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. Gale, David, 1974. "Exchange equilibrium and coalitions : An example," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 63-66, March.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. Haaparanta, Pertti, 1989. "The intertemporal effects of international transfers," Journal of International Economics, Elsevier, vol. 26(3-4), pages 371-382, May.
    9. Yano, Makoto, 1991. "Temporary transfers in a simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 54(2), pages 372-388, August.
    10. 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.
    11. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
    12. 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.
    13. 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.
    14. Ichiro Gombi & Shinsuke Ikeda, 2003. "Habit Formation And The Transfer Paradox," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 361-380.
    15. 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.
    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. Tan, Kim-Heng, 1998. "International Transfers from Rich to Poor Nations," Review of International Economics, Wiley Blackwell, vol. 6(3), pages 461-471, August.
    18. 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.
    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.

    More about this item

    Keywords

    Transfer paradox; Pareto-improving transfers; two-sector overlapping generations model;

    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.

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

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.