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Does Trade Liberalization Benefit Young and Old Alike?
Author(s) -
Gokcekus Omer,
Tower Edward
Publication year - 1998
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00086
Subject(s) - autarky , economics , free trade , tariff , international economics , welfare , capital (architecture) , liberalization , overlapping generations model , gains from trade , revenue , government revenue , monetary economics , international trade , macroeconomics , market economy , archaeology , accounting , history
In an overlapping generations model, capital and labor produce two tradable goods. A kleptocratic government spends the tariff revenue. Trade liberalization benefits the retired generation if and only if the relative price of the capital‐intensive good rises. Starting from autarky, a small liberalization benefits subsequent generations if and only if it hurts the retired one, a result reminiscent of the Stolper‐Samuelson theorem. However, the terms‐of‐trade effect means a large liberalization may simultaneously raise the welfare of all generations.