Trade agreements, bargaining and economic growth

Yishay D. Maoz, Dan Peled, Assaf Sarid

Research output: Contribution to journalArticlepeer-review


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.

Original languageEnglish
Pages (from-to)92-101
Number of pages10
JournalJournal of Macroeconomics
Issue number1
StatePublished - Mar 2011


  • Aid
  • Balanced growth
  • International trade


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