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Foreign Aid under Quantitative Restrictions: Welfare Effects and International Factor Mobility
Author(s) -
Bezmen Trisha
Publication year - 2006
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/j.1467-9396.2006.00657.x
Subject(s) - economics , welfare , pareto principle , international economics , international trade , general equilibrium theory , quantitative analysis (chemistry) , microeconomics , market economy , operations management , chemistry , chromatography
Abstract Using a two‐country, general‐equilibrium model of international trade, this paper incorporates pre‐existing quantitative trade restrictions and international factor mobility into the transfer problem analysis. The effects of foreign aid on the welfare of both the donor and recipient nations are identified under each form of quantitative trade restriction: quotas and voluntary export restraints (VERs). In doing so, this paper identifies conditions under which international transfers are strictly Pareto‐improving (i.e. increase global welfare). A central result of this analysis is the direct welfare effect of a transfer received by a nation with quota‐constrained (VER‐constrained) imports is enhanced (may be enhanced) by a worsening of the recipient’s terms of trade.