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Terms of Trade and Welfare: A General Analysis

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  • SAJAL LAHIRI
  • YOSHIYASU ONO

Abstract

We develop a necessary and a sufficient condition for an improvement in terms of trade to reduce welfare under a general setting, which can accommodate various types of market stucture and trade distortions. We also apply the conditions to two specific cases, viz export subsidies and the existence of monopoly in a non‐tradeable sector. It is found that a rise in price for an exportable commodity which is subsidized may well reduce welfare. Also, improvements in terms of trade may well harm the economy if there is a non‐tradeable monopoly sector.

Suggested Citation

  • Sajal Lahiri & Yoshiyasu Ono, 1989. "Terms of Trade and Welfare: A General Analysis," The Economic Record, The Economic Society of Australia, vol. 65(1), pages 27-31, March.
    • Handle: RePEc:bla:ecorec:v:65:y:1989:i:1:p:27-31
    DOI: 10.1111/j.1475-4932.1989.tb00675.x
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    References listed on IDEAS

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    1. James R. MARKUSEN, 2021. "Trade And The Gains From Trade With Imperfect Competition," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 14, pages 303-323, World Scientific Publishing Co. Pte. Ltd..
    2. James R. Markusen & James R. Melvin, 1981. "Trade, Factor Prices, and the Gains from Trade with Increasing Returns to Scale," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 450-469, August.
    3. Batra, Raveendra & Scully, Gerald W., 1971. "The theory of wage differentials: Welfare and immiserizing growth," Journal of International Economics, Elsevier, vol. 1(2), pages 241-247, May.
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