Short-run and Long-run Welfare Implications of Free Trade

Pablo Serra

Canadian Journal of Economics, 1991, vol. 24, issue 1, 21-33

Abstract: The author considers a two-factor (capital and labor), two-good (consumption and investment goods), one-country, overlapping-generations model. For the case in which the closed economy follows an efficient path, the author proves, that if trade lowers (raises) the relative price of the capital-intensive good, the current old people, who only own capital, lose (gain) from the opening of the economy, while all subsequent generations, whose only endowment is labor, benefit (lose) from it. It is also shown that the country gains from trade in the sense that the generations made better off by trade can compensate those that lose from the opening of the economy.

Date: 1991
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