Weakly non-separable preferences and the Harberger-Laursen-Metzler effect

Shinsuke Ikeda

Canadian Journal of Economics, 2001, vol. 34, issue 1, 290-307

Abstract: We examine the current account effect of a terms-of-trade deterioration for a small country model, incorporating weakly non-separable preferences à la Shi (1994) under endogenous time preference. This enables us to emphasize a welfare change as an important determinant of the current account. Even with increasing marginal impatience, the Harberger-Laursen-Metzler effect occurs if consumers' preference toward imports is sufficiently wealth enhanced: in that case a terms-of-trade deterioration must reduce steady-state welfare to shift preference away from imports to exports. Several empirical implications are also derived.

JEL-codes: F32 F41 (search for similar items in EconPapers)
Date: 2001
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