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Trade agreements, bargaining and economic growth

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  • Maoz, Yishay D.
  • Peled, Dan
  • Sarid, Assaf

Abstract

Rebelo's two-sector endogenous growth model is embedded within a two-country international trade framework. The two countries bargain over a trade agreement that specifies: (i) the size of the foreign aid that the richer country gives to the poorer one; (ii) the terms of the international trade that takes place after the aid is given. Foreign aid is given not because of generosity, but because it improves the capital allocation across the world and thus raises total world production. This world production surplus enables the rich country to raise its equilibrium consumption and welfare beyond their no-aid levels. To ensure it, the rich country uses a trade agreement to condition the aid on favorable terms of trade.

Suggested Citation

  • Maoz, Yishay D. & Peled, Dan & Sarid, Assaf, 2011. "Trade agreements, bargaining and economic growth," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 92-101, March.
    • Handle: RePEc:eee:jmacro:v:33:y:2011:i:1:p:92-101
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    References listed on IDEAS

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    Cited by:

    1. Lorz, Oliver & Thede, Susanna, 2024. "Tariff overhang and aid: Theory and empirics," Journal of Development Economics, Elsevier, vol. 166(C).

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    More about this item

    Keywords

    International trade Aid Balanced growth;

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • P45 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - International Linkages
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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