GAINS FROM TRADE WITH OVERLAPPING GENERATIONS

This paper examines the welfare effects of international trade in a co ntext of overlapping generations. It shows that, for a single trading country, uncompensated free trade may be Pareto inferior to autarky. H owever, for each government there are compensation schemes which guara ntee welfare improvements for all local individuals when free trade is allowed, or when for a small open economy the terms of trade improve or the number of tradable goods increases, or when a customs union is formed.