On Dynamic Gains from Free Trade: Discrete-time Infinite Horizon Case

Hajime Kubota

No 330, Discussion paper series. A from Graduate School of Economics and Business Administration, Hokkaido University

Abstract: This paper shows the existence of gains from trade in a dynamic world free trade economy over a discrete-time infinite horizon with using Grandmont-McFadden's(1972) domestic income transfer policy which makes each consumer benefit from world free trade. For this purpose, this paper employs l∞, the space of all bounded sequences, as the underlying commodity space and l1, the space of all summable sequences, as the price space, with following the general equilibrium analysis of infinite dimensional commodity spaces developed by Bewley(1972), Mas-Colell(1986), and Zame(1987). Moreover, since gains from trade requires the comparison of two consumption bundles, one under free trade and the other under autarky, but transitivity of preferences assumed the comparison of three consumption bundles, this paper also drops transitive preferences to establish gains from trade in this dynamic world economy. Furthermore, since this paper uses general consumption sets instead of the positive orthant l∞+, the argument finding an equilibrium price in l1, requires the exclusion condition to consumption sets and the mixture condition to the production set. This paper also drops the cheaper point assumption used in Grandmont-McFadden(1972) and replaces it with a variant of McKenzie's(1959, 1981, 2002) irreducibility assumption and the strong irreducibility assumption of Boy-McKenzie(1993), requiring the interrelatedness of consumers in the world economy.

Pages: 29 pages
Date: 2018-09
New Economics Papers: this item is included in nep-int
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