transfers and the generalized theory of distortions and welfare recent theoretical attention devoted to the transfer paradox has included attempts to incorporate it into the body of commercial policy in this paper the existence of a family of always feasible corrective tax policies is proved which guarantees normal welfare response the set of pol icies is shown to contain the external trade fixing tariff and the op timal tariff the set of policies is then extended to include a capit al flow fixing profits tax to deal with the problems of foreign inves tment the results are then interpreted in terms of a general proposi tion in the theory of distortions and welfare copyright 1987 by the review of economic studies limited

global warming technological change and trade in carbon energy challenge or threat is it possible to combat global climate change through north to south technology transfer even without a global climate treaty or do carbon leakage and the rebound effect imply that it is possible to take advantage of technological improvements under the umbrella of a global arrangement only for answering these questions two possible states of the world are discussed one where more energy efficient technologies are transferred unconditionally from the north to the south and where regions do not cooperate in the solution of the global climate problem but unilaterally decide on climate policies and technology transfers one where the north to south technology transfer is tied to the requirement that the south in some way contributes to the solution of the global climate problem rebound and leakage effects hinder a sustainable and welfare improving solution of the climate problem

advantageous reallocations a constructive example this note shows how to construct smooth examples of a phenomenon noted by gale in which a pair of agents make themselves better off at the expense of a third agent by reallocating their own endowments walrasian stability prevails

transfer problem dynamics macroeconomics of the franco prussian war indemnity we study the classic transfer problem of predicting the effects of an international transfer on the terms of trade and the current account a two country model with debt and capital allows for realistic features of historical transfers they follow wartime increases in government spending and are financed partly by borrowing the model is applied to the largest historical transfer the franco prussian war indemnity of 1871 1873 in these three years france transferred to germany an amount equal to 22 percent of a year s gdp when the transfer is combined with measured shocks to fiscal policy and productivity over the period the model provides a very close fit to the historical sample paths of french gdp terms of trade net exports and aggregate consumption this makes a strong case for the dynamic general equilibrium approach to studying the transfer problem more generally our results provide striking evidence of the importance of international capital markets in the nineteenth century

variable returns to scale and the global correspondence principle in the theory of international trade abstract the global correspondence principle is applied to obtain global theorems on the price output response and the rybczynski and stolper samuelson effects for an economy with variable returns to scale the marshallian output adjustment process is used to obtain these results

foreign ownership and the theory of trade and welfare some standard topics in the theory of international trade are reconsidered in this paper by distinguishing between national and aggregate income when fixed supplies of foreign inputs are present within the home country under conditions that would ensure a national welfare gain if foreign ownership were absent international transfer economic growth or tariff policy might cause a national welfare loss in the presence of foreign ownership the techniques developed could be applied to other domestic distinctions such as those based on race sex age or ethnicity and to the theory of customs unions in a three country world

sense and surprise in competitive trade theory 2010 weai presidential address i introduction the competitive theory of international trade is well known for its abundance of paradoxes perhaps the most widely known is the leontief paradox associated with the rather startling results presented by leontief 1953 that the trade pattern of the united states suggested that its export sectors were more labor intensive than factor proportions found in its import competing sectors this result stimulated decades of research but is not the focus of the present paper other so called paradoxes include the metzler 1949 result wherein a country levying a tariff on an imported item may end up with a lowering of its domestic price that is a tariff may not be protective 1 lerner 1936 who earlier hinted at the metzler outcome emphasized the possibility that a tariff might instead worsen a country s terms of trade which is at the opposite extreme to the metzler result both of these paradoxes are attributed to possible income effects in demand more recently income effects stemming from asymmetry in demand patterns among countries were shown to open the door to paradoxical results if one country makes a transfer to another in a world in which other countries are also engaged in trade in the same commodities the surprising results the giver in the transfer might end up better off i e it may pay to give rather than to receive and or the recipient of the transfer may end up worse off 2 finally a classic result that does not depend on asymmetries in taste patterns but rather upon the degree of elasticity in demand and the nature of growth is the question of whether a country that unequivocally grows transformation schedule shifts out can be made worse off as a consequence of growth the so called immiserizing growth paradox 3 this is an issue familiar to particular sectors of the economy for example agriculture can a good harvest yield lower returns because of the subsequent price fall instead of revisiting these familiar paradoxes here i wish to concentrate on the production side of competitive models used in international trade and to focus on the question involving ways of judging economic models clearly the question of realism often comes up whether it is in terms of assumptions made or of outcomes expected here i suggest a different criterion does the model conform in many ways to common sense that is would one be tempted to suggest that the model is not necessary because common sense would lead to the same results and if it does do the outcomes in certain scenarios seem to be paradoxical or surprising if so can the model reveal in simple terms why these somewhat surprising results make sense 4 i shall restrict myself to a pair of basic models of production used in competitive trade theory the specific factors model on the one hand and the heckscher ohlin model on the other i shall argue that in many ways both conform to common sense but in addition provide the very tools that expose the underlying rationale for surprise ii a preliminary question consider any economy that is characterized by competitive markets and constant returns to scale technology suppose for such an economy there is an increase in the factor endowment bundle to fix on an example suppose there is an increase in the economy s labor force the very general question i wish to ask is how does such an economy absorb this increased endowment to maintain full employment of all factors note that if this economy is not engaged in international trade there will likely result a change in commodity prices as they adjust in order to equilibrate local supply and demand given the points i wish to make later let me assume that the country is engaged in free trade with the rest of the world if this economy were particularly small world prices could be taken as given even if world prices are disturbed it is legitimate to ask how the economy absorbs the extra supplies before any change in commodity prices takes place

poverty and public policy the problem of poverty is particularly acute in india with 14 of the world s population we have the misfortune of having almost twice as large a share of the world s poor indeed as i shall presently underline the question of poverty and its amelioration has been at the center of our concerns from the beginning of our planning efforts almost four decades ago little therefore can be said on it that some distinguished indian economist has not already said in some ways therefore to talk on the design of public policy for poverty to an indian audience is to carry coal to newcastle or as the old saying goes to teach your grandmother how to suck eggs nonetheless i hope to provide a fresh perspective by putting the problem into an explicit analytical framework that permits alternative policy designs to be sharply defined and contrasted i also intend to draw on international experience to put our efforts and problems into both historical and comparative perspectives

distortions true trade price and quantity indices and welfare trade expenditure functions are used to develop true trade price and quantity indices for multihousehold open economies with domestic distortions such as commodity or production taxes subsidies factor unemployment or exogenous factor price differentials these indices are then used to analyse the welfare effects of changes in world market prices and or the distortions in contrast to earlier literature we derive a set of novel globally valid necessary and sufficient conditions for gains from trade in the presence of the listed distortions novel sufficient conditions for welfare improvement which are readily measurable are also proven

a result on the transfer problem in international trade theory abstract the purpose of this paper is to provide a result on the welfare effect of a transfer in a general equilibrium exchange model with no arbitrary restrictions on either the number of commodities traded or the number of countries our result can be stated as follows the donor country is worse off after a transfer if a all goods are net substitutes for the donor b all goods are gross substitutes for the other countries and c all goods are normal for all countries

the transfer paradox in a one sector overlapping generations model abstract this paper examines the effects of international income transfers on capital accumulation and welfare in a one sector overlapping generations model it is shown that a strong form of the transfer paradox in which the donor country experiences a welfare gain while the recipient country experiences a welfare loss may occur both in and out of steady state in addition it is shown that a weak form of the transfer paradox where either the donor or recipient but not both experiences a paradoxical welfare effect may characterize all segments of the transition path not already characterized by the strong transfer paradox

international investment and immiserizing growth abstract a country with significant foreign investment can be immiserized by growth of its labor force because this increases the payments that have to be made to foreign investors we show that this occurs when the elasticity of supply of foreign capital and the elasticity of substitution between labor and capital in the host country are low we relate this phenomenon to bhagwati s general analysis of immiserizing growth and identify several new sources of immiserization that can arise from the interaction of the bhagwati johnson mechanisms and international investment

the e correspondence principle we present a new application of samuelson s correspondence principle to the analysis of comparative dynamics in stochastic rational expectations models our version which we call the e correspondence principle applies to rational expectations equilibria that are stable under least squares and closely related learning rules with this technique it is sometimes possible to study without explicitly solving for the equilibrium how qualitative properties of the equilibrium are affected by changes in the model parameters applications to overlapping generations and new keynesian models illustrate the potential of the technique

normal markets market imperfections and energy efficiency abstract the conventional distinction between economic and engineering approaches to energy analysis obscures key methodological issues concerning the measurement of the costs and benefits of policies to promote the adoption of energy efficient technologies the engineering approach is in fact based upon firm economic foundations the principle of lifecycle cost minimization that arises directly from the theory of rational investment thus evidence that so called market barriers impede the adoption of cost effective energy efficient technologies implies the existence of market failures as defined in the context of microeconomic theory problems of imperfect information and bounded rationality on the part of consumers for example may lead real world outcomes to deviate from the dictates of efficient resource allocation a widely held contrary view that the engineering view lacks economic justification is based on the fallacy that markets are normally efficient

the economics of country specific tariffs a three country model of the world economy is used to show that when effective a country specific tariff will have an impact on the world economy that is equivalent to the imposition of a uniform tariff plus a subsidy to the production of home importables in the favored country financed by a transfer from the home country lerner s symmetry theorem and the optimum tariff problem are discussed country specific tariffs were a prominent feature of the congressional debate surrounding the recent u s trade bill a preliminary version of the bill which passed the house contained the well known gephardt amendment that would have required increased tariffs or quotas on imports from countries running unacceptably large bilateral trade surpluses with the u s in addition since 1976 the u s has allowed most goods produced in less developed countries to enter duty free under its version of the generalized system of preferences the country specific nature of these preferences runs contrary to all previous u s trade policy and sparked controversy in the u s congress when the original legislation was passed in 1974 and again when it was extended in 1984 while country specific tariffs are a relatively new feature of u s trade policy they have an established history in other countries prior to joining the european economic community great britain granted preferential tariff rates on imports from the commonwealth countries moreover these countries granted tariff preferences to less developed countries nearly five years before the u s initiated its general system of preferences program a proper theoretical analysis of country specific tariffs and preferential tariff reductions requires a multi country model however most work on tariff policy uses the standard two country framework almost all of the multi country models found in the literature consider only uniform tariffs or as in the customs union literature consider preferential tariffs as part of a multilateral effort to coordinate trade policies rather than as a unilateral policy instrument an exception is the partial equilibrium analysis of mcculloch and pinera 1977 they consider a three country world economy and examine the impact of a preferential tariff reduction

the global correspondence principle a generalization this paper generalizes the global correspondence principle by extending in two major ways samuelson s 1971 analysis of the exchange rate response to an international purchasing power transfer first the authors analyze the price effect of a shift in anyparameter not necessarily a transfer second the authors explore the resulting adjustments in any nonprice variable such as welfare as the analysis shows the direction of these adjustments depends neither on whether they are small or large nor on whether equilibrium is locally stable or unstable thus the authors generalize the conventional algebra of comparative statics which typically assumes small shifts from a stable equilibrium copyright 1987 by american economic association

the possibility of recipient harming donor benefiting transfers with more than two countries the possibility of a commodity transfer among nations which simultaneously benefits the donor and harms the recipient is examined an example of a three country exchange economy is presented where a transfer may be made which gives the counter intuitive result the result is then explained

the generalized theory of transfers and welfare bilateral transfers in a multilateral world paul samuelson s 1952 1954 classic papers on the transfer problem addressed two separate analytical issues the positive effect of a transfer on the terms of trade and the welfare effect of the transfer on the donor and the recipient since then a considerable body of literature has grown up on the positive analysis while samuelson 1954 himself had extended the 2 x 2 x 2 free trade analysis to allow for tariffs and transport costs subsequent writers have analyzed other extensions of the model for example to allow for nontraded goods as with leisure in samuelson 1971 or general nontraded goods in john chipman 1974 and ronald jones 1970 1975 remarkably however the welfare analysis of transfers has not paralleled these developments since wassily leontief 1936 produced an example of immiserizing transfer from abroad and samuelson 1947 argued that the example required market instability the proposition that has monopolized attention has been that a transfer in the conventional 2 x 2 x 2 model in its free trade version cannot immiserize the recipient or enrich the donor as long as world markets are stable in the walras sense interestingly samuelson 1954 who did extend the positive analysis to include tariffs did not go on to ask whether immiserization of the transfer recipient and hence symmetrically enrichment of the donor in a two country model could now arise consistent with market stability recently the welfare analysis of transfers has been extended in two different directions both apparently unconnected and both yielding the conclusion that transfers from abroad can be immiserizing and that the donor may improve its welfare despite market stability one route to this conclusion has been the introduction of a third economic agent or country that is outside of the transfer process in the appendix of his 1960 paper analyzing the interaction between trade policy and income distribution harry johnson discussed the possibility of welfareparadoxical redistribution between two factor income classes capital and labor in an open economy thereby providing what can be interpreted as a treatment of the threeagent transfer problem for the case in which donor and recipient are both completely specialized in the ownership of a single different factor an independent analysis of the three agent transfer problem using a restrictive model with given endowments of goods and fixed coefficients in consumption was also undertaken in an important paper by david gale 1974 2 brecher and bhagwati bhagwati department of economics columbia university new york ny 10027 brecher department of economics carleton university ottawa on kis 5b6 hatta department of political economy the johns hopkins university baltimore md 21218 we thank the national science foundation grant no 524718 for partial financial support of the research underlying this paper the paper was written when brecher and hatta were visiting columbia university 1981 82 gratefully acknowledged are helpful comments and suggestions from john chipman avinash dixit jacques dreze robert feenstra jacob frenkel ronald jones murray kemp andreu mas colell michael mussa john riley lars svensson and robert willig from anonymous referees and from seminar participants at berkeley harvard minnesota rochester chicago and the university of california los angeles after the present paper was submitted for publication and following its presentation at rochester our attention was drawn to this appendix which was noticed by a student of ronald jones subsequently we learned from makoto yano that motoshige itoh had pointed out an important related paper by ryuotaro komiya and t shizuki 1967 whose condition 11 for the johnson case anticipated our equation 12 below we are grateful for having both of these references brought to our attention 2 gale constructs an example in which the donor is enriched along with the recipient furthermore this immediately implies that a reverse transfer will immis

competition for aid and trade policy this paper considers the optimal allocation of a given amount of foreign aid between two recipient countries it is shown that given consumer preferences a country following a more restrictive trade policy would receive a smaller share of the aid if the donor country maximises its own welfare in allocating aid if on the other hand the donor country allocates aid in order to maximize the sum of the welfare of the two recipient countries the result is just the opposite finally we analyze the situation where the recipient countries compete with each other for the given amount of aid it is shown that this competition tends to lower the level of optimal tariffs in the recipient countries

foreign aid domestic investment and welfare this paper examines the welfare implications of temporary foreign aid in a simple two period two country model of trade domestic investment is endogenous providing an important link between aid in period one and the terms of trade in periods one and two transfer induced changes in the terms of trade redistribute present and future income between the donor and the recipient in the presence of barriers to international borrowing and lending such redistribution gives rise to the possibility of temporary aid being both potentially and strictly pareto improving

stock returns as predictors of interest rates and inflation this study examines whether stock returns provide forecasts of changes in interest rates and inflation in contrast to earlier work that indicated that changes in expected inflation negatively affect stock returns we find a statistically significant positive relation between stock returns and future inflation rate changes as well as a significant positive relation between stock returns and future interest rate changes real estate investment trusts which are particularly interest and inflation sensitive securities provide better forecasts than a broad market index finally we find that most of the evidence supporting the forecasting ability of stock returns occurs in the october 1979 to october 1982 period when the federal reserve board chose not to counteract interest rate changes

strategic transfers and private provision of public goods abstract this paper considers strategic monetary transfers between two agents when these contribute to a mutual public good if the agents differ in their contribution productivity then the less productive agent has an incentive to make large unconditional transfers to the more productive agent although agents move simultaneously in each stage of the game the less productive agent becomes a stackelberg leader furthermore the generic subgame perfect equilibrium is characterized by full specialization

give and take how the funding of adaptation to climate change can improve the donor s terms of trade this paper discusses the interplay between international trade regional adaptation to climate change and financial transfers for funding adaptation it combines insights from a theoretical model of north to south transfers with the findings of a calibrated dynamic multi region multi sector computable general equilibrium model that takes into account the impacts of climate change and the adaptation to it assessing the effects of adaptation funding indicates that funding of adaptation in developing regions can be pareto improving not only will developing regions which do not own sufficient resources for adapting optimally profit from receiving adaptation funding terms of trade improvements in the high and middle income donor countries can dominate transfer costs and hence lead to a net welfare gain in almost any developed region except north america as such our consideration adds a new argument for financially supporting adaptation in the developing world besides the well known ones such as fairness and incentives for participation in a global climate treaty

the measurement of waste in a public goods economy abstract a small open economy model is developed to measure the waste of the whole economy when levels of public goods are determined by the government the allais debreu diewert measure of waste is defined and its second order approximation is calculated this measure utilizes the second order substitution matrices of the restricted profit function and the restricted expenditure function evaluated at an equilibrium finally simple examples and diagrams are utilized to clarify the economic implications of our approach

the measurement of the benefits of public inputs with distortionary taxation this paper derives formulae that show the marginal benefits of public inputs in second best economies with tax distortions the values of the change in the aggregate net output vector and in some cases the change of profit income evaluated at appropriate shadow prices show their marginal benefits these shadow prices depend on which taxation scheme you can perturb when the amount of a public input is increased the author considers the three cases where he can change 1 all indirect tax rates and all corporate income tax rates 2 all lump sum transfers and 3 some part of indirect tax rates

optimal foreign aid and tariffs this paper investigates the optimal choice of foreign aid when trade policies are decided in a non cooperative fashion three alternative scenarios depending on the timing of the actions and on whether aid is tied are analyzed it is shown that in the case where aid is decided before tariffs untied aid can lead to the reduction of the recipient s optimal trade tax when the donor can tie the aid to a reduction in the recipient s tariff the optimal aid level is always positive and the world can always achieve a pareto efficient equilibrium

on the tying of aid to tariff reform this paper considers the welfare effects of foreign aid that is tied to changes in the recipient s tariff by constructing a three country model with tariffs and by allowing for changes both in the amount of aid and in the tariff rates we are able to consider the welfare implications of two different rules of aid conditionality i a rule which leaves the donor s welfare unchanged and ii a rule which leaves the recipient government s total revenue unchanged it is shown that the tying of aid to a tariff reform can inter alia be used to ensure pareto improvement

paradoxes associated with the administration of foreign aid abstract this paper shows that if because of administration costs or other wastes only a proportion of an aid reaches the recipient then it is possible that the donor is enriched by its act of charity the extent of the enrichment increasing with the extent of the leakage and or that the recipient is impoverished by aid the extent of the impoverishment increasing with the extent of the leakage these outcomes are possible even when trade is optimally restricted by donor or recipient

aid nontraded goods and the transfer paradox in small countries this paper constructs a model of the transfer paradox for a small open economy with nontraded goods it demonstrates that increased production of nontraded goods can change their domestic price so as to offset the otherwise beneficial effect of aid and under certain conditions to create a transfer paradox even in a small country the model is estimated with time series data for 44 aid dependent countries for the period 1970 90 the results support the model and show that the nontraded goods expansion effect is more likely to cause immiserization than harry g johnson s 1967 tariff distorting export displacement effect

equilibrium and optimality some imprints of david gale abstract the paper is a review of some of the themes to which david gale made lasting contributions it touches upon a number of the fundamental issues in the walrasian equilibrium theory existence uniqueness and stability the overlapping generations model non optimality and indeterminacy of competitive equilibria the von neumann equilibrium as a turnpike and in the theory of decentralized intertemporal allocation through competitive prices efficiency and golden rules duality and existence of optimal programs

the generalized theory of transfers and welfare exogenous policy imposed and endogenous transfer induced distortion this paper reconsiders the welfare effects of a transfer payment in a two commodity world with two agents countries by taking the presence of exogenous and endogenous distortions into account when there is an exogenous tax cumsubsidy on production consumption or trade the analysis demonstrates that a transfer may paradoxically enrich the donor and immiserize the recipient under certain specific conditions these welfare paradoxes are also shown to be possible if the transfer endogenously induces directly unproductive profit seeking activity of lobbyists concluding remarks emphasize the paper s relevance for policymakers

been top down so long it looks like bottom up to me abstract while technologists emphasize suboptimal choices by individuals and organizations many economists have ignored behavior exhibiting technical inefficiency this paper selectively discusses efforts by some economists to identify and measure technical inefficiency as applied to the energy efficiency gap bottom up economics would seek to measure significant departures from best practice technology distinguish between inefficiency that is more less wasteful of energy than other inputs and focus on developing testable hypotheses about technical inefficiency support for widespread intervention in energy use decisions may not necessarily follow from such an inquiry

the welfare effects of targeted export subsidies a general equilibrium approach a three country model of export subsidies is developed with an exporter an importer and a neutral country which can act on either side of the market when the neutral country is an exporter the country offering a targeted export subsidy always suffers a welfare loss however when the neutral country is an importer the possibility of a paradoxical result that the subsidizing country can gain and the subsidized country can lose is shown to exist and the conditions under which this result occurs are derived the model fails to provide justification on national welfare grounds for widespread use of targeted export subsidies such as the export enhancement program

targeted export subsidies as an exercise of monopoly power a country with monopoly power in its export good normally benefits from an export tax however if it exports to two countries and the tax on exports to one is suboptimal then it may be best to subsidize exports to the other this is more likely the smaller is the import demand elasticity in the country being taxed suboptimally and the larger the elasticity in the other it is also more likely the larger are exports to the first and the smaller are exports to the other finally it is more likely the less elastic is home export supply

foreign aid and public goods abstract most less developed countries ldcs use foreign economic aid to finance public consumption goods or public intermediate inputs this paper constructs a two country general equilibrium trade model where an income transfer that takes place between the two countries is used by the recipient to finance a public consumption good within this framework the paper identifies the conditions under which the income transfer improves or deteriorates the donor country s terms of trade and shows that the transfer can be welfare enriching for the donor and welfare immiserizing for the recipient country the paper also demonstrates that the transfer can raise reduce world welfare in which case a welfare increase decrease in both the donor and the recipient country is possible

welfare effects of aid under quantitative trade restrictions the paper examines the effects of tied aid on the welfare of both the donor and the recipient countries we depart from the previous literature by assuming preexistence of quantitative trade distortions to mitigate these distortions the donor country provides aid that is tied to the rationed good conditions for the presence of the transfer paradox and of the enrichment of both countries are derived and interpreted under the stability of the system furthermore we show that whereas untied aid cannot increase global welfare tied aid unambiguously does so

impure public goods and transfers in a three agent model abstract this paper extends previous models of non cooperative private funding of pure public goods by allowing for impure public goods the analysis is developed in the context of international public goods under certain conditions the consequences of transfers on utility are paradoxical if the preferences are divergent a country may gain by giving a transfer the receiver may lose and these two phenomena may appear at the same time

immiserizing transfer under variable returns to scale this paper examines the welfare consequences of a unilateral transfer for both the transfer paying and the transfer receiving country in which the production functions are subject to variable returns to scale we obtain the conditions for the strong paradox that is the welfare of the transfer paying country improves and that of the transfer receiving country declines in the standard two country framework the conditions for the weak paradox that is both the transferor and transferee gain or lose simultaneously and the normal results that is the transferor loses and the transferee gains are also derived transferts appauvrissants quand les rendements a l echelle sont variables ce memoire examine les effets de bien etre d un transfert unilateral a la fois pour le pays donateur et le pays recipiendaire quand les fonctions de production ont des rendements variables a l echelle les auteurs d6veloppent les conditions qui sous tendent le paradoxe fort i e le cas oii le bien r ils d6rivent aussi les conditions qui sous tendent le paradoxe faible i e le cas oui les deux pays gagnent ou

bilateral war in a multilateral world carrots and sticks for conflict resolution this paper constructs a three country many good and many factor trade theoretic model in which two of the countries are in conflict and where war eort is determined endogenously

a comparison of inflation forecasts interest rate models provide slightly better monthly forecasts and substantially better eight and fourteen month forecasts of inflation than a univariate time series model the livingston surveys underestimate eight and fourteen month inflation rates especially during the high inflation period of 1978 81 in contrast eight and fourteen month inflation forecasts extrapolated from one month interest rates show little bias and track ex post eight and fourteen month inflation rates better than the survey forecasts

inflation and real interest rates on assets with different risk characteristics given the importance of ex ante real interest rates to economic decision making it is no surprise that much empirical research focuses on them 1 several recent studies find that the ex ante real returns for short term u s treasury securities are not constant and are negatively correlated both with inflation and with nominal interest rates this paper examines the extent to which these findings hold for assets of longer maturity are robust with respect to the choice of price index and are stable over time we expand the set of assets studied to include those of longer maturity both publicly and privately issued for two reasons first their ex ante real returns may differ substantially from that of a short term nominally riskless security second because longer maturity assets have risk characteristics closer to capital their ex ante real returns are potentially more relevant for investment and savings decisions we explore the use of various price indices because the index used in most studies the consumer price index severely overstates inflation during the 1970s as a result of its inappropriate treatment of residential housing costs 2 this overstatement casts doubt on an important finding of previous studies that there are long stretches of time during the 1970s when ex ante real rates are significantly negative given the existence of holding costs for the goods relevant to most price indices and the absence of a riskless real return no arbitrage conditions are violated by a negative ex ante real rate however its persistence is problematical because asset holders are typically assumed to have a positive rate of time preference which ensures a positive ex ante real rate in the long run we find that before 1979 a negative relationship of ex ante real rates both with inflation and with nominal interest rates appears for the longer maturity assets as well as the short term nominally riskless asset indeed the relationship grows

do multinationals deteriorate developing countries export prices the impact of fdi on net barter terms of trade this paper explores the economic relationship between foreign direct investment fdi to developing countries and the export prices of the latter measured by terms of trade it is rst shown that economic theory suggests such a relationship for various reasons but is inconclusive about the direction of the eect to address this open issue empirically i analyze data on more than 50 developing countries throughout the period 1980 2008 using robust dynamic panel data methods the results show that fdi had an economically relevant and statistically signicant positive impact on developing countries net barter terms of trade a higher level of education in the developing country fosters this eect

international redistribution of income summary how do international policies on aid trade and factor movements affect the international distribution of income we calculate the impact by world decile of the actual level of aid flows and the effect on income of merchandise trade restrictions by high income countries we find that aid s distributional impact is equality enhancing extremely small in terms of changes in inequality measures but of some importance for the lowest decile of the distribution we also find that some of this impact is counteracted by lost potential income in the lower deciles from merchandise trade barriers imposed by high income countries

who supports global economic engagement the sources of preferences in american foreign economic policy in this article we bring together opposing international relations theories to better understand u s foreign policy in particular foreign trade and aid using votes in the u s house of representatives from 1979 2004 we explore different theoretical predictions about preferences for foreign economic policy we assess the impact of domestic factors namely political economy and ideological preferences versus foreign policy pressures our three main results highlight the differential effect of these factors in the two issue areas first aid preferences are as affected by domestic political economy factors as are trade preferences second trade preferences but not economic aid ones are shaped by the president s foreign policy concerns for economic aid domestic political economy factors matter more than foreign policy ones third aid preferences are shaped more by ideological factors than are trade ones but ideology plays a different substantive role in each different constituencies support aid and trade this finding has implications for foreign policy substitutability the internationalist coalition in u s foreign policy statist theories of foreign policy and the connection between public opinion and legislative voting

the ipcc energy assessment the author discusses three major policy insights timing of emission reductions international cooperation in controlling emissions hedging against low probability high consequence climate events and three underlying technical issues top down versus bottom up modeling revenue recycling and the control of r and d as a climate change policy option

transfers the terms of trade and capital accumulation in the context of a two sector overlapping generations model it is demonstrated that a steady state transfer paradox may arise under commodity trade with stability and without distortions or bystanders the existence of the paradox is due to the effect of the transfer on world capital accumulation which is shown to always i e for any ranking of factor intensities and savings rates improve the donor s terms of trade transfers may also improve steady state welfare for both donor and recipient and produce paradoxical welfare results along the transition path la litterature en statique du commerce international a conclu que en l absence de distorsions ou de tierces parties les mouvements des termes d echange induits par les transferts ne peuvent pas etre suffisamment importants quand il y a stabilite walrasienne pour engendrer le paradoxe du transfert on a tire la conclusion de modeles dynamiques a un secteur que le paradoxe du transfert est possible mais en comptant sur la mobilite internationale du capital et sur les mouvements dans le niveau mondial du taux d interet plutot que sur les prix et les marches des biens dans un modele dynamique a deux secteurs ou les generations se chevauchent ce qui permet des effets a la fois statiques et intertemporels dans les termes d echange le commerce des biens peut engendrer un paradoxe du transfert en regime permanent quand il y a stabilite walrasienne sans distorsions et tierces parties l existence du paradoxe est attribuable a l effet du transfert sur l accumulation du capital qui toujours pour tout ordre des intensites de facteur et des taux d epargne ameliore les termes d echange du donneur les transferts peuvent aussi ameliorer le bien etre du donneur et du recipiendaire en regime permanent et produire des resultats paradoxaux de bien etre dans le sentier de transition

the energy efficiency gap what does it mean abstract as renewed attention has been given by policy makers to energy conservation issues it has frequently been asserted that an energy efficiency gap exists between actual and optimal energy use the critical questions is how to define the optimal level of energy efficiency this paper seeks to disentangle some confusing strands of argument that are frequently brought to bear on this question by identifying the major conceptual issues that determine the set of feasible answers we identify five separate and distinct notions of optimality the economists economic potential the technologists economic potential hypothetical potential the narrow social optimum and the true social optimum each of these has associated with it a corresponding definition of the energy efficiency gap our analysis demonstrates that necessary preconditions for identifying the right measure of the energy efficiency gap include understanding and disentangling market failure and non market failure explanations for the gradual diffusion of energy efficient technologies

global imbalances revisited the transfer problem and transport costs in monopolistic competition we study the welfare eects of trade imbalances in a two sector model of monop olistic competition as in perfect competition a trade surplus involves an income transfer to the de cit country and possibly a terms of trade deterioration unlike the conventional wisdom however trade imbalances do not impose any double burden on surplus countries this is because of a production delocation eect which leads to a reduction in the local price index in the presence of intermediate goods new results arise a trade surplus may lead to an appreciation of the exchange rate to a terms of trade improvement and to a welfare increase under standard parameter con gurations in addition policies that stabilize the exchange rate can make the balanced trade equilibrium unstable these results can explain why the manufac turing sector may agglomerate in countries that resist the real appreciation of their currency and suggest that a xed exchange rate and nominal rigidities may generate short run instability

immiserizing transfers from abroad abstract this paper shows that an international transfer payment may paradoxically immiserize the recipient country or increase the donor country s welfare even when world markets are stable despite the traditional view that such a paradox theoretically requires market instability to demonstrate this paradoxical possibility the paper extends the conventional trade theoretic analysis to admit exogenous distortions created by tax cum subsidies in domestic production or endogenous distortions due to additionality requirements imposed by the donor on the recipient this analysis of immiserizing transfers from abroad immediately suggests significant implications for important policy issues including the evaluation of real benefits from foreign aid

negotiating free trade we develop a dynamic bargaining model in which a leading country endogenously decides whether to sequentially negotiate free trade agreements with subsets of countries or engage in simultaneous multilateral bargaining with all countries at once we show how the structure of coalition externalities shapes the choice between sequential and multilateral bargaining and we identify circumstances in which the grand coalition is the equilibrium outcome leading to worldwide free trade a model of international trade is then used to illustrate equilibrium outcomes and how they depend on the structure of trade and protection global free trade is not achieved when the political economy motive for protection is sufficiently large furthermore the model generates both building bloc and stumbling bloc effects of preferential trade agreements in particular we describe an equilibrium in which global free trade is attained only when preferential trade agreements are permitted to form a building bloc effect and an equilibrium in which global free trade is attained only when preferential trade agreements are forbidden a stumbling bloc effect the analysis identifies conditions under which each of these outcomes emerges