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The gains from trade in a small monetary economy

  • George Darko
  • Richard Dusansky
  • Pankaj Maskara
  • Nadeem Naqvi

In general equilibrium under constant returns to scale and perfect competition the normative theory of international trade is examined for a monetary, not a barter, economy. Persons exhibit flow demand for real balances just as they do for commodities because money provides well-being salient utility insofar as its content is desire fulfilment, satisfaction or usefulness. For such a monetary small open economy, an additional terms-of-trade effect or inflationary effect of a tariff is identified, which drives many unusual results including the sub-optimality of free trade, unless the exchange rate is flexible and the commodities and real balances are weakly separable.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09638190601037427
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Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 15 (2006)
Issue (Month): 4 ()
Pages: 403-430

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Handle: RePEc:taf:jitecd:v:15:y:2006:i:4:p:403-430
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  1. Blejer, Mario I. & Hillman, Arye L., 1982. "On the dynamic non-equivalence of tariffs and quotas in the monetary model of the balance of payments," Journal of International Economics, Elsevier, vol. 13(1-2), pages 163-169, August.
  2. Boyle, Glenn W & Young, Leslie, 1988. "Asset Prices, Commodity Prices, and Money: A General Equilibrium, Rational Expectations Model," American Economic Review, American Economic Association, vol. 78(1), pages 24-45, March.
  3. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
  4. Neary, J Peter & Ruane, Frances, 1985. "International Capital Mobility, Shadow Prices and the Cost of Protection," CEPR Discussion Papers 58, C.E.P.R. Discussion Papers.
  5. Dusansky, Richard, 1989. "The Demand for Money and Goods in the Theory of Consumer Choice with Money," American Economic Review, American Economic Association, vol. 79(4), pages 895-901, September.
  6. Samuelson, Paul A & Sato, Ryuzo, 1984. "Unattainability of Integrability and Definiteness Conditions in the General Case of Demand for Money and Goods," American Economic Review, American Economic Association, vol. 74(4), pages 588-604, September.
  7. Kemp, Murray C, 1982. "The Monetary Determinants of Real Trade," Economica, London School of Economics and Political Science, vol. 49(195), pages 261-66, August.
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