Trade Agreements, Bargaining and Economic Growth

Yishay Maoz, Dan Peled () and Assaf Sarid

No WP2010/2, Working Papers from University of Haifa, Department of Economics

Abstract: Rebelo's two-sector endogenous growth model is embedded within a two-country international trade framework. The two countries bargain over a trade agreement that specifies: (i) the size of the foreign aid that the richer country gives to the poorer one; (ii) the terms of the international trade that takes place after the aid is given. Foreign aid is given not because of generosity, but because it improves the capital allocation across the world and thus raises total world production. This world production surplus enables the rich country to raise its equilibrium consumption and welfare beyond their no-aid levels. To ensure it, the rich country uses a trade agreement to condition the aid on favorable terms of trade.

Keywords: International trade; Aid; Balanced Growth (search for similar items in EconPapers)
JEL-codes: F43 O41 P45 (search for similar items in EconPapers)
Pages: 30
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Forthcoming in Journal of Macroeconomics

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Related works:
Journal Article: Trade agreements, bargaining and economic growth (2011)
Working Paper: Trade Agreements, Bargaining and Economic Growth (2009)
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