto & Freille, Sebastian & Moncarz, Pedro, 2013. "The role of federal transfers in regional convergence in human development indicators in Argentina," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 27, pages 33-63.
    5. Kojun Hamada & Akihiko Kaneko & Mitsuyoshi Yanagihara, 2017. "The transfer paradox in a pay-as-you-go pension system," International Economics and Economic Policy, Springer, vol. 14(2), pages 221-238, April.
    6. Emily T. Cremers, 2008. "Transfers, the Terms of Trade and Capital Accumulation," DEGIT Conference Papers c013_018, DEGIT, Dynamics, Economic Growth, and International Trade.
    7. repec:kap:jeczfn:v:122:y:2017:i:3:d:10.1007_s00712-017-0537-5 is not listed on IDEAS

    More about this item

    JEL classification:

    • 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, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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