Does Trade Liberalization Benefit Young and Old Alike?

Omer Gokcekus () and Edward Tower ()

No 96-35, Working Papers from Duke University, Department of Economics

Abstract: In an overlapping generations model, capital and labor produce two tradeable goods. A kleptocratic government spends the tariff revenue. Trade liberalization, which lowers the relative price of the importable to the private sector, benefits the retired generation if and only if the relative price of the capital intensive good rises. Starting from autarky, it benefits subsequent generations if and only if it hurts the retired one, a result reminiscent of the Stolper Samuelson theorem. However, if the country is initially importing the good whose relative price falls, the terms-of-trade effect makes it possible for the welfare of all generations to rise.

JEL-codes: F11 F13 (search for similar items in EconPapers)
Date: 1996
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Published in REVIEW OF INTERNATIONAL ECONOMICS, Vol. 6, 1998, pages 50-58

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