International Transfers, the Relative Price on Non-Traded Goods, and the Current Account

Philip L. Brock

Canadian Journal of Economics, 1996, vol. 29, issue 1, 163-80

Abstract: This paper considers the role of the relative price of non-traded goods and the current account in the adjustment of a small open economy to the receipt of an international transfer. The paper shows that the economy's macroeconomic adjustment to the transfer depends upon the relative capital intensities of the traded and non-traded sectors of the economy as well as on the duration of the transfer. The paper provides a new interpretation of France's current account surplus in the 1870s that accompanied the payment of reparations to Germany following the Franco-Prussian War, and of Germany's trade deficit in the 1920s that accompanied reparations payments associated with the First World War.

Date: 1996
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