North-South Interaction and Commod Control

Ravi Kanbur and David Vines

No 8, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A simple model of North-South interaction is presented with a Keynesian North producing industrial goods and a Classical South producing corn. If the terms of trade clear the corn market then commodity price stabilisation can only slightly increase the average value of Northern real consumption. But if there is real wage resistance in the North then output deflation in the North is necessary to avoid inflationary pressure whenever the terms of trade tend to turn against the North; commodity price stabilisation could, in such circumstances, greatly improve Northern welfare. The paper also examines whether fiscal policy in the North, instead of commodity price stabilisation, could provide equally large improvements in Northern welfare.

Keywords: Commodity Stabilization Schemes; North-South Interaction (search for similar items in EconPapers)
Date: 1984-03
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Journal Article: North-South interaction and commod control (1986)
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