Does Trade Liberalization Benefit Young and Old Alike?

Omer Gokcekus and Edward Tower

Review of International Economics, 1998, vol. 6, issue 1, 50-58

Abstract: In an overlapping generations model, capital and labor produce two tradable goods. A kleptocratic government spends the tariff revenue. Trade liberalization benefits the retired generation if and only if the relative price of the capital-intensive good rises. Starting from autarky, a small liberalization benefits subsequent generations if and only if it hurts the retired one, a result reminiscent of the Stolper-Samuelson theorem. However, the terms-of-trade effect means a large liberalization may simultaneously raise the welfare of all generations. Copyright 1998 by Blackwell Publishing Ltd.

Date: 1998
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