IDEAS home Printed from https://ideas.repec.org/p/cde/cdewps/138.html
   My bibliography  Save this paper

Transfers and the Terms of Trade in an Overlapping Generations Model

Author

Listed:
  • Emily T. Cremers

    (National University of Singapore)

  • Partha Sen

    (Delhi School of Economics)

Abstract

This paper explores the steady state welfare implications of permanent transfers in a two-country, two-sector overlapping generations model. At the golden rule and with Walrasian stability, we demonstrate that the change in the (static) terms of trade always works in favor of a transfer paradox. The conditions under which the transfer paradox is obtained are independent of factor intensity rankings and also whether the donor or recipient has the higher savings propensity. In contrast, conditions under which a change in the intertemporal terms of trade delivers a Pareto-improving transfer depend upon both of the above and also on the initial position of the world capital-labor ratio relative to the golden rule.

Suggested Citation

  • Emily T. Cremers & Partha Sen, 2005. "Transfers and the Terms of Trade in an Overlapping Generations Model," Working papers 138, Centre for Development Economics, Delhi School of Economics.
  • Handle: RePEc:cde:cdewps:138
    as

    Download full text from publisher

    File URL: http://www.cdedse.org/pdf/work138.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Philip L. Brock, 1996. "International Transfers, the Relative Price on Non-Traded Goods, and the Current Account," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 163-180, February.
    2. 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.
    3. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-1386, November.
    4. Murray C. Kemp & Koji Shimomura, 2003. "A Theory of Involuntary Unrequited International Transfers," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 686-715, June.
    5. Ichiro Gombi & Shinsuke Ikeda, 2003. "Habit Formation And The Transfer Paradox," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 361-380, December.
    6. Stiglitz, Joseph E, 1970. "Factor Price Equalization in a Dynamic Economy," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 456-488, May-June.
    7. Gale, David, 1974. "Exchange equilibrium and coalitions : An example," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 63-66, March.
    8. Jeffrey B. Nugent & Makoto Yano, 1999. "Aid, Nontraded Goods, and the Transfer Paradox in Small Countries," American Economic Review, American Economic Association, vol. 89(3), pages 431-449, June.
    9. Haaparanta, Pertti, 1989. "The intertemporal effects of international transfers," Journal of International Economics, Elsevier, vol. 26(3-4), pages 371-382, May.
    10. Ronald W. Jones, 1984. "The Transfer Problem in a Three-Agent Setting," Canadian Journal of Economics, Canadian Economics Association, vol. 17(1), pages 1-14, February.
    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. 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.
    13. Slobodan Djajic & Sajal Lahiri & Pascalis Raimondos-Moller, 1998. "The Transfer Problem and the Intertemporal Terms of Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 427-436, May.
    14. Yano, Makoto, 1991. "Temporary transfers in a simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 54(2), pages 372-388, August.
    15. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
    16. Turunen-Red, Arja H. & Woodland, Alan D., 1988. "On the multilateral transfer problem : Existence of Pareto improving international transfers," Journal of International Economics, Elsevier, vol. 25(3-4), pages 249-269, November.
    17. 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.
    18. Eaton, Jonathan, 1989. "Foreign public capital flows," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 25, pages 1305-1386, Elsevier.
    19. Cremers, Emily, 2001. "General Equilibrium with Trade Balance and Real Interest Rate Parity," Staff General Research Papers Archive 34859, Iowa State University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cremers, Emily T., 2006. "Dynamic efficiency in the two-sector overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 1915-1936, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Emily T. Cremers & Partha Sen, 2009. "Transfers, the terms of trade, and capital accumulation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(4), pages 1599-1616, November.
    2. Emily T. Cremers, 2008. "Transfers, the Terms of Trade and Capital Accumulation," DEGIT Conference Papers c013_018, DEGIT, Dynamics, Economic Growth, and International Trade.
    3. Ichiro Gombi & Shinsuke Ikeda, 2001. "Heterogeneous Habits and the Transfer Paradox," ISER Discussion Paper 0551, Institute of Social and Economic Research, Osaka University.
    4. 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.
    5. Kojun Hamada & Tsuyoshi Shinozaki & Mitsuyoshi Yanagihara, 2017. "Aspirations and the transfer paradox in an overlapping generations model," Journal of Economics, Springer, vol. 122(3), pages 279-301, November.
    6. 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.
    7. 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.
    8. Chatterjee, Santanu & Sakoulis, Georgios & Turnovsky, Stephen J., 2003. "Unilateral capital transfers, public investment, and economic growth," European Economic Review, Elsevier, vol. 47(6), pages 1077-1103, December.
    9. Lynn Mainwaring, 1998. "Transfers in a North‐South Growth Model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 45(5), pages 592-603, November.
    10. Akiko Suwa-Eisenmann & Thierry Verdier, 2007. "Aid and trade," Oxford Review of Economic Policy, Oxford University Press, vol. 23(3), pages 481-507, Autumn.
    11. Ichiro Gombi & Shinsuke Ikeda, 2003. "Habit Formation And The Transfer Paradox," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 361-380, December.
    12. Kim-Heng Tan, 1995. "Strictly Pareto-improving bilateral reforms of public debts," Journal of Economics, Springer, vol. 62(2), pages 141-156, June.
    13. Lahiri, Sajal & Raimondos-Moller, Pascalis, 1997. "On the tying of aid to tariff reform," Journal of Development Economics, Elsevier, vol. 54(2), pages 479-491, December.
    14. Bharat R. Hazari & Jean-Pierre Laffargue & Chi-Chur Chao & Eden S. H. Yu, 2007. "A Dynamic Analysis of Tied Aid," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00270896, HAL.
    15. Lahiri, Sajal & Raimondos-Moller, Pascalis, 1997. "Competition for aid and trade policy," Journal of International Economics, Elsevier, vol. 43(3-4), pages 369-385, November.
    16. Schweinberger, Albert G. & Lahiri, Sajal, 2006. "On the provision of official and private foreign aid," Journal of Development Economics, Elsevier, vol. 80(1), pages 179-197, June.
    17. Cremers, Emily T., 2005. "Intergenerational Welfare And Trade," Macroeconomic Dynamics, Cambridge University Press, vol. 9(5), pages 585-611, November.
    18. Suwa-Eisenmann, Akiko & Verdier, Thierry, 2005. "Policy coherence for development: trade policies," CEPREMAP Working Papers (Docweb) 0519, CEPREMAP.
    19. Trisha Bezmen, 2006. "Foreign Aid under Quantitative Restrictions: Welfare Effects and International Factor Mobility," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 709-721, September.
    20. Steven Brakman & Charles Van Marrewijk, 2007. "Transfers, Nontraded Goods, and Unemployment: An Analysis of the Keynes-Ohlin Debate," History of Political Economy, Duke University Press, vol. 39(1), pages 121-143, Spring.

    More about this item

    Keywords

    Transfer paradox; Pareto-improving transfers; two-sector overlapping generations model;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cde:cdewps:138. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sanjeev Sharma (email available below). General contact details of provider: https://edirc.repec.org/data/cdudein.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.