The gains from trade in a small monetary economy

George Darko, Richard Dusansky, Pankaj Maskara and Nadeem Naqvi ()

Journal of International Trade & Economic Development, 2006, vol. 15, issue 4, pages 403-430

Abstract: In general equilibrium under constant returns to scale and perfect competition the normative theory of international trade is examined for a monetary, not a barter, economy. Persons exhibit flow demand for real balances just as they do for commodities because money provides well-being salient utility insofar as its content is desire fulfilment, satisfaction or usefulness. For such a monetary small open economy, an additional terms-of-trade effect or inflationary effect of a tariff is identified, which drives many unusual results including the sub-optimality of free trade, unless the exchange rate is flexible and the commodities and real balances are weakly separable.

Keywords: Monetary economy; international trade; normative theory; tariff; quota; voluntary export constraint; exchange rate (search for similar items in EconPapers)
Date: 2006
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