| 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 |
| URL: |
http://d.repec.org/n?u=RePEc:cde:cdewps:138&r=int |