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Trade Agreements, Bargaining and Economic Growth

Rebelo's two-sector endogenous growth model is embedded within a two-country international trade framework. The two countries bargain over a trade agreement that specifies: (i) the size of the foreign aid that the richer country gives to the poorer one; (ii) the terms of the international trade that takes place after the aid is given. Foreign aid is given not because of generosity, but because it improves the capital allocation across the world and thus raises total world production. This world production surplus enables the rich country to raise its equilibrium consumption and welfare beyond their no-aid levels. To ensure it, the rich country uses a trade agreement to condition the aid on favorable terms of trade.

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Paper provided by University of Haifa, Department of Economics in its series Working Papers with number WP2010/2.

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Length: 30
Date of creation:
Date of revision: 30 May 2010
Publication status: forthcoming in Journal of Macroeconomics
Handle: RePEc:haf:huedwp:wp201002
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Web page: http://hevra.haifa.ac.il/econ/en/

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  1. Jason G. Cummins & Giovanni L. Violante, 2002. "Investment-specific technical change in the US (1947-2000): measurement and macroeconomics consequences," Finance and Economics Discussion Series 2002-10, Board of Governors of the Federal Reserve System (U.S.).
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  7. Felbermayr, Gabriel J., 2004. "Specialization on a Technologically Stagnant Sector Need Not Be Bad for Growth," Center for European, Governance and Economic Development Research Discussion Papers 24, University of Goettingen, Department of Economics.
  8. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  9. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  10. Bulow, Jeremy & Rogoff, Kenneth S., 2005. "Grants versus Loans for Development Banks," Scholarly Articles 11129181, Harvard University Department of Economics.
  11. SUWA-EISENMANN Akiko & VERDIER Thierry, 2007. "Aid and trade," Research Unit Working Papers 0709, Laboratoire d'Economie Appliquee, INRA.
  12. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
  13. 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.
  14. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-53, March.
  15. Robert Hunter Wade, 2003. "What strategies are viable for developing countries today? The World Trade Organization and the shrinking of ‘development space’," LSE Research Online Documents on Economics 28239, London School of Economics and Political Science, LSE Library.
  16. Chan, Kenneth S., 1988. "Trade negotiations in a Nash bargaining model," Journal of International Economics, Elsevier, vol. 25(3-4), pages 353-363, November.
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