Transboundary Pollution and the Welfare Effects of Technology Transfer

We examine the welfare effects of a transfer of pollution abatement technology in a two-country model. In each country, one industry discharges pollution as a byproduct of output, and the sum of domestic and cross-border pollution decreases the productivity of the other industry. We show the effects of technology transfer on the terms of trade, pollution levels, and welfare. Technology transfer decreases the pollution affecting each country under certain conditions. We derive and interpret the conditions under which technology transfer enriches the donor and the recipient. The results essentially depend on the trade pattern and the fraction of cross-border pollution.     

Population growth and the transfer paradox in an overlapping generations model

This study investigates whether the transfer paradox (donor enrichment and/or recipient impoverishment) occurs when a donor and a recipient have different population growth rates by using a one‐sector, two‐country overlapping generations model. We show that if the population growth rates differ, neither donor enrichment nor recipient impoverishment occurs in the steady state under dynamic efficiency. This result is in stark contrast to the existing results that the transfer paradox might occur when a donor and a recipient country have different marginal propensities to save, assuming that both have the same population growth rate. Furthermore, we present the condition for the transfer problem to occur on the transition path and show that the transfer paradox is less likely to occur as the economy converges to the steady state. Our result shows that the prevailing finding that the transfer paradox can occur in an overlapping generations model is limited to the special case of countries having the same population growth rate.     

Donor Altruism and the Transfer Paradox in an Overlapping Generations Model

This paper examines the transfer problem between two countries when a donor exhibits altruistic utility toward a recipient in a one‐sector overlapping generations model. We demonstrate that if the donor has a larger marginal propensity to save than the recipient, the donor's altruism never contributes to donor enrichment irrespective of the degree of the donor's altruism. Donor enrichment occurs only if the donor has a smaller marginal propensity to save and a sufficiently high level of altruism. These findings imply that the altruism of a donor toward a recipient does not necessarily explain the motivation to voluntarily provide a transfer.     

Aspirations and the transfer paradox in an overlapping generations model

This study examines the transfer problem between two countries when either the donor or the recipient has aspirations, based on parents’ standards of living, in a one-sector overlapping generations model. Focusing on whether and how aspirations impact the welfare effect of a transfer, we demonstrate the following results. First, when the donor forms aspirations, as the degree of his/her aspirations to their parents increases, a transfer is more likely to cause donor enrichment. However, this does not affect the recipient’s welfare at all. In contrast, when the recipient forms aspirations, whether the increase in the degree of these aspirations causes immiserization depends on whether the transfer raises the recipient’s consumption. Second, we show that if the donor’s or recipient’s marginal utility increases with their respective aspirations, the transfer is more likely to cause recipient immiserization. However, whether donor enrichment occurs depends on the situation. These results imply that there are two types of effects that aspirations can have on the welfare of both countries: effects caused by the aspirations, and effects that occur through the capital market. Furthermore, we find that these two effects on welfare do not necessarily work in the same direction.     

Logic of Aid in an Intertemporal Setting

The paper studies the welfare implications of temporary foreign aid in the context of a simple two‐country model of trade. In addition to its usual effects, a transfer of income in one period is assumed to influence the preferences of the recipient country in the following period. The implied changes in the terms of trade over the two periods are consistent with a number of possible outcomes with respect to the intertemporal welfare of the donor, the recipient, and the world as a whole. Particular attention is devoted to the conditions for strict Pareto improvement and the circumstances under which temporary aid transactions are likely to occur.     

Foreign Aid under Quantitative Restrictions: Welfare Effects and International Factor Mobility

Using a two‐country, general‐equilibrium model of international trade, this paper incorporates pre‐existing quantitative trade restrictions and international factor mobility into the transfer problem analysis. The effects of foreign aid on the welfare of both the donor and recipient nations are identified under each form of quantitative trade restriction: quotas and voluntary export restraints (VERs). In doing so, this paper identifies conditions under which international transfers are strictly Pareto‐improving (i.e. increase global welfare). A central result of this analysis is the direct welfare effect of a transfer received by a nation with quota‐constrained (VER‐constrained) imports is enhanced (may be enhanced) by a worsening of the recipient’s terms of trade.     

Trade and technology transfer in a vertically differentiated industry

This paper provides a model of trade and technology transfer in a vertically differentiated industry. We provide three key results. First, freer trade allows an increase in the size of the import competing sector, a counterintuitive proposition. Second, under reasonable conditions a foreign monopolist producing a relatively higher quality product will transfer technology to the local producer for producing a relatively lower quality product. Third, government can design subsidies to induce technology transfer and improve welfare.      

Dynamic management of water transfer between two interconnected river basins

This paper analyzes the dynamic interaction between two regions with interconnected river basins. Precipitation is higher in one river-basin while water productivity is higher in the other. Water transfer increases productivity in the recipient basin, but may cause environmental damage in the donor basin. The recipient faces a trade-off between paying the price of the water transfer, or investing in alternative water supplies to achieve a higher usable water capacity. We analyze the design of this transfer using a dynamic modeling approach, which relies on non-cooperative game theory, and compare solutions with different information structures (Nash open-loop, Nash feedback, and Stackelberg) with the social optimum. We first assume that the equilibrium between supply and demand determines the optimal transfer price and amount. We show that, contrary to the static case, in a realistic dynamic setting in which the recipient uses a feedback information structure the social optimum will not emerge as the equilibrium solution. We then study different leadership situations in the water market and observe that the transfer amount decreases toward a long-run value lower than the transfer under perfect competition, which in turn lays below the social optimum. In consequence, the water in the donor's river-basin river converges to a better quality in the presence of market power. Finally, we numerically compare our results to the Tagus-Segura water transfer described in Ballestero (2004). Welfare gains are compared for the different scenarios. We show that in all dynamic settings, the long-run transfer amount is lower than in Ballestero's static model. Further, we show that the long-run price settles at a lower level than in Ballestero's model, but is still higher than the average cost-based price determined by the Spanish government.     

How do altruistic parental transfers affect the welfare gains of marriage?

This paper analyses the effects of altruistic parental transfers on the welfare gains of marriage. To that end, it develops a sequential game which, in a first stage, determines the optimum level of the transfer between the altruistic donor (the parent) and the recipient (the daughter/son). In the second stage, the levels of consumption and provision of a family good are deduced by way of a Nash bargaining solution, with the threat point being represented by divorce. We find that the degree of altruism of the recipient has a null effect on the gains in welfare derived from the marriage by the recipient’s spouse, and a positive effect on those derived by the recipient. Additionally, the degree of altruism of the donor has a positive effect on the gains in welfare derived from the marriage by the recipient’s spouse, and an ambiguous effect on those derived by the recipient.     

The Transfer Problem and Intergenerational Allocation in an Overlapping Generations Model

We investigate the transfer problem between two countries in the steady state in a one-sector overlapping generations model and explain how transfers should be shared between the young and old generations of the donor country and allocated across the generations of the recipient country. Except at the golden rule of capital accumulation, the ratios of the burden and distribution of transfers between the young and old generations affect welfare. We obtain the following results. First, the sharing of the transfer burden in the donor country depends on the relative size of two effects, namely, a negative direct effect and a positive indirect effect. If the former exceeds the latter, it is preferable for the donor country to allocate all of the transfer burden to the old generation and vice versa. Second, from the viewpoint of welfare maximization, it is preferable for the recipient country to distribute all of the transfers to the young generation. In contrast to the existing literature, these results suggest that the setting whereby the young generation of the donor country defrays all transfer costs may not be justifiable from the viewpoint of donor welfare maximization.     

Foreign Aid,Incentives and Efficiency: Can Foreign Aid Lead to the Efficient Level of Investment?

This paper develops a two‐period model in which the recipient faces borrowing constraint and the donor is a Stackelberg follower to address two important policy questions: (i) whether foreign aid can lead to the efficient level of capital investment in the recipient country and (ii) how does the form (e.g. budgetary transfers, capital transfer) and the timing of aid affect the recipient's financial savings and capital investment. It finds that the disincentive effect of the capital transfer on the capital investment by the recipient is larger than the budgetary transfers. It makes financial savings more attractive relative to the capital investment for the recipient. In the absence of capital transfer, the multi‐period budgetary transfers not only lead to the efficient level of capital investment by the recipient, but also achieve the same allocation as under commitment. The capital transfer can lead to the efficient level of capital investment, but in this case, it completely crowds out the recipient's own capital investment.     

The defence industry as a locomotive for technological renewal in Russia: are the conditions in place?

This article examines the extent to which the conditions for successful military to civilian technological spin-offs are in place in Russia. This is important because Russian authorities use the potential for such spin-offs as one of several arguments for justifying large defence expenditure. Six conditions are identified, all of which are derived from the theoretical literature on the transfer of technology from the military to civilian sector. We conclude that despite some government efforts to generate spin-offs by providing technology brokering, and despite some joint military–civilian technological development taking place within defence industry enterprises, most of the conditions required to generate substantial technology transfer from the military to civilian sector are not present in Russia.     

Technology Transfer,Welfare, and Wage Inequality

We use a linear two‐country, two‐factor, two‐product, two‐different technologies (2×2×2×2) model to study technology transfer and its effects on each country's welfare and factor prices. We demonstrate that technology transfer could benefit both the recipient and the transferring countries. For the recipient country, technology transfer increases the price of the factor that is more intensively used and decreases the price of the other factor. Our results provide an alternative explanation of a trend observed in the past half century: a rise in real wage inequality between relatively skilled workers and less‐skilled workers because of technological progress in numerous countries.     

Donor ideology and types of foreign aid

We examine how donor government ideology influences the composition of foreign aid flows. We use data for 23 OECD countries over the period 1960–2009 and distinguish between multilateral and bilateral aid, grants and loans, recipient characteristics such as income and political institutions, tied and untied aid, and aid by sector. The results show that leftist governments increased the growth of bilateral grant aid, and more specifically grant aid to least developed and lower middle-income countries. Our findings confirm partisan politics hypotheses because grants are closely analogous to domestic social welfare transfer payments, and poverty and inequality are of greatest concern for less developed recipient countries.     

Technology Transfer and the South's Participation in an International Environmental Agreement*

We develop a North–South model of international trade and transboundary pollution to analyze the relationship between environmental technology transfer and the South's incentive to join an international environmental agreement (IEA). We find necessary and sufficient conditions under which technology transfer will increase the South's incentive to join the IEA. We also find necessary and sufficient conditions under which the South's participation in the IEA will increase the market incentive for technology transfer. Results have clear policy implications for (i) the sequence of technology transfer and the South's IEA membership, and (ii) the legitimacy of the South's subsidies for technology transfer.     

Good governance and good aid allocation

We model the aid allocation process as a rent-seeking contest between two countries and investigate the effects of differing allocation rules on recipients' behavior in a simple framework. We investigate the aid allocation mechanism design that attempts to increase the governance quality of potential recipient countries: the potential recipients spend costly resources improving governance, while the donor country allocates the fund based on their governance quality. The paper compares two mechanisms: one uses a simple winner-takes-all tournament to award the entire available purse to the country with the best governance; while under the other aid is distributed among countries in proportion to their governance qualities. The paper shows the second mechanism outperforms the first only if competing countries are sufficiently asymmetric. Moreover, the recipient who is most effective in governance – and stands to benefit the most from development assistance – has interests opposite to those of the donor. In addition, the paper shows that if the donor country allocates the fund based on both governance and the levels of poverty, it may result in a poverty trap: the leaders of potential recipient countries deliberately allocate funds away from the poorest so as not to better their position in order to receive more aid.     

Transfers, the terms of trade, and capital accumulation

Abstract .  In the context of a two-sector overlapping-generations model it is demonstrated that a steady-state transfer paradox may arise under commodity trade with stability and without distortions or bystanders. The existence of the paradox is due to the effect of the transfer on world capital accumulation, which is shown to always (i.e., for any ranking of factor intensities and savings rates) improve the donor's terms of trade. Transfers may also improve steady-state welfare for both donor and recipient and produce paradoxical welfare results along the transition path.     

Rethinking the aid–growth relationship: A network approach

Over 40 years of conventional economic analysis has not reached consensus on the effect of foreign aid on recipient country growth. We provide new insight into this relationship by using a network approach to characterize the topological properties of the Organization for Economic Co‐operation and Development (OECD) foreign aid network. Viewing the OECD foreign aid community as an interdependent and complex system, we characterize not only the amount of aid but also the position of both donor and recipient within the network. We find that the degree centrality of the recipient, with an edge inclusion threshold that sets a minimum share of a donor’s aid to a particular recipient, is significantly correlated with the growth impact of that donor’s aid. Contrarily, aid is uncorrelated with growth with a recipient‐side filter on the importance of the donor to the recipient. These results suggest that the importance of a recipient within the donor’s network, rather than the volume of aid alone, is associated with the growth impact of bilateral aid. We explore mechanisms for these findings that include the complementarity of aid from multiple attentive donors. Our findings speak to the aid–growth puzzle and suggest that network metrics may illuminate non‐obvious channels of aid impact.     

Darlings and Orphans: Interactions across Donors in International Aid

We examine how the bilateral aid flows from an individual donor to a recipient depend on the aid flows from all other bilateral and multilateral donors to that recipient. Thereby, we assess to what extent issues including donor coordination, free‐riding, selectivity, specialization, and common donor interests drive bilateral aid allocations. We find that others’ bilateral flows lead to a significant increase in aid flows from a particular donor, but primarily within a given year. The effects are particularly pronounced for large donors and so‐called “darling” recipients. Overall, the results suggest that herding is a dominant feature of aid inter‐relationships.     

Foreign Aid as Prize: Incentives for a Pro-Poor Policy

The authors develop a theoretical model of foreign aid to analyze a method of disbursement of aid which induces the recipient government to follow a more pro-poor policy than it otherwise would do. In their two-period model, aid is given in the second period and the volume of it depends on the level of well-being of the target group in the first period. They find that this way of designing aid does increase the welfare of the poor. They also consider the situations where the donor and the recipient governments act simultaneously as well as sequentially, and they find that, by moving first in a sequential game, the donor country can, under certain conditions, increase the welfare of the poor and that of its own country compared to the case of simultaneous moves.