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Spanish Economic Review

, Volume 3, Issue 1, pp 71–80 | Cite as

The trade balance and the terms of trade in a two-country two-sector OLG economy

  • María Dolores Guilló
Original paper

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.

JEL classification: F11, F32, F40 
Key words: Terms of trade, trade balance, two-sector OLG 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2001

Authors and Affiliations

  • María Dolores Guilló
    • 1
  1. 1.Universidad de Alicante, Campus San Vicente, Dpto. Fundamentos del Análisis Económico, 03071 Alicante, Spain (e-mail: guillo@ua.es.) ES

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