TERMS OF TRADE AND WELFARE FOR A DEVELOPING ECONOMY WITH AN IMPERFECTLY COMPETITIVE SECTOR

Partha Sen
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Partha Sen: Delhi School of Economics

No 45, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: The effect of terms of trade economy on the welfare of a small open economy is analyzed. It exports a homogeneous good and imports some brands of the differentiated good. It also produces some brands of the differentiated good which are not traded. A terms of trade deterioration causes resources to move to the non-traded, import-competing sector. The economy's income rises and the price index for the differentiated good falls, resulting in higher welfare. This accords well with the experience of developing economies to East and South-east Asia.

Pages: 20 pages
Date: 1997-05
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Related works:
Journal Article: Terms of Trade and Welfare for a Developing Economy with an Imperfectly Competitive Sector (1998)
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