Transfers, Non-Traded Goods, and Unemployment: An Analysis of the Keynes â€“ Ohlin Debate
In the famous debate between Keynes and Ohlin on the transfer problem, the interaction between non-traded goods and unemployment complicates the analysis considerably. We analyze these issues using four different models to conclude that Keynesâ€™s concern regarding the large burden imposed on Germany was justified. Simultaneously, we show that Ohlinâ€™s presumption that a transfer does not affect the donorâ€™s terms-of-trade either favourably or unfavourably was also justified. Moreover, Ohlin was also right in asserting that a transfer tends to lower the price of non-traded goods for the donor and raise them for the recipient.
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