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Terms of Trade and Welfare for a Developing Economy with an Imperfectly Competitive Sector
Author(s) -
Sen Partha
Publication year - 1998
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/1467-9361.00030
Subject(s) - economics , welfare , homogeneous , small open economy , terms of trade , index (typography) , international economics , developing country , open economy , economy , monetary economics , market economy , exchange rate , economic growth , physics , world wide web , computer science , thermodynamics
The effect of terms of trade on the welfare of a small open economy is analyzed. It exports a homogeneous good and imports some brands of a 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 nontraded, 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 of East and Southeast Asia.