This paper develops a model to study the effects of foreign aid on the creation and distribution of wealth in the recipient country. It considers three types of foreign aid: permanent grants to all individuals, temporary grants to uneducated workers, and foreign aid in the form of low interest...

This paper develops a general equilibrium model with transaction costs and endogenous and exogenous comparative advantages. The governments are allowed to choose between tariff war, tariff negotiation, and a {\it laissez faire} regime. It shows that the level of the division of labor and trade...