nep-int New Economics Papers
on International Trade
Issue of 2005‒08‒20
one paper chosen by
Martin Berka
Massey University

  1. Transfers and the Terms of Trade in an Overlapping Generations Model By Emily T. Cremers; Partha Sen

  1. By: 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.
    Keywords: Transfer paradox, Pareto-improving transfers, two-sector overlapping generations model
    JEL: F11 F35 F43 O19 O41
    Date: 2005–08

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