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Transfers, Non-Traded Goods, and Unemployment: An Analysis of the Keynes – Ohlin Debate

  • Steven Brakman
  • Charles van Marrewijk

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 Keynes’s concern regarding the large burden imposed on Germany was justified. Simultaneously, we show that Ohlin’s presumption that a transfer does not affect the donor’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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1588.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1588
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  1. Johnson, Harry G, 1976. "Notes on the Classical Transfer Problem," The Manchester School of Economic & Social Studies, University of Manchester, vol. 44(3), pages 211-19, September.
  2. Jones, Ronald W, 1985. "Income Effects and Paradoxes in the Theory of International Trade," Economic Journal, Royal Economic Society, vol. 95(378), pages 330-44, June.
  3. Bhaduri, Amit & Skarstein, Rune, 1996. "Short-Period Macroeconomic Aspects of Foreign Aid," Cambridge Journal of Economics, Oxford University Press, vol. 20(2), pages 195-206, March.
  4. Jones, Ronald W., 1975. "Presumption and the transfer problem," Journal of International Economics, Elsevier, vol. 5(3), pages 263-274, August.
  5. Gale, David, 1974. "Exchange equilibrium and coalitions : An example," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 63-66, March.
  6. 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 606-18, September.
  7. repec:cup:cbooks:9780521572149 is not listed on IDEAS
  8. Kemp, Murray C & Kojima, Shoichi, 1985. "Tied Aid and the Paradoxes of Donor-Enrichment and Recipient-Impoverishment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 721-29, October.
  9. Hamid Beladi, 1990. "Unemployment and immiserizing transfer," Journal of Economics, Springer, vol. 52(3), pages 253-265, October.
  10. P. A. Samuelson, 1970. "On the Trail of Conventional Beliefs About the Transfer Problem," Working papers 54, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Schweinberger, A G, 1990. "On the Welfare Effects of Tied Aid," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 457-62, May.
  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. Chichilnisky, Graciela, 1980. "Basic goods, the effects of commodity transfers and the international economic order," Journal of Development Economics, Elsevier, vol. 7(4), pages 505-519, December.
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