The trade balance and the terms of trade in a two-country two-sector OLG economy
ISSN: 1435-5469
Datum der Publikation: 2001
Ausgabe: 3
Nummer: 1
Seiten: 71-80
Art: Artikel
Andere Publikationen in: Spanish economic review
Zusammenfassung
Abstract. We consider a two-country, two-sector OLG model. It is shown that the trade balance and the relative price of exports are always positively related when exports are labor intensive regardless of the elasticity of intertemporal substitution in consumption. A large response of savings to future prices becomes a sufficient condition for an inverse relation between these variables only if exports are capital intensive. In this case, a rise in the terms of trade can be followed by a trade balance decline if consumption goods are capital intensive and the income effect implied on savings is negative and large.