Transfers and the Terms of Trade in an Overlapping Generations Model

Partha Sen () and Emily T. Cremers ()

Working Papers from eSocialSciences

Abstract: This paper explores the steady state welfare implications of permanent transfers in a two-country, two-sector overlapping generations model. At the golden rule and with Walrasian stability, we demonstrate that the change in the (static) terms of trade always works in favor of a transfer paradox. The conditions under which the transfer paradox is obtained are independent of factor intensity rankings and also whether the donor or recipient has the higher savings propensity. In contrast, conditions under which a change in the intertemporal terms of trade delivers a Pareto-improving transfer depend upon both of the above and also on the initial position of the world capital-labor ratio relative to the golden rule. [Working Paper No. 138]

Keywords: Transfer paradox; Pareto-improving transfers; two-sector overlapping generations model (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-dge
Note: Institutional Papers
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Related works:
Working Paper: Transfers and the Terms of Trade in an Overlapping Generations Model (2005)
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