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INTERGENERATIONAL WELFARE AND TRADE

Published online by Cambridge University Press:  23 November 2005

EMILY T. CREMERS
EMILY T. CREMERS
Affiliation:
National University of Singapore
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Abstract

This paper examines the dynamic effects of international commodity trade by merging two benchmark environments, namely, the static factor endowments model and the neoclassical growth model. Two main questions are asked. First, how does commodity trade affect the capital-accumulation paths of two trade partners? Second, do the welfare effects associated with these dynamics serve to reinforce or mitigate the well-known welfare effects associated with the static factor endowments model? It is demonstrated that trade will eventually, if not immediately, narrow the difference in domestic capital accumulation paths. This narrowing introduces a negative welfare effect that is large enough to worsen overall welfare for the country whose capital accumulation has declined. Thus, although the dynamic effects of trade are large enough to dominate the static effects, they do not reinforce the concept of mutually advantageous trade.

Keywords

Gains from TradeNeoclassical GrowthOverlapping Generations
Type
ARTICLES
Information
Macroeconomic Dynamics , Volume 9 , Issue 5 , November 2005 , pp. 585 - 611
Copyright
© 2005 Cambridge University Press

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