Short-run and long-run welfare implications of free trade
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1991Metadata
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Serra Banfi, Pablo
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Short-run and long-run welfare implications of free trade
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Abstract
We consider a two-factor (capital and labour), two-good (consumption and invest-
ment goods), one-country, overlapping-generations model. For the case in which the closed
economy follows an efficient path we prove that if trade lowers (raises) the relative price of
the capital-intensive good, the current old people, who only own capital, lose (gain) from the
opening of the economy, while all subsequent generations, whose only endowment is labour,
benefit (lose) from it. It is also shown that the country gains from trade, in the sense that
the generations made better off by trade can compensate those that lose from the opening
of the economy
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The Canadian Journal of Economics 24 81): 21-33 1991
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