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Does Trade Liberalization Benefit Young and Old Alike?

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  • Gokcekus, Omer
  • Tower, Edward

Abstract

In an overlapping generations model, capital and labor produce two tradeable goods. A kleptocratic government spends the tariff revenue. Trade liberalization, which lowers the relative price of the importable to the private sector, benefits the retired generation if and only if the relative price of the capital intensive good rises. Starting from autarky, it benefits subsequent generations if and only if it hurts the retired one, a result reminiscent of the Stolper Samuelson theorem. However, if the country is initially importing the good whose relative price falls, the terms-of-trade effect makes it possible for the welfare of all generations to rise.

Suggested Citation

  • Gokcekus, Omer & Tower, Edward, 1996. "Does Trade Liberalization Benefit Young and Old Alike?," Working Papers 96-35, Duke University, Department of Economics.
    • Handle: RePEc:duk:dukeec:96-35
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    References listed on IDEAS

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    1. Galor, Oded, 1994. "Tariffs, Income Distribution and Welfare in a Small Overlapping-Generations Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 173-192, February.
    2. Pablo Serra, 1991. "Short-run and Long-run Welfare Implications of Free Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 24(1), pages 21-33, February.
    3. Ruffin, Roy J & Yoon, Young Deak, 1993. "International Capital Movements in the Solow and Overlapping Generations Growth Models," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 123-135, June.
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    Cited by:

    1. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in dynamic Heckscher-Ohlin models: overlapping generations versus infinitely lived consumers," Staff Report 377, Federal Reserve Bank of Minneapolis.
    2. Fedotenkov, Igor & Van Groezen, Bas & Meijdam, Lex, 2019. "International trade with pensions and demographic shocks," Journal of Pension Economics and Finance, Cambridge University Press, vol. 18(1), pages 140-164, January.

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    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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