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Trade agreements, bargaining and economic growth

  • Maoz, Yishay D.
  • Peled, Dan
  • Sarid, Assaf

Rebelo's two-sector endogenous growth model is embedded within a two-country international trade framework. The two countries bargain over a trade agreement that specifies: (i) the size of the foreign aid that the richer country gives to the poorer one; (ii) the terms of the international trade that takes place after the aid is given. Foreign aid is given not because of generosity, but because it improves the capital allocation across the world and thus raises total world production. This world production surplus enables the rich country to raise its equilibrium consumption and welfare beyond their no-aid levels. To ensure it, the rich country uses a trade agreement to condition the aid on favorable terms of trade.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 33 (2011)
Issue (Month): 1 (March)
Pages: 92-101

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Handle: RePEc:eee:jmacro:v:33:y:2011:i:1:p:92-101
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  1. Lahiri, Sajal & Raimondos-Moller, Pascalis & Wong, Kar-yiu & Woodland, Alan D., 2002. "Optimal foreign aid and tariffs," Journal of Development Economics, Elsevier, vol. 67(1), pages 79-99, February.
  2. Felbermayr, Gabriel, 2007. "Specialization on a technologically stagnant sector need not be bad for growth," Munich Reprints in Economics 20645, University of Munich, Department of Economics.
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  5. Akiko Suwa-Eisenmann & Thierry Verdier, 2007. "Aid and trade," Oxford Review of Economic Policy, Oxford University Press, vol. 23(3), pages 481-507, Autumn.
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  7. Chan, Kenneth S., 1988. "Trade negotiations in a Nash bargaining model," Journal of International Economics, Elsevier, vol. 25(3-4), pages 353-363, November.
  8. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  9. Jeremy Bulow & Kenneth Rogoff, 2005. "Grants versus Loans for Development Banks," American Economic Review, American Economic Association, vol. 95(2), pages 393-397, May.
  10. Frank Ackerman, . "05-01 "The Shrinking Gains from Trade: A Critical Assessment of Doha Round Projections"," GDAE Working Papers 05-01, GDAE, Tufts University.
  11. Devereux, Michael B, 1997. "Growth, Specialization, and Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 565-85, August.
  12. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  13. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  14. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-53, March.
  15. Robert Hunter Wade, 2003. "What strategies are viable for developing countries today? The World Trade Organization and the shrinking of ‘development space’," LSE Research Online Documents on Economics 28239, London School of Economics and Political Science, LSE Library.
  16. John Kennan & Raymond Riezman, 2013. "Do Big Countries Win Tariff Wars?," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 4, pages 45-51 World Scientific Publishing Co. Pte. Ltd..
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