International Borrowing and Lending in the Presence of Oligopolistic Competition

Ronald Kumar and Peter Stauvermann

JRFM, 2023, vol. 16, issue 8, 1-26

Abstract: This paper examines the implications of imperfect competition in a two-country framework where a single good is produced. Using an overlapping generation model, we analyze the effects of market structures. Specifically, one country is assumed to operate under a perfectly competitive market structure, while the other country operates under an oligopolistic market structure. Our analysis reveals that the differences in factor prices between the two countries when they are in autarky lead to intergenerational trade once their capital markets are integrated. A key finding is that the country with an oligopolistic market structure becomes a lending country, while the country with a competitive market structure becomes a borrowing country. Furthermore, we find that the country with an oligopolistic market structure, serving as a lender, experiences a current account surplus, while the country with a perfectly competitive market structure, acting as a debtor, incurs a current account deficit.

Keywords: oligopolistic competition; international borrowing and lending; two countries; one-sector overlapping generations model; anti-trust policy (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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