Transfers and the Terms of Trade in an Overlapping Generations Model

Emily T. Cremers and Partha Sen
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Emily T. Cremers: National University of Singapore
Partha Sen: Delhi School of Economics

No 138, Working papers from Centre for Development Economics, 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 (search for similar items in EconPapers)
JEL-codes: F11 F35 F43 O19 O41 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2005-08
New Economics Papers: this item is included in nep-dge and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Transfers and the Terms of Trade in an Overlapping Generations Model (2010)
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