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The trade balance and the terms of trade in a two-country two-sector OLG economy


  • María Dolores Guilló

    () (Universidad de Alicante, Campus San Vicente, Dpto. Fundamentos del Análisis Económico, 03071 Alicante, Spain)


We consider a two-country, two-sector OLG model. It is shown that the trade balance and the relative price of exports are always positively related when exports are labor intensive regardless of the elasticity of intertemporal substitution in consumption. A large response of savings to future prices becomes a sufficient condition for an inverse relation between these variables only if exports are capital intensive. In this case, a rise in the terms of trade can be followed by a trade balance decline if consumption goods are capital intensive and the income effect implied on savings is negative and large.

Suggested Citation

  • María Dolores Guilló, 2001. "The trade balance and the terms of trade in a two-country two-sector OLG economy," Spanish Economic Review, Springer;Spanish Economic Association, vol. 3(1), pages 71-80.
  • Handle: RePEc:spr:specre:v:3:y:2001:i:1:p:71-80

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    References listed on IDEAS

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    Cited by:

    1. Frédéric Gannon & Gilles Le Garrec & Vincent Touze, 2016. "Aging, international capital flows and long run convergence," Sciences Po publications 2016-09, Sciences Po.
    2. Serdar Sayan, 2002. "Dynamic Heckscher-Ohlin Results from a 2x2x2x2 Overlapping Generations Model with Unequal Population Growth Rates," Working Papers 0201, Department of Economics, Bilkent University.
    3. Sayan, Serdar, 2005. "Heckscher-Ohlin revisited: implications of differential population dynamics for trade within an overlapping generations framework," Journal of Economic Dynamics and Control, Elsevier, vol. 29(9), pages 1471-1493, September.

    More about this item


    Terms of trade; trade balance; two-sector OLG;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General


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